10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 31, 2009

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

Commission file number 001-09338

MICHAELS STORES, INC.

(Exact name of registrant as specified in its charter)

Delaware	75-1943604
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification number)

8000 Bent Branch Drive

Irving, Texas 75063

(Address of principal executive offices, including zip code)

(972) 409-1300

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  o   No  x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes  x   No  o

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  o      No  x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o	Accelerated filer o
Non-accelerated filer  x	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o      No  x

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant is zero.  The registrant’s common equity is not publicly traded.

As of March 30, 2009, 118,497,202 shares of the Registrant’s Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

PART I

ITEM 1.  Business.

The following discussion, as well as other portions of this Annual Report on Form 10-K, contains forward-looking statements that reflect our plans, estimates, and beliefs. Any statements contained herein (including, but not limited to, statements to the effect that Michaels or its management “anticipates,” “plans,” “estimates,” “expects,” “believes,” and other similar expressions) that are not statements of historical fact should be considered forward-looking statements. Our actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this Annual Report on Form 10-K, and particularly in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Unless the context otherwise indicates, references in this Annual Report on Form 10-K to “we,” “our,” “us,” the “Company” and “Michaels” means Michaels Stores, Inc., together with its subsidiaries.

General

With approximately $3.8 billion in sales in fiscal 2008, Michaels Stores, Inc., together with its subsidiaries, is the largest arts and crafts specialty retailer in North America providing materials, ideas and education for creative activities. Our mission is to help our customers express themselves creatively. Through our broad product assortments, project sheets, displays, online ideas and creative offerings, we offer a shopping experience that encourages creativity. We also offer a variety of classes, demonstrations, and family-focused events to inspire our customers with product ideas and information.

Michaels Stores, Inc. was incorporated in Delaware in 1983, and as of March 30, 2009, we operate 1,015 Michaels retail stores in 49 states, as well as in Canada, averaging 18,300 square feet of selling space per store. Our stores offer arts and crafts supplies and products for the crafter and do-it-yourself home decorator. We also operate 157 Aaron Brothers stores as of March 30, 2009, in 9 states, averaging 5,500 square feet of selling space per store, offering photo frames, a full line of ready-made frames, custom framing services, and a wide selection of art supplies.

On October 16, 2007, we announced plans to align resources around our core retail chains, Michaels and Aaron Brothers stores.  As a result, we discontinued our concept businesses, Recollections and Star Decorators Wholesale (“Star”).  As of the end of fiscal 2007, we had closed all 11 Recollections and three of the four Star locations. The Star Decorators Wholesale Los Angeles store, the sole remaining  Star location, is now being  operated as a Michaels store. The operations of Recollections and Star have been reflected as discontinued operations.

We provide links to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, free of charge on our Internet website at www.michaels.com under the heading “Corporate Information”. These links are automatically updated, so the filings are available immediately after they are made publicly available by the Securities and Exchange Commission (the “SEC”). These filings are also available through the SEC’s EDGAR system at www.sec.gov.

Industry Overview

We are the largest specialty retailer in North America providing materials, project ideas, and education for creative activities in arts and crafts, home décor, and scrapbooking. We believe we are well positioned to benefit from favorable demographics, particularly a more affluent baby boomer population, and an increasing focus on savings and home-based, family activities. According to industry consumer participation surveys from December 2007 and 2008, approximately 56% of U.S. households participate in an arts and crafts category and our typical customer is:

·Female—90% are women and 63% are married.

·Young—71% of crafters are under 55, with 46% of them between the ages of 35 and 54.

·Middle class—64% of our crafters have household incomes greater than $50,000, with a median income of about $65,000.

·Loyal—Most crafters shop for craft supplies at least twice a month, with approximately half of their visits to Michaels.

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In a February 2009 survey of 500 customer households, 84% said they would like to spend more time on arts and crafts activities and 83% think making homemade gifts and spending time with their families are two of the “bright spots” that have emerged during this rough economy.

We compete across many segments of the industry, including adult and kids crafts, scrapbooking and paper crafting, jewelry making, fine art, home accents, floral, gift wrapping supplies, candles, photo frames, and custom framing. Industry association and analyst research reports estimate that our total addressable market size is about $31 billion annually, of which $27 billion is associated with the core arts and crafts market and $4 billion is associated with the framing market.

The market in which we compete is highly fragmented, containing stores across the nation operated primarily by small, independent retailers along with a few regional chains. We believe customers tend to choose where to shop based upon store location, breadth of selection, price, quality of merchandise, availability of product, and customer service. We compete with many different types of retailers and classify our competition within the following categories:

·Mass merchandisers. This category includes companies such as Wal-Mart Stores, Inc., Target Corporation, and other mass merchandisers. These retailers typically dedicate only a small portion of their selling space to a limited selection of home accents, arts and crafts supplies, and seasonal merchandise, but they do seek to capitalize on the latest trends by stocking products that are complimentary to those trends and their current merchandise offerings. These mass merchandisers generally have limited customer service staffs with varying amounts of experience in crafting projects.

·Multi-store chains. This category includes several multi-store chains, each operating more than 30 stores, and comprises: Hobby Lobby, which operates approximately 414 stores in 33 states, primarily in the Midwestern and Southern United States; A.C. Moore Arts & Crafts, Inc., which operates approximately 132 stores primarily in the mid-Atlantic and Northeast regions; Jo-Ann Stores, Inc., which operates approximately 209 large-format stores across the country; and Garden Ridge Corporation, which operates approximately 43 stores in 18 states, primarily in the Midwestern and Southern United States. We believe all of these chains are significantly smaller than Michaels with respect to number of stores and total net sales.

·Small, local specialty retailers. This category includes local “Mom & Pop” arts and crafts retailers and custom framing shops. Typically, these are single store operations managed by the owner. These stores generally have limited resources for advertising, purchasing, and distribution. Many of these stores have established a loyal customer base within a given community and compete with us based on relationships and customer service.

Business Strategy

We continue to strive toward increasing sales and productivity by strengthening our position as the largest arts and crafts retailer in North America through the following strategies:

·Forming stronger relationships with our customers. We actively solicit our customers’ feedback regarding their decision to shop at Michaels and perceptions of our store environment, product selection, and pricing. This allows us to understand our customers’ purchasing habits and shopping carts.  We use this information to respond to our customers’ preferences for an enhanced in-store experience by providing the customer with continuous improvement in merchandise assortments, creative ideas, and inspiration.

·Improving our merchandise assortment. We attempt to provide merchandise assortments that inspire creativity and fun within the categories we carry. We are also focused on introducing newness within our categories through merchandise resets. We will continue to refine our merchandise assortment and introduce new products based on results from consumer insight and through detailed SKU analysis derived from our perpetual inventory system. We can test new merchandising assortments in selected markets before implementing regional or national rollouts. Our assortments include highly differentiated and exclusive product lines, which we believe help us further maximize our opportunities within arts and crafts trends.

·Ideas and inspiration. We believe that our customer experience can be a key advantage that differentiates us from our competitors and is a critical component of our merchandising strategy. Many of the craft supplies sold in our Michaels stores can be assembled into unique end products with an appropriate amount of guidance and direction. Accordingly, we have displays in every store to stimulate new project ideas and we supply free project sheets with detailed instructions on how to assemble the finished product. We also offer project sheets on our Internet site, www.michaels.com. During the 2008 holiday season, we launched a holiday gift and décor idea website, www.WhereCreativityHappens.com, that featured weekly webisodes demonstrating techniques to make holidays easy, provide gift ideas, and more. In addition, we offer a variety of classes, demonstrations, and family-focused events to inspire our customers with product ideas and information. We believe this strategy enhances incremental sales, drives frequency of customer visits, and is core to our brand positioning.

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·Improving marketing effectiveness.

·Improving marketing execution. We are focused on marketing strategies and vehicles that will drive customer traffic and demand for our products. In order to successfully retain existing customers and attract high value new customers, we utilize a diversified marketing mix including print, direct mail, e-mail, various in-store promotional activities, magazine, online advertising, and our website, Michaels.com. We believe that our circular advertising, primarily distributed through Sunday newspapers, is our most productive and cost efficient form of advertising. The circulars advertise numerous products in order to emphasize the wide selection and competitive price of products available at Michaels stores. We believe that our ability to distribute circulars throughout the year in each of our markets provides us with an advantage over our smaller competitors and it reinforces and strengthens our brand. We will continue to focus on optimizing circular advertising by reviewing the frequency and breadth of our print circular program while still utilizing targeted, direct mailing campaigns. We have developed a weekly email campaign that includes coupons, project ideas and identifies hot items of the week. We will continue to evaluate alternative forms of advertising and marketing vehicles including loyalty programs, targeted marketing campaigns, and partnership marketing.

·Pricing and promotional strategy. We are working to develop an integrated pricing and promotion strategy based on customer behavior, while improving our long-term organizational capabilities, processes, and tools. Our promotion activity is item-price based, with promotions spanning across categories and with limited regional differentiation. We believe we can improve margins by applying more sophisticated pricing models and regional promotion programs, with a focus on the optimization of item-specific promotional prices and improvements in clearance pricing through enhanced merchandise planning and merchandising systems upgrades.  We further believe the identification of promotional items that drive customer traffic will add consumers to the base market as we seek to feature those promotional items more often.  We are currently utilizing and refining a promotion optimization system that enables us to improve our clearance pricing decisions.

·    Enhancing the in-store environment.

·Visual merchandising. We promote an environment whereby our customers rely on us for ideas, inspiration, and information. We expect to make it easier and more exciting to shop our stores with improved store designs that include an emphasis on inspirational activities and ideas in our feature space, less clutter in the drive aisles, and more visually appealing layouts. Based on consumer responses, we further refined our standardization/remodel program to continue enhancement of the in-store experience.  In fiscal 2008, we opened five new stores and remodeled 19 stores in our new prototype format.  We continue to refine this format based upon customer feedback and operating results and expect to incorporate successful components into our store opening and remodel program.

·The in-store experience.  In support of our ongoing commitment to improve the in-store experience, we successfully implemented an automated labor scheduling module in all stores during the 2008 fiscal year. This module utilizes individual store attributes, along with the store’s unique customer shopping patterns, to create a schedule that optimizes labor hours in every store. In addition, we launched an internet based CRM (customer relationship management) platform that we are using to gain feedback from our consumers relative to their in-store experience. Store service targets have been established based upon this feedback. We believe that overall service levels will continue to improve in fiscal 2009 as a result of these two programs.

·Pursuing global sourcing.

·Product sourcing. Historically, we have sourced our product primarily through a network of domestic vendors, many of whom import the merchandise from China and other countries outside the United States.  In fiscal 2006, we undertook an effort to increase the amount of products sourced directly from overseas manufacturers, thereby providing the opportunity to expand our margins.  Initially, we have focused on products manufactured in China and have engaged agents to assist us, when appropriate, in our global sourcing efforts. In fiscal 2008, we increased the products sourced directly from international manufacturers, directly or with assistance from agents, to 10% of total purchases from 7% in fiscal 2007. In fiscal 2009, we anticipate our direct import business will continue to increase significantly. We will continue to expand our globally sourced assortment as we believe this presents a significant long-term opportunity to enhance our margin, improve our product quality, and mitigate external cost pressures and supply chain risks. The fulfillment of this objective is dependent upon several factors,

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including our product development capabilities, establishment of key processes, implementation of new technology and upgrade of existing technology, distribution center capacity, a strong vendor base, and proprietary brand development.

·Proprietary Brand Development. To maximize the benefits of global sourcing, this strategic initiative is supported by proprietary brand development. Currently, we sell numerous products under hundreds of collection, brand and sub-brand names. Strong, mission-specific proprietary brands will help drive differentiation, improve our image assortment, and provide the framework for Michaels to more effectively market our globally sourced products. We have completed the development of a consumer-insight driven global brand architecture. We believe this will strengthen our value proposition in the marketplace, differentiate Michaels from its competitors, enhance consumer loyalty, and increase market share by supporting Michaels’ position in selection, newness, and value. In fiscal 2008, we began introducing our proprietary brands, which included products in scrapbooking, framing, and general and children’s crafts. In fiscal 2009, we will continue our brand development and expect to double the number of products offered in our proprietary brands.

·Growth opportunities.

·Organic growth through new Michaels store openings. We believe the combined United States and Canadian markets can support a total of 1,200 to 1,400 Michaels stores. Given the current economic conditions, our real estate activity is being reevaluated. We will focus on limited store openings during fiscal 2009, as we expect to open approximately 20 to 25 new Michaels stores during the fiscal year, funded primarily through cash provided by operating activities and additional borrowings under our revolving credit facility. We also intend to preserve flexibility to take advantage of the current real estate marketplace.

·Process and profit improvement.

·Co-sourcing and process reengineering. On January 16, 2009, we entered into a Master Service Agreement with Tata America International Corporation, operating as TCS America, to co-source various functions, initially including portions of our Information Technology, Information Services and Accounts Payable functions. During the first half of fiscal 2009, we expect to complete the transition of these areas to TCS through its offshore location in India. We will continue to evaluate our non-core activities to identify other opportunities for co-sourcing. On-going, TCS will be providing these functions with Michaels oversight. We expect that over the term of the contract, we will realize significant cost savings and improved execution. In addition, we have identified certain areas throughout the organization where we believe that we have opportunities to improve processes and enhance operational efficiencies.  We will partner with TCS to streamline these operations, bringing additional best practices to our business.

·Non-merchandise procurement.  As part of our profit improvement initiative, we are evaluating our non-merchandise procurement activities to identify potential cost savings through the consolidation of spending and consistent contract management.

Merchandising

Our Michaels store merchandising strategy is to provide a broad selection of products in a convenient location with an appealing store environment. Each Michaels store offers approximately 37,000 basic SKUs in a number of product categories. The following table shows a breakdown of sales for Michaels stores by department as a percentage of total sales:

	Fiscal Year
	2008		2007		2006
General and children’s crafts	42	%	41	%	41	%
Home décor and seasonal	23		25		26
Framing	18		18		17
Scrapbooking	17		16		16
	100	%	100	%	100	%

During the Christmas selling season, a significant portion of floor and shelf space in a typical Michaels store is devoted to Christmas crafts, Christmas decorations, gift making, and gift giving merchandise. Because of the project-oriented nature of many of these products, the Christmas selling season begins in August and extends through December. Accordingly, a fully developed seasonal

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merchandising program, including inventory, merchandise layout, and instructional ideas, is implemented during the third quarter of each fiscal year in every Michaels store. This program requires additional inventory investment so that stores are fully stocked during the peak selling season to meet higher demand from increased customer traffic.

We routinely identify merchandise that requires some price reduction to accelerate sales of the product. The need for this reduction is generally attributable to clearance of seasonal merchandise or product that is being displaced from its assigned location in the store to make room for new merchandise. Additional SKUs that are candidates for repricing are identified using our point of sale (“POS”) and perpetual inventory data. In each case, the appropriate repricing is determined at our corporate office. Price changes are transmitted electronically to the store through the point of sale system and instructions are provided to our stores regarding product placement, signage, and display in order to ensure that product is effectively cleared.

Our Aaron Brothers stores offer on average approximately 6,900 SKUs, including photo frames, a full line of ready-made frames, art prints, framed art, and a wide selection of art supplies and custom framing services. The merchandising strategy for our Aaron Brothers stores is to provide a unique, upscale framing assortment and shopping experience. In addition, we strive to provide a fashion forward framing merchandise selection in an appealing environment with attentive customer service.

Purchasing and Inventory Management

We purchase merchandise from approximately 950 vendors. We believe that our buying power and ability to make centralized purchases enable us to acquire products on favorable terms. Central merchandising management teams negotiate with vendors in an attempt to obtain the lowest net merchandise costs and improve control over product mix and inventory levels. In fiscal 2008, our top 10 vendors accounted for approximately 32% of total purchases with no single vendor accounting for more than 10% of total purchases.

In addition to purchasing from outside vendors, our Michaels and Aaron Brothers stores purchase custom frames, framing supplies, mats, and art prints from our framing operation, Artistree, which consists of a manufacturing facility and three regional processing centers to support our retail stores.

Substantially all of the products sold in Michaels stores are manufactured in Asia, Canada, Mexico, and the United States. Goods manufactured in Asia generally require long lead times and are ordered four to six months in advance of delivery. Those products are either imported directly by us or acquired from distributors based in the United States and their purchase prices are denominated in United States dollars.

Our primary objectives for inventory management are (1) maximizing the efficiency of the flow of product to the stores, (2) maintaining high store in-stock levels, (3) enhancing store labor efficiency, (4) reducing clearance inventory levels, and (5) optimizing our overall investment in inventory. We manage our inventory in several ways, including: in-store management using a handheld radio frequency device (RF gun); daily tracking of inventory positions utilizing our perpetual inventory and automated replenishment systems; the use of merchandise planograms to control the merchandise assortment and presentation; and the review of item-level sales information in order to track the performance and sell-through of seasonal and promotional items. The data that we obtain from our POS system is an integral component in the inventory management process. In addition, store and distribution center inventories are verified through periodic physical and cycle counts conducted throughout the year on a rotating systematic schedule.

Our perpetual inventory and automated merchandise replenishment systems provide the capability to achieve our inventory management objectives. Our automated replenishment system uses perpetual inventory records to analyze individual store/SKU on-hand quantities, as well as other pertinent information such as sales forecast, seasonal selling patterns, promotional events, and vendor lead times, to generate recommended merchandise reorder information. These recommended orders are reviewed daily and purchase orders are delivered electronically to our vendors and our distribution centers. In addition to improving our store in-stock position, these systems enable us to better forecast merchandise ordering quantities for our vendors and give us the ability to identify, order, and replenish the stores’ merchandise using less store associate labor. These systems also allow us to react more quickly to selling trends and allow our store associates to devote more time to customer service, thereby improving inventory productivity and sales opportunities.

We manage the distribution of seasonal merchandise to our stores by allocating seasonal merchandise based on prior year sales and current store sales trends. For a discussion of the seasonal nature of our business, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality.”

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Artistree

We currently operate a vertically integrated framing operation that leverages Artistree, our wholly-owned manufacturing subsidiary, across our Michaels and Aaron Brothers store networks. Artistree supplies high quality custom and specialty framing merchandise, including art prints and precut mats.

Our moulding manufacturing plant, located in Kernersville, North Carolina, converts lumber into finished frame moulding that is supplied to our three regional processing centers for custom framing orders for our stores. We manufacture approximately 15% of the moulding we process, import another 40% from quality manufacturers in Indonesia, Malaysia, China, and Italy, and purchase the balance from distributors. We directly source metal moulding for processing in our regional centers. The custom framing orders are processed (frames cut and joined, along with cutting mats and foamboard backing) and shipped to our stores where the custom frame order is completed for customer pick-up.

Our regional processing centers are located in City of Industry, California; Coppell, Texas; and Kernersville, North Carolina.  Our art prints and pre-cut mats, along with our custom frame supplies, are packaged and distributed out of our Coppell regional processing center. Combined, these facilities occupy approximately 476,000 square feet and, in fiscal 2008, processed over 25 million linear feet of frame moulding and 5 million individually custom cut mats for our Michaels and Aaron Brothers stores.

We believe Artistree provides a competitive advantage to our Michaels and Aaron Brothers stores. Based on the benefits we have received from this vertically integrated solution, we continue to evaluate additional future vertical integration opportunities leveraging our strong framing operations.

Distribution

We currently operate a distribution network for supplying our stores with merchandise. Approximately 80% of Michaels stores’ merchandise receipts, consisting of both seasonal and basic SKUs, are shipped through the distribution network with the remainder shipped directly from vendors.  Approximately 58% of Aaron Brothers stores’ merchandise, consisting of both seasonal and basic SKUs, is shipped through the distribution network with the remainder shipped directly from vendors.   Our seven distribution centers are located in California, Florida, Illinois, Pennsylvania, Texas, and Washington.  Since fiscal 2004, we have increased the capacity of our distribution centers by approximately 53% to a total of 4.6 million square feet through the opening of three new distribution centers, expansion of one center and closure of one center. In addition, we currently utilize one third-party warehouse to store and supply our seasonal merchandise in preparation for the holiday season.

In fiscal 2005, we implemented a number of enhancements to our distribution network. We refer to the improved network as our Hybrid distribution network. In total, approximately 130 vendors (formerly direct-to-store vendors) were converted into the distribution network, and as of August 2008, all planned conversions were complete.  Under our hybrid-distribution method, all distribution centers stock our fast-selling SKUs with slower-selling SKUs only stocked in the distribution center closest to the vendor. This method reduces costs associated with drop-shipping products directly to store locations. This reduction in direct deliveries from vendors to our stores has resulted in the following benefits to our supply chain:

·Product cost reductions shared with our vendors;

·Reduced transportation costs, partially offset by additional handling costs;

·More efficient store labor involved in merchandise receipt processing; and

·Improved service levels to our stores.

Michaels stores generally receive deliveries from the distribution centers weekly through an internal transportation distribution network using a dedicated fleet of trucks and contract carriers. Aaron Brothers stores receive merchandise on a weekly or biweekly basis from a dedicated 174,000 square foot distribution center located in the Los Angeles, California area.

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Store Expansion and Relocation

The following table shows our store growth for the last five years:

	Fiscal Year (1)
	2008		2007		2006		2005		2004
Michaels stores:
Retail stores open at beginning of year	963		921		886		845		805
Retail stores opened during the year	51		45		43		46		45
Retail stores opened (relocations) during the year	11		11		7		18		30
Retail stores closed during the year	(5	)	(3	)	(8	)	(5	)	(5	)
Retail stores closed (relocations) during the year	(11	)	(11	)	(7	)	(18	)	(30	)
Retail stores open at end of year	1,009		963		921		886		845
Aaron Brothers stores:
Retail stores open at beginning of year	166		166		166		164		158
Retail stores opened during the year	—		2		1		2		7
Retail stores opened (relocations) during the year	1		—		—		—		1
Retail stores closed during the year	(5	)	(2	)	(1	)	—		(1	)
Retail stores closed (relocations) during the year	(1	)	—		—		—		(1	)
Retail stores open at end of year	161		166		166		166		164
Total store count at end of year	1,170		1,129		1,087		1,052		1,009

(1)  In fiscal years 2006 and prior, the Star Decorators Wholesale Los Angeles store is retroactively presented as a Michaels store.

We plan to open approximately 20 to 25 Michaels stores in fiscal 2009. The anticipated opening of Michaels stores and the rate at which stores are opened will depend upon a number of factors, including the current economic environment, success of existing stores, the availability and the cost of capital for expansion, the availability of suitable store sites, and the ability to hire and train qualified managers.

We have developed a standardized store opening procedure that allows for the efficient opening of new stores and their integration into our information and distribution systems. We develop the floor plan and merchandise layout and organize the advertising and promotions in connection with the opening of each new store. In addition, we maintain qualified store opening teams to provide new store personnel with in-store training.

Costs for opening stores at particular locations depend upon the type of building, the general cost levels in the area, store size, operating format, and the time of the year the store is opened. In fiscal 2008, the average net cost of opening a new Michaels store included approximately $0.7 million of leasehold improvements, furniture, fixtures and equipment, and pre-opening costs, and an estimated initial inventory investment, net of accounts payable, of approximately $0.4 million.

In addition to new store openings, we continue to pursue a store relocation program to improve the quality and performance of our existing store base as well as perform remodels of existing stores. In fiscal 2008, we relocated 11 Michaels stores and remodeled 20 Michaels stores. We plan to relocate approximately five Michaels stores and remodel one Michaels store during fiscal 2009.

During fiscal 2009, we anticipate closing 5 to 15 Michaels stores and 5 to 10 Aaron Brothers stores. Many of our store closings are stores that have reached the end of their lease term.

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Investment in Information Technology

We are committed to using information technology to increase operating efficiencies, improve merchandise selection and flow, and improve our ability to satisfy the needs of our customers. Between fiscal 1998 and fiscal 2008, we invested heavily in POS, perpetual inventory, automated replenishment, distribution, and seasonal allocation systems. These systems have significantly improved our ability to more accurately forecast, manage, and analyze our inventory levels, margins and merchandise ordering quantities and have created efficiencies within our stores, distribution centers, and corporate office. While we have seen significant benefits with these systems, we believe there are additional benefits to be realized as we further refine the usage and integration among our systems.

We completed a significant upgrade of our merchandising systems in fiscal 2008. With this upgrade we implemented a new price management system as well as a new purchase order system. In 2008, we implemented a pilot promotion optimization system that is scheduled to be deployed in the first quarter of 2009.  This system will provide us greater capability to maximize the benefit of our promotional activities.

In fiscal 2008, we completed the roll out of a new labor management system in our regional distribution centers. This system supports our efforts to improve the productivity in our distribution centers by tracking associate activities to pre-determined standards.  We also completed the upgrade of our Warehouse Management system in the regional distribution centers.

In fiscal 2006, we began the rollout of a store labor management system, with time and attendance functionality being implemented in all Michaels stores.  In fiscal 2007, we began a store rollout of a labor forecasting and scheduling system. The implementation for the entire chain was completed in fiscal 2008.   Also in fiscal 2008, we implemented a new payroll forecasting system and a new labor standards system.  Together, we expect these systems to provide us with detailed information to better manage our labor force and serve our customers, with improvements in labor efficiency and utilization over the next several years.

We also implemented a new data warehouse system in fiscal 2006 that is our central source for certain business reporting processes and is designed to be highly scalable in order to support future growth and information needs. In fiscal 2007, we expanded our data warehouse by adding transaction level sales data from our POS system, which further improves our ability to analyze and make decisions about our marketing initiatives.

In fiscal 2008, we began the implementation of a supply chain management tool to support our Global Sourcing initiative.  The web-based system will be used both by our Sourcing department and by our vendors and agents as the central repository for quotes and critical path management.  The implementation of this system is expected to be completed in fiscal 2009.

Other projects completed in fiscal 2008 include improvements to our Michaels POS system to add enhanced pricing functionality, new Internet microsites to expand Michaels.com in support of new direct marketing programs, and an upgraded POS system for our Aaron Brothers stores.

As part of the co-sourcing agreement entered into with TCS, certain IT services for application support, application development, technology infrastructure and our call center are being transitioned to TCS.  This transition is expected to be completed by June 2009.

Other projects planned for fiscal 2009 include an upgrade to our Warehouse Management System, implementation of an automated POS sales tax update system, enhancements to our POS system to enable additional promotional program functionality and improvements to our in-store custom framing ordering system.

Foreign Sales

All of our current international business is in Canada and accounted for approximately 8% of total sales in fiscal 2008 and fiscal 2007, and approximately 7% of total sales in fiscal 2006. During the last three years, 7% or less of our assets have been located outside of the United States.

Service Marks

The names “Michaels,” “Michaels.com,” “Michaels The Arts and Crafts Store,” “Aaron Brothers,” “Aaron Brothers Art & Framing,” “Artistree,” “Artistree Art Frame & Design,” “Recollections,” and the Michaels logo are each federally registered service marks.

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Employees

As of March 30, 2009, we employed approximately 39,000 associates, approximately 27,600 of whom were employed on a part-time basis. The number of part-time associates substantially increases during the Christmas selling season. Of our full-time associates, approximately 2,900 are engaged in various executive, operating, training, distribution, and administrative functions in our corporate and division offices and distribution centers, and the remainder are engaged in store operations. None of our associates are members of labor unions in association with their Michaels employment.

ITEM 1A.  Risk Factors.

Our financial performance is subject to various risks and uncertainties. The risks described below are those which we believe are the material risks we face. Any of the risk factors described below could significantly and adversely affect our business, prospects, financial condition, and results of operations.

We Face Risks Related to the Effect of General Economic Conditions and the Current Financial Crisis

If the worldwide economic downturn continues or deteriorates further, it could continue to adversely impact our results of operations, cash flows and financial condition.  Our stores offer arts and crafts supplies and products and custom framing for the crafter and do-it-yourself home decorator, which some customers may perceive as discretionary. Pressure on discretionary income brought on by current economic conditions, including housing market declines and rising energy prices, may cause consumers to reduce the amount they spend on discretionary items. The downturn in the economy may continue to adversely affect consumer confidence and retail spending, decreasing demand for our merchandise.  Current economic conditions also make it difficult for us to accurately forecast future demand trends, which could cause us to purchase excess inventories, resulting in increases in our inventory carrying cost, or insufficient inventories, resulting in our inability to satisfy our customer demand and potentially lose market share.  In addition, as discussed under “Liquidity and Capital Resources,” we believe that our current liquidity resources are adequate for the foreseeable future.  Although the Company does not anticipate needing additional sources of capital in the near term, continued disruption in the capital markets could make it difficult for us to raise additional capital, when needed, or to eventually refinance our existing indebtedness, on acceptable terms or at all.  Similarly, if our suppliers face challenges in obtaining credit when needed or otherwise face difficult business conditions, they may become unable to offer us the merchandise we use in our business thereby causing reductions in our revenues, or they may demand more favorable payment terms, all of which could adversely affect our results of operations, cash flows and financial condition.

We Face Risks Related to Our Substantial Indebtedness

Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under our notes and credit facilities. Our high degree of leverage could have important consequences to us, including:

·making it more difficult for us to make payments on our debt;

·increasing our vulnerability to general economic and industry conditions;

·requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our debt, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures, and future business opportunities;

·exposing us to the risk of increased interest rates as certain of our borrowings under our senior secured credit facilities are at variable rates;

·restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

·limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, and general corporate or other purposes; and

·limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future, subject to the restrictions

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contained in our senior secured credit facilities and the indentures governing our notes. In addition, our senior secured credit facilities and indentures governing our notes do not restrict our owners from creating new holding companies that may be able to incur indebtedness without regard to the restrictions set forth in our credit facilities and indentures. If new indebtedness is added to our current debt levels, the related risks that we now face could intensify.

Our Debt Agreements Contain Restrictions That Limit Our Flexibility in Operating Our Business

Our senior secured credit facilities and the indentures governing our notes contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability and the ability of our restricted subsidiaries’ to, among other things:

·incur additional debt;

·pay dividends or distributions on our capital stock or repurchase our capital stock;

·issue stock of subsidiaries;

·make certain investments;

·create liens on our assets to secure debt;

·enter into transactions with affiliates;

·merge or consolidate with another company; and

·sell or otherwise transfer assets.

In addition, under our senior secured credit facilities, we are required to maintain specified financial ratios upon the occurrence of certain events. Our ability to meet those tests can be affected by events beyond our control, and we cannot assure that we will meet them. A breach of any of these covenants could result in a default under our senior secured credit facilities. Upon the occurrence of an event of default under our senior secured credit facilities, the lenders could elect to declare all amounts outstanding under our senior secured credit facilities to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under our senior secured credit facilities could proceed against the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral under our senior secured credit facilities. If the lenders under our senior secured credit facilities accelerate the repayment of borrowings, we cannot assure that we will have sufficient assets to repay our senior secured credit facilities, as well as our unsecured indebtedness, including the notes.

Our senior secured asset-based revolving credit facility permits us to borrow up to $1.0 billion; however, our ability to borrow thereunder is limited by a borrowing base, which at any time will equal the sum of 90% of eligible credit card receivables and debit card receivables plus between 85% and 87.5% of the appraised net orderly liquidation value of eligible inventory and of eligible letters of credit plus a percentage of eligible in-transit inventory to be agreed upon, less certain reserves, and the sum of an additional 10% appraised net orderly liquidation value of eligible inventory and of eligible letters of credit plus an additional 5% of eligible credit card receivables and debit card receivables under a “last out” tranche. In addition, our ability to borrow under this facility is limited by a minimum liquidity condition, providing that, if excess availability is less than $75.0 million at any time, we are not permitted to borrow any additional amounts under the senior secured asset-based revolving credit facility unless our pro forma Consolidated Fixed Charge Coverage Ratio (as defined in the credit agreement for our senior secured asset-based revolving credit facility) is at least 1.1 to 1.0. Moreover, our senior secured asset-based revolving credit facility provides discretion to the agent bank acting on behalf of the lenders to impose additional availability reserves, which could materially impair the amount of borrowings that would otherwise be available to us. There can be no assurance that the agent bank will not impose such reserves or, were it to do so, that the resulting impact of this action would not materially and adversely impair our liquidity.

Our Growth Depends on Our Ability to Open New Stores

One of our key business strategies is to expand our base of retail stores. If we are unable to continue this strategy, our ability to increase our sales, profitability, and cash flow could be impaired. To the extent that we are unable to open new stores as we anticipate, our sales growth would come only from increases in comparable store sales. Growth in profitability in that case would depend significantly on our ability to reduce our costs as a percentage of our sales. We may be unable to continue our store growth strategy if we cannot identify suitable sites for additional stores, negotiate acceptable leases, access sufficient capital to support store growth, or hire and train a sufficient number of qualified associates.

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Our Success Will Depend on How Well We Manage Our Business

Even if we are able to substantially continue our strategy of expanding our store base, or additionally, to expand our business through acquisitions or vertical integration opportunities, we may experience problems, which may prevent any significant increase in profitability or negatively impact our cash flow. For example:

·the costs of opening and operating new stores may offset the increased sales generated by the additional stores;

·the closure of unsuccessful stores may result in the retention of liability for expensive leases;

·a significant portion of our management’s time and energy may be consumed with issues unrelated to advancing our core business strategy, which could possibly result in a deterioration of our operating results;

·our expansion may outpace our planned technological advances and current systems with the possible consequences of breakdowns in our supply chain management and reduced effectiveness of our operational systems and controls;

·the implementation of future operational efficiency initiatives, which may include the consolidation of certain operations and/or the possible co-sourcing of selected functions, may not produce the desired reduction in costs and may result in disruptions arising from such actions;

·we may be unable to hire, train, and retain qualified employees, including management and senior executives, and significant turnover could be disruptive to our core business strategy and operations, which may negatively impact our operating results;

·failure to maintain stable relations with our labor force could possibly result in a deterioration of our operating results;

·our suppliers may be unable to meet the increased demand of additional stores in a timely manner; and

·we may be unable to expand our existing distribution centers or use third-party distribution centers on a cost-effective basis to provide merchandise for sale by our new stores.

Changes in Customer Demands Could Materially Adversely Affect Our Sales, Operating Results, and Cash Flow

Our success depends on our ability to anticipate and respond in a timely manner to changing customer demands and preferences for products and supplies used in creative activities. If we misjudge the market, we may significantly overstock unpopular products and be forced to take significant inventory markdowns, which would have a negative impact on our operating results and cash flow. Also, shortages of key items could have a material adverse impact on our operating results. In addition, adverse weather conditions, unfavorable economic trends, and consumer confidence volatility could have a material adverse impact on our sales and operating results.

Unexpected or Unfavorable Consumer Responses to Our Promotional or Merchandising Programs Could Materially Adversely Affect Our Sales, Operating Results, and Cash Flow

Brand recognition, quality, and price have a significant influence on consumers’ choices among competing products and brands. Advertising, promotion, merchandising, and the pace and timing of new product introductions also have a significant impact on consumers’ buying decisions. If we misjudge consumer responses to our existing or future promotional activities, this could have a material adverse impact on our financial condition and operating results.

We believe improvements in our merchandise offering help drive sales at our stores. We could be materially adversely affected by poor operational execution of changes to our merchandise offering or by unexpected consumer responses to changes in our merchandise offering.

Changes in Newspaper Subscription Rates May Result in Reduced Exposure to Our Circular Advertisements

The majority of our promotional activities utilize circular advertisements in local newspapers. A continued decline in consumer subscriptions of these newspapers could reduce the frequency with which consumers receive our circular advertisements, thereby negatively affecting sales, operating results, and cash flow.

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Improvements to Our Supply Chain May Not Be Fully Successful

An important part of our efforts to achieve efficiencies, cost reductions, and sales and cash flow growth is the identification and implementation of improvements to our supply chain, including merchandise ordering, transportation, and receipt processing. During fiscal 2009, we will continue to implement enhancements to our distribution systems and processes, which are designed to improve efficiency through the supply chain and at our stores.  Significant changes to our supply chain could have a material adverse impact on our operating results.

Our Suppliers May Fail Us

Many of our suppliers are small firms that produce a limited number of items. Given their limited resources, these firms are susceptible to cash flow issues, production difficulties, quality control issues, and problems in delivering agreed-upon quantities on schedule. We may not be able, if necessary, to return products to these suppliers and obtain refunds of our purchase price or obtain reimbursement or indemnification from them if their products prove defective. In addition, these suppliers may be unable to withstand a downturn in economic conditions. Significant failures on the part of our key suppliers could have a material adverse effect on our operating results.

In addition, many of these suppliers require extensive advance notice of our requirements in order to supply products in the quantities we desire. This long lead time requires us to place orders far in advance of the time when certain products will be offered for sale, exposing us to risk of shifts in demand.

Our Reliance on Foreign Suppliers Increases Our Risk of Obtaining Adequate, Timely, and Cost-Effective Product Supplies

We rely to a significant extent on foreign manufacturers of various products that we sell. In addition, many of our domestic suppliers purchase a portion of their products from foreign sources. This reliance increases the risk that we will not have adequate and timely supplies of various products due to local political, economic, social, or environmental conditions (including acts of terrorism, the outbreak of war, or the occurrence of natural disaster), transportation delays (including dock strikes and other work stoppages), restrictive actions by foreign governments, or changes in United States laws and regulations affecting imports or domestic distribution. Reliance on foreign manufacturers also increases our exposure to fluctuations in exchange rates and trade infringement claims and reduces our ability to return product for various reasons.

All of our products manufactured overseas and imported into the United States are subject to duties collected by the United States Customs Service. We may be subjected to additional duties, significant monetary penalties, the seizure and the forfeiture of the products we are attempting to import, or the loss of import privileges if we or our suppliers are found to be in violation of U.S. laws and regulations applicable to the importation of our products.

Risks Associated With the Vendors from Whom our Products are Sourced Could Materially Adversely Affect our Revenue and Gross Profit

The products we sell are sourced from a wide variety of domestic and international vendors. Global sourcing has become an increasingly important part of our business, as we have undertaken efforts to increase the amount of product we source directly from overseas manufacturers.  Our ability to find qualified vendors who meet our standards and supply products in a timely and efficient manner is a significant challenge, especially with respect to goods sourced from outside the U.S.  Any issues related to the transition from domestic to international vendors could adversely affect our revenue and gross profit.

Product Recalls and/or Product Liability, as well as Changes in Product Safety and Other Consumer Protection Laws, May Adversely Impact Our Operations, Merchandise Offerings, Reputation and Financial Position

We are subject to regulations by a variety of state and international regulatory authorities, including the Consumer Product Safety Commission. In fiscal 2008, we purchased merchandise from approximately 950 vendors.  Since a majority of our merchandise is manufactured in foreign countries, one or more of our vendors might not adhere to product safety requirements or our quality control standards, and we might not identify the deficiency before merchandise ships to our stores. Any issues of product safety, including but not limited to those manufactured in foreign countries, could cause us to recall some of those products. If our vendors fail to manufacture or import merchandise that adheres to our quality control standards, our reputation and brands could be damaged, potentially leading to increases in customer litigation against us.  Furthermore, to the extent we are unable to replace any recalled products, we may have to reduce our merchandise offerings, resulting in a decrease in sales, especially if a recall occurs near or during a seasonal period.  If our vendors are unable or unwilling to recall products failing to meet our quality standards, we may be required to recall those products at a substantial cost to us. Moreover, changes in product safety or other consumer protection laws could lead to increased costs to us for certain merchandise, or additional labor costs associated with readying merchandise for sale. Long lead times on merchandise ordering cycles increase the difficulty for us to plan and prepare for potential changes to applicable laws.  The recently enacted Consumer Product Safety Improvement Act of 2008 imposes significant new requirements on manufacturing, importing, testing and labeling requirements for our products. In the event that we are unable to timely comply with regulatory changes, significant fines or penalties could result, and could adversely affect our reputation, financial position, earnings or cash flow.

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Significant Increases in Inflation or Commodity Prices such as Petroleum, Natural Gas, Electricity, Steel and Paper May Adversely Affect Our Costs, Including Cost of Merchandise

Any future increases in commodity prices or inflation may adversely affect our costs, including cost of merchandise and distribution costs.  Furthermore, the trucking industry may experience a shortage of drivers, which could be exacerbated by higher fuel prices. Our operating results may be adversely affected if we are unable to secure adequate trucking resources to fulfill our delivery schedules to the stores, particularly as we deliver our fall and Christmas seasonal merchandise.

We Are Co-sourcing Certain of Our Information Technology and Accounts Payable Functions and May Co-source Other Administrative Functions, Which Will Make Us More Dependent Upon Third Parties

We signed a contract during the fourth quarter of fiscal 2008 with a third-party service provider to co-source a significant portion of our information technology (IT) and accounts payable (AP) functions. This co-sourcing initiative is a component of our ongoing strategy to increase our IT capabilities, monitor our costs, seek additional cost savings and increase efficiencies. These functions will generally be performed in an offshore location, with Michaels oversight. As a result, we will be relying on third parties to ensure that our IT and AP needs are sufficiently met. This reliance subjects us to risks arising from the loss of control over IT and AP processes, changes in pricing that may affect our operating results, and potentially, termination of provision of these services by our supplier. If our service providers fail to perform, we may have difficulty arranging for an alternative supplier or rebuilding our own internal resources, and we could incur significant costs, all of which may have a significant adverse effect on our business. We may co-source other administrative functions in the future, which would further increase our reliance on third parties. Further, the use of offshore service providers may expose us to risks related to local political, economic, social or environmental conditions (including acts of terrorism, the outbreak of war, the occurrence of natural disaster), restrictive actions by foreign governments or changes in United States laws and regulations.

Our Information Systems May Prove Inadequate

We depend on our management information systems for many aspects of our business. We will be materially adversely affected if our management information systems are disrupted or we are unable to improve, upgrade, maintain, and expand our systems.

We May Fail to Optimize or Adequately Maintain Our Perpetual Inventory and Automated Replenishment Systems

We believe our perpetual inventory, automated replenishment, and weighted average cost stock ledger systems are necessary to properly forecast, manage, and analyze our inventory levels, margins, and merchandise ordering quantities. We may fail to properly optimize the effectiveness of these systems, or to adequately support and maintain the systems, which could have a material adverse impact on our financial condition and operating results.

Failure to Adequately Maintain the Security of Our Electronic and Other Confidential Information Could Materially Adversely Affect Our Financial Condition and Operating Results

We have become increasingly centralized and dependent upon automated information technology processes. In addition, a portion of our business operations is conducted over the Internet, increasing the risk of viruses that could cause system failures and disruptions of operations. Any failure to maintain the security of our customers’ confidential information, or data belonging to ourselves or our suppliers, could put us at a competitive disadvantage, result in deterioration in our customers’ confidence in us, subject us to potential litigation and liability, and fines and penalties, resulting in a possible material adverse impact on our financial condition and operating results.  Even though we are compliant with the requirements of the payment card industry, we may not be able to maintain such compliance, and even with continued compliance, unauthorized access of our electronic and other confidential information may occur.

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If the Employee Free Choice Act Is Adopted, It Would Be Easier for Our Employees to Obtain Union Representation and Our Businesses Could Be Adversely Impacted

Currently, none of our employees are represented by unions. However, our employees have the right at any time under the National Labor Relations Act to form or affiliate with a union. If some or all of our workforce were to become unionized and the terms of the collective bargaining agreement were significantly different from our current compensation arrangements, it could increase our costs and adversely impact our profitability.

The Employee Free Choice Act of 2007: H.R. 800 (“EFCA”) was passed in the U.S. House of Representatives last year and the same legislation has been introduced again in 2009 as H.R. 1409 and S. 560. This bill or a variation of it could be enacted in the future and could have an adverse impact on our businesses. The EFCA aims to amend the National Labor Relations Act, by making it easier for workers to obtain union representation and increasing the penalties employers may incur if they engage in labor practices in violation of the National Labor Relations Act. As currently drafted, the EFCA requires the National Labor Relations Board (“NLRB”) to review petitions filed by employees for the purpose of creating a labor organization and to certify a bargaining representative without directing an election if a majority of the bargaining unit employees have authorized designation of the representative. The EFCA also requires the parties to begin bargaining within 10 days of the receipt of the petition, or a later date if mutually agreed upon. In addition, if the union and employer cannot agree upon the terms of a first collective bargaining agreement within 90 days, which can be extended by mutual agreement, either party can request federal mediation, which could lead to binding arbitration if an agreement still cannot be reached after an additional 30 days. EFCA would also require the NLRB to seek a federal injunction against an employer whenever there is reasonable cause to believe that the employer has discharged or discriminated against an employee to encourage or discourage membership in the labor organization, threatened to discharge or otherwise discriminate against an employee in order to interfere with, restrain, or coerce employees in the exercise of guaranteed collective bargaining rights, or engaged in any other related unfair labor practice that significantly interferes with, restrains, or coerces employees in the exercise of such guaranteed rights. The EFCA adds additional remedies for such violations, including back pay plus liquidated damages and civil penalties to be determined by the NLRB not to exceed $20,000 per infraction.

A Weak Fourth Quarter Would Materially Adversely Affect Our Operating Results

Our business is highly seasonal. Our inventories and short-term borrowings grow in the second and third fiscal quarters as we prepare for our peak selling season in the third and fourth fiscal quarters. Our most important quarter in terms of sales, profitability, and cash flow historically has been the fourth fiscal quarter. If for any reason our fourth fiscal quarter results were substantially below expectations, our operating results for the full year would be materially adversely affected, and we could have substantial excess inventory, especially in seasonal merchandise, that is difficult to liquidate.

Competition Could Negatively Impact Our Operations

The retail arts and crafts industry is competitive, which could result in the reduction of our prices and our loss of market share. We must remain competitive in the areas of quality, price, breadth of selection, customer service, and convenience. We compete with mass merchants (e.g., Wal-Mart Stores, Inc. and Target Corporation), who dedicate a portion of their selling space to a limited selection of craft supplies and seasonal and holiday merchandise, regional chains, and local merchants. We also compete with specialty arts and crafts retailers, which include Hobby Lobby, A.C. Moore Arts & Crafts, Inc., Jo-Ann Stores, Inc., and Garden Ridge Corporation. Some of our competitors, particularly the mass merchants, are larger and have greater financial resources than we do. In addition, alternative methods of selling crafts, such as over the Internet, could result in additional competitors in the future and increased price competition since our customers could more readily comparison shop. Furthermore, we ultimately compete with alternative sources of entertainment and leisure for our customers.

The Interests of Our Controlling Stockholders May Conflict with the Interests of Our Creditors

The Sponsors (as defined in Note 4 to the consolidated financial statements) indirectly own over 93% of the Company’s Common Stock.  The interests of these funds as equity holders may conflict with those of our creditors. The controlling stockholders may have an incentive to increase the value of their investment or cause us to distribute funds at the expense of our financial condition, which could affect our ability to make payments on the outstanding notes.  In addition, these funds have the power to elect a majority of our board of directors and appoint new officers and management and, therefore, effectively control many other major decisions regarding our operations. In addition, our Sponsers have in the past and may continue to purchase our debt which could adversely affect the liquidity of the remaining debt of any series.

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ITEM 1B.  Unresolved Staff Comments.

Not applicable.

ITEM 2.  Properties.

We lease substantially all of the sites for our Michaels and Aaron Brothers stores, with the majority of our stores having initial lease terms of approximately 10 years. The leases are generally renewable, with increases in lease rental rates. Lessors have made leasehold improvements to prepare our stores for opening under a majority of our existing leases. As of January 31, 2009, in connection with stores that we plan to open or relocate in future fiscal years, we had signed 6 leases for Michaels stores.

As of March 30, 2009, we lease and occupy the following non-store facilities:

	Square
	Footage
Distribution centers:
Centralia, Washington	718,000
City of Commerce, California (Aaron Brothers)	174,000
Hazleton, Pennsylvania	1,005,000
Jacksonville, Florida	791,000
Lancaster, California	763,000
New Lenox, Illinois	693,000
Tarrant County, Texas	433,000
	4,577,000
Artistree:
City of Industry, California (regional processing center)	90,000
Coppell, Texas (regional processing and fulfillment operations center)	230,000
Kernersville, North Carolina (manufacturing plant and regional processing center)	156,000
	476,000
Office space:
Coppell, Texas (corporate satellite office)	67,000
Grand Prairie, Texas (corporate processing center)	35,000
Irving, Texas (corporate headquarters)	217,000
	319,000
Coppell, Texas (new store staging warehouse)	29,000
Dallas, Texas (warehouse)	70,000
	5,471,000

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The following table indicates the number of our retail stores and wholesale operations located in each state or province as of March 30, 2009:

	Number of Stores
		Aaron
State/Province	Michaels	Brothers	Total
Alabama	10	—	10
Alaska	3	—	3
Alberta	15	—	15
Arizona	27	9	36
Arkansas	3	—	3
British Columbia	14	—	14
California	129	95	224
Colorado	21	7	28
Connecticut	13	—	13
Delaware	4	—	4
Florida	68	—	68
Georgia	29	4	33
Idaho	6	1	7
Illinois	38	—	38
Indiana	15	—	15
Iowa	7	—	7
Kansas	8	—	8
Kentucky	7	—	7
Louisiana	11	—	11
Maine	2	—	2
Manitoba	3	—	3
Maryland	22	—	22
Massachusetts	22	—	22
Michigan	36	—	36
Minnesota	22	—	22
Mississippi	3	—	3
Missouri	19	—	19
Montana	4	—	4
Nebraska	4	—	4
Nevada	11	6	17
New Brunswick	3	—	3
Newfoundland and Labrador	1	—	1
New Hampshire	7	—	7
New Jersey	27	—	27
New Mexico	3	—	3
New York	48	—	48
North Carolina	29	—	29
North Dakota	2	—	2
Nova Scotia	3	—	3
Ohio	31	—	31
Oklahoma	7	—	7
Ontario	32	—	32
Oregon	15	3	18
Pennsylvania	42	—	42
Prince Edward Island	1	—	1
Rhode Island	3	—	3
Saskatchewan	2	—	2
South Carolina	9	—	9
South Dakota	2	—	2
Tennessee	13	—	13
Texas	69	22	91
Utah	11	—	11
Vermont	2	—	2
Virginia	32	—	32
Washington	22	10	32
West Virginia	4	—	4
Wisconsin	18	—	18
Wyoming	1	—	1
Total	1,015	157	1,172

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ITEM 3.  Legal Proceedings.

Employee Class Action Claims

Cotton Claim

On December 20, 2002, James Cotton, a former store manager of Michaels of Canada, ULC, our wholly-owned subsidiary, and Suzette Kennedy, a former assistant manager of Michaels of Canada, commenced a purported class proceeding against Michaels of Canada and Michaels Stores, Inc. on behalf of themselves and current and former employees employed in Canada. The Cotton claim was filed in the Ontario Superior Court of Justice and alleges that the defendants violated employment standards legislation in Ontario and other provinces and territories of Canada by failing to pay overtime compensation as required by that legislation. The Cotton claim also alleges that this conduct was in breach of the contracts of employment of those individuals. The Cotton claim seeks a declaration that the defendants have acted in breach of applicable legislation, payment to current and former employees for overtime, damages for breach of contract, punitive, aggravated and exemplary damages, interest, and costs. In May of 2005, the plaintiffs delivered material in support of their request that this action be certified as a class proceeding. Michaels filed and served its responding materials opposing class certification on January 31, 2006. The parties have reached a tentative agreement to settle the case which is subject to Court approval. The settlement will not have a material effect on our business.  Subsequently a motion to dismiss the case was filed and it is expected that the Court will issue an order dismissing the case during fiscal 2009.

DeJoseph Claim

On December 29, 2006, John DeJoseph, a former Michaels store manager in Valencia, California, commenced a purported class action proceeding against Michaels Stores, Inc. on behalf of himself and current and former salaried store managers employed in California from May 10, 2002 to the present. The DeJoseph suit was filed in the Superior Court of California, County of Los Angeles.  The DeJoseph suit alleges that Michaels failed to pay overtime wages, provide meal periods, accurately record hours worked, provide itemized employee wage statements, and that Michaels unlawfully made deductions from employees’ earnings.  The DeJoseph suit additionally alleges that the foregoing conduct was in breach of California’s unfair competition law.  The plaintiff seeks injunctive relief, damages for unpaid wages, penalties, restitution, interest, and attorneys’ fees and costs.  In April 2008, the Court certified the class as to monetary relief for the overtime claim, but denied certification as to the wage statement and meal break claims plus the injunctive relief portion of the overtime claim.  In March 2009, the Court reconsidered and de-certified the class with respect to the overtime claims. The case will proceed with the three individual plaintiffs. We believe we have meritorious defenses and intend to defend the lawsuit vigorously. We are unable to estimate a range of loss, if any, in this case.

Consumer Class Action Claims

Carson Claim

On August 15, 2008, Linda Carson, a consumer, filed a purported class action proceeding in Superior Court of California, County of San Diego.  Carson filed this action against Michaels Stores, Inc., on behalf of herself and all similarly-situated California consumers.  The Carson suit alleges that Michaels unlawfully requested and recorded personally identifiable information (i.e., her zip code) as part of a credit card transaction.  The plaintiff sought statutory penalties, costs, interest, and attorneys’ fees.  We contested certification of this claim as a class action and filed a motion to dismiss the claim. On March 9, 2009, the Court dismissed the case with prejudice.

Governmental Inquiries and Related Matters

Non-U.S. Trust Inquiry

In early 2005, the District Attorney’s office of the County of New York and the SEC opened inquiries concerning non-U.S. trusts that directly or indirectly held shares of Michaels Common Stock and Common Stock options. A federal grand jury requested information with respect to the same facts. We are cooperating in these inquiries and have provided information in response to the requests.

Certain of these trusts and corporate subsidiaries of the trusts acquired securities of Michaels in transactions directly or indirectly with Charles J. Wyly, Jr. and Sam Wyly, who were, respectively, Chairman and Vice Chairman of the Board of Directors prior to the consummation of the Merger, or with other Wyly family members. In addition, subsidiaries of certain of these trusts acquired securities directly from us in private placement transactions in 1996 and 1997 and upon the exercise of stock options transferred, directly or indirectly, to the trusts or their subsidiaries by Charles Wyly, Sam Wyly, or other Wyly family members.

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We understand that Charles Wyly and Sam Wyly and/or certain of their family members are beneficiaries of irrevocable non-U.S. trusts. The 1996 and 1997 private placement sales by us of Michaels securities to subsidiaries of certain of these trusts were disclosed by us in filings with the SEC. The transfer by Charles Wyly and/or Sam Wyly (or by other Wyly family members or family-related entities) of Michaels securities to certain of these trusts and subsidiaries was also disclosed in filings with the SEC by us and/or by Charles Wyly and Sam Wyly. Based on information provided to us, our SEC filings prior to 2005 did not report securities owned by the non-U.S. trusts or their corporate subsidiaries as beneficially owned by Charles Wyly and Sam Wyly.

Charles Wyly and Sam Wyly filed an amended Schedule 13D with the SEC on April 8, 2005, stating that they may be deemed the beneficial owners of Michaels securities held directly or indirectly by the non-U.S. trusts.  In our 2005 and 2006 proxy statements, we included the securities held in the non-U.S. trusts or their separate subsidiaries, as reported by the Wylys, in the beneficial ownership table of our principal stockholders and management, with appropriate footnotes.

Stock Options Inquiry

On June 15, 2006, following Michaels’ announcement that its Audit Committee had initiated an internal review, referred to below, into the Company’s historical stock options practices, Michaels received a letter from the Division of Enforcement of the SEC requesting that the Company preserve all documents concerning its granting of stock options from 1990 through the present and stating that the SEC intended to request production of such documents in the future. In a letter dated November 15, 2006, the Division requested the documents. A June 16, 2006 grand jury subpoena issued by the U.S. District Court for the Southern District of New York requesting documents relating to the granting of stock options during the period 1996 to the present was withdrawn in connection with a July 27, 2006 grand jury subpoena issued by the U.S. District Court for the Northern District of Texas on behalf of the Fraud section of the Department of Justice requesting documents relating to the granting of stock options during the same period.  We are cooperating in these inquiries and have provided information in response to the requests.

The Company’s Audit Committee conducted an internal review into the Company’s historical stock options practices, including a review of the Company’s underlying option grant documentation and procedures and related accounting.  The Audit Committee’s internal review was conducted with the assistance of independent legal counsel and outside accounting experts.  The Company voluntarily reported the commencement of this review to the SEC.

The Audit Committee review focused principally on the question of whether there may have been intentional wrongdoing in the Company’s historical stock options granting practices.  On August 25, 2006, the Audit Committee’s independent legal counsel presented to the Audit Committee its final report, which stated that the investigation did not support a conclusion that there was intentional misconduct.  Based on the independent counsel report, the Audit Committee concluded that the results of the investigation did not support a finding of intentional misconduct.

The Company also conducted a separate internal review of historical stock option practices and related accounting issues from 1990 through the Merger date.  In this review, the Company was advised, with respect to specific Delaware law issues, by independent Delaware counsel and, with respect to specific Texas law issues, by independent Texas counsel.  Management of the Company discussed its internal review and related judgments with the Company’s independent registered public accounting firm and the Board of Directors and Audit Committee.  Notwithstanding that the Audit Committee concluded that the results of the investigation did not support a finding of intentional misconduct, the Company identified accounting issues related to certain of the stock option grants prior to October 2001.  As a result, and as previously reported in our Annual Report on Form 10-K for fiscal year 2006, in fiscal 2007 we made adjustments to our beginning retained earnings balance for fiscal 2002 by recording additional non-cash compensation cost of approximately $27 million, net of income tax benefits of approximately $13 million.

General

We are a defendant from time to time in lawsuits incidental to our business. Based on currently available information, we believe that resolution of all known contingencies is uncertain. There can be no assurance that future costs of such litigation would not be material to our financial position, results of operations, or cash flows.

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ITEM 4.  Submission of Matters to a Vote of Security Holders.

By a written consent dated January 13, 2009, holders of 93.14% of the common stock of the Company voted their shares to elect Gerry Murphy to the Board. The affirmative vote of more than 50% of the stockholders was required to take such action.

PART II

ITEM 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Prior to the Merger, our Common Stock was listed on the New York Stock Exchange under the ticker symbol “MIK.” Subsequent to the Merger, our Common Stock is privately held and there is no established public trading market for our stock.

Holders

As of March 30, 2009, there were 36 holders of record of our Common Stock.

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ITEM 6.  Selected Financial Data.

The following financial information for the five most recent fiscal years has been derived from our consolidated financial statements. This information should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere herein. The selected financial data for fiscal years 2006 and prior reflect adjustments to reclassify the operations of Star Decorators Wholesale and Recollections as discontinued operations.

	Fiscal Year
	2008			2007			2006 (5)			2005			2004
Results of Operations Data (in millions):
Net sales	$	3,817		$	3,862		$	3,843		$	3,659		$	3,383
Operating income	304			354			208			387			347
(Loss) income before discontinued operations and cumulative effect of accounting change	(5		)	(22		)	44			232			207
Cumulative effect of accounting change, net of income tax (1)	—			—			—			(7		)	—
Discontinued operations loss, net of income tax	—			(10		)	(3		)	(4		)	(3		)
Net (loss) income	(5		)	(32		)	41			221			204
Per Share Data:
Basic earnings per common share before discontinued operations and cumulative effect of accounting change (2) (7)	n/a			n/a			n/a			$	0.58		$	0.52
Diluted earnings per common share before discontinued operations and cumulative effect of accounting change (2) (7)	n/a			n/a			n/a			0.57			0.51
Dividends per common share (2)	$	0.00		$	0.00		$	0.12		0.13			0.09
Balance Sheet Data (in millions):
Cash and equivalents	$	33		$	29		$	30		$	452		$	536
Merchandise inventories	900			845			840			776			785
Total current assets	1,049			980			1,000			1,315			1,482
Total assets	1,625			1,614			1,693			1,876			2,022
Total current liabilities	681			679			742			497			512
Long-term debt	3,756			3,741			3,729			—			200
Total liabilities	4,512			4,506			4,568			588			814
Stockholders’ (deficit) equity (7)	(2,887		)	(2,892		)	(2,875		)	1,288			1,208
Other Financial Data (in millions):
Cash flow from operating activities	$	59		$	268		$	157		$	364		$	431
Cash flow from investing activities	(85		)	(100		)	(143		)	(68		)	(145		)
Cash flow from financing activities	30			(169		)	(436		)	(379		)	(93		)
Other Operating Data:
Average net sales per selling square foot (3) (6)	$	206		$	217		$	224		$	221		$	216
Comparable store sales (decrease) increase (4)	(4.6		)%	(0.7		)%	0.2		%	3.6		%	4.9		%
Total selling square footage (in millions)	19			19			18			17			17
Stores Open at End of Year:
Michaels (6)	1,009			963			921			886			845
Aaron Brothers	161			166			166			166			164
Total stores open at end of year	1,170			1,129			1,087			1,052			1,009

(1)We changed our method of accounting for merchandise inventories from a retail inventory method to the weighted average cost method in the fourth quarter of fiscal 2005. As a result, we recorded a non-cash charge of $7 million, net of income tax, in fiscal 2005 for the cumulative effect of accounting change on prior fiscal years.

(2)The per share amounts in the table were retroactively adjusted to reflect the two-for-one Common Stock split and the 2.9333-for-one Common Stock split effected in the form of stock dividends to stockholders of record as of the close of business on September 27, 2004 and January 26, 2007, respectively.

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(3)The calculation of average net sales per selling square foot includes only Michaels stores open longer than 36 months, and excludes Aaron Brothers stores.

(4)Comparable store sales increase (decrease) represents the increase (decrease) in net sales for stores open the same number of months in the indicated and comparable period of the previous year, including stores that were relocated or expanded during either period. A store is deemed to become comparable in its 14th month of operation in order to eliminate grand opening sales distortions. A store temporarily closed more than 2 weeks due to a catastrophic event is not considered comparable during the month it closed. If a store is closed longer than 2 weeks but less than 2 months, it becomes comparable in the month in which it reopens, subject to a mid-month convention. A store closed longer than 2 months becomes comparable in its 14th month of operation after its reopening. These percentages for fiscal years 2007 and prior have been adjusted to exclude Star Decorators Wholesale and Recollections.

(5)Fiscal 2006 operational data, excluding comparable store sales, includes the 53rd week, which had net sales of approximately $59 million.

(6)For fiscal years 2007 and prior, the Star Decorators Wholesale Los Angeles store has been retroactively presented as a Michaels store.

(7)In fiscal 2006, we were acquired through a merger transaction by affiliates of two private investment firms, Bain Capital Partners, LLC and The Blackstone Group, with certain shares retained by affiliates of Highfields Capital Partners.  As a result of the merger, Michaels Holdings, LLC, an entity controlled by Bain and Blackstone, owns approximately 93% of our outstanding Common Stock, which is no longer publicly traded.  We accounted for the merger as a leveraged recapitalization and financed the merger by the issuance of debt. See Note 4 to our consolidated financial statements for further information.

ITEM 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. The following discussion, as well as other portions of this Annual Report on Form 10-K, contains forward-looking statements that reflect our plans, estimates, and beliefs. Any statements contained herein (including, but not limited to, statements to the effect that Michaels or its management “anticipates,” “plans,” “estimates,” “expects,” “believes,” “intends,” and other similar expressions) that are not statements of historical fact should be considered forward-looking statements and should be read in conjunction with our consolidated financial statements and related notes contained elsewhere in this report. Specific examples of forward-looking statements include, but are not limited to, statements regarding our forecasts of financial performance, capital expenditures, working capital requirements, workers’ compensation claims exposure and forecasts of effective tax rate. Our actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this Annual Report on Form 10-K, and particularly in “Item 1A. Risk Factors.”

Overview

We are the largest arts and crafts specialty retailer in North America, with sales of approximately $3.8 billion in the United States and Canada. Our primary retail business is our operation of 1,015 Michaels stores across North America. We also operate 157 Aaron Brothers stores, a custom frame, framing, and art supply chain (all store counts are as of March 30, 2009).

Our mission is to help our customers express themselves creatively. Through our broad product assortments, educational in-store events, project sheets and displays, and on-line information, we offer a shopping experience that encourages creativity in the areas of arts, crafts, floral displays, framing, home accents, and children’s hobbies and activities.

In recent years, we have focused on improving store operations, global sourcing, and inventory management capabilities while continuing a strong store growth program.  Examples of our accomplishments include the following:

·expansion of our distribution network,

·implementation of perpetual inventory and automated replenishment systems along with a weighted average cost stock ledger,

·use of standardized store opening/relocation and merchandising processes,

·implementation of financial and human resources management systems, and

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·consistent store growth

In fiscal 2009, we will continue to focus on strategic initiatives such as:

·enhancing the in-store experience,

·testing new merchandise assortments,

·targeted marketing programs,

·continued growth of global sourcing,

·store expansion, and

·process and profit improvement.

We believe these initiatives will allow us to increase our market share and overall profitability.

The Merger

On October 31, 2006, substantially all of the Common Stock of Michaels Stores, Inc. was acquired through a merger transaction (the “Merger”) by affiliates of two private investment firms, Bain Capital Partners, LLC and The Blackstone Group (collectively, together with their applicable affiliates, the “Sponsors”), with certain shares retained by affiliates of Highfields Capital Partners (a then-existing shareholder of Michaels Stores, Inc.). As a result of the Merger, Michaels Holdings LLC, an entity controlled by the Sponsors, owns over 93% of our outstanding Common Stock, which is no longer publicly traded. We accounted for the Merger as a leveraged recapitalization whereby the historical book value of the assets and liabilities of Michaels will be maintained with no push down accounting required.

The Merger was financed by the issuance of debt as described in the “Liquidity and Capital Resources” section below, as well as:

·Equity investments from the Sponsors and the retention of certain shares held by affiliates of Highfields Capital Partners, and

·Our available cash as of the date of the Merger.

The Merger occurred simultaneously with the closing of the financing and equity transactions referred to above as well as the termination of our previous $300 million senior unsecured credit facility with Bank of America, N.A (Credit Agreement). For further description of the financing transactions, see the “Liquidity and Capital Resources” section below.

In connection with the completion of the Merger, we entered into management agreements with each of the Sponsors pursuant to which the Sponsors will provide management services to us until December 31, 2016, with evergreen extensions thereafter.  Pursuant to these agreements, the Sponsors will receive an aggregate annual management fee equal to $12 million and reimbursement for out-of-pocket expenses in connection with the provision of services pursuant to the agreements.  In addition, pursuant to these agreements, the Sponsors received, in connection with the completion of the Merger, aggregate transaction fees of approximately $60 million in connection with services provided by them related to the Merger, and we directly reimbursed the Sponsors, or paid on their behalf, fees incurred by them in connection with the Merger.  Finally, the management agreements provide that the Sponsors are entitled to receive fees in connection with certain subsequent financing, acquisition, disposition and change of control transactions of 1% of the gross transaction value of any such transaction.  The management agreements include customary exculpation and indemnification provisions in favor of the Sponsors.  The management agreements may be terminated by the Sponsors at any time and terminate automatically upon an initial public offering or a change of control unless we and the Sponsors determine otherwise.  Upon termination, each provider of management services will be entitled to a termination fee calculated based on the present value of the annual fees due during the remaining period from the date of termination to the tenth anniversary of the date of the Merger.

In connection with the completion of the Merger, we entered into a management agreement with Highfields Capital Management LP, an affiliate of the Highfields Capital Partners, that provides for an annual management fee of $1.0 million for services that Highfields Capital Management LP renders to us following the completion of the Merger.

Critical Accounting Policies and Estimates

We have prepared our financial statements in conformity with U.S. generally accepted accounting principles, and these financial statements necessarily include some amounts that are based on our informed judgments and estimates. Our senior management has discussed the development and selection of these critical accounting estimates, and the disclosure in this section of this report regarding them, with the Audit Committee of our Board of Directors. Our significant accounting policies are discussed in Note 1 of Notes to Consolidated Financial Statements. Our critical accounting policies represent those policies that are subject to judgments and uncertainties. As discussed below, our financial position and results of operations may be materially different when reported under different conditions or when using different assumptions in the application of these policies. In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. Our critical accounting policies include:

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Merchandise Inventories—Merchandise inventories at Michaels stores are valued at the lower of cost or market, with cost determined using a weighted average method. Cost is calculated based upon the purchase order cost of an item at the time it is received by us, and also includes the cost of warehousing, handling, purchasing, and importing the inventory, as well as inbound and outbound transportation, partially offset by vendor allowances. This net inventory cost is recognized through cost of sales when the inventory is sold.  Due to systems limitations, it is impracticable for us to assign specific costs and allowances to individual units of inventory. As such, to match net inventory costs against the related revenues, we must use all available information to appropriately estimate the net inventory costs to be deferred and recognized each period. Significant changes to our estimate of when inventory is sold could materially affect the amount of the deferral, and subsequent income statement recognition, of the net inventory costs.

Vendor allowances, which primarily represent volume rebates and cooperative advertising funds, are recorded as a reduction of the cost of the merchandise inventories. We generally earn vendor allowances as a consistent percentage of certain merchandise purchases with no minimum purchase requirements. Typically, our vendor allowance programs extend for a period of 12 months. We recognized vendor allowances of $149 million, or 3.9% of net sales, in fiscal year 2008, $141 million, or 3.7% of net sales, in fiscal year 2007, and $144 million, or 3.7% of net sales, in fiscal 2006. During the three fiscal years ended January 31, 2009, the number of vendors from which vendor allowances were received ranged from approximately 740 to 790. We did not have any material vendor allowance programs in fiscal 2008, 2007 and 2006 that were based on purchase volume milestones.

We utilize perpetual inventory records to value inventory in our stores. Physical inventory counts are performed in a significant number of stores during each fiscal quarter by a third party inventory counting service, with substantially all stores open longer than one year subject to at least one annual count. We adjust our perpetual records based on the results of the physical counts.

We maintain a provision for estimated shrinkage based on the actual historical results of our physical inventories. We compare our estimates to the actual results of the physical inventory counts as they are taken and adjust the shrink estimates accordingly. We also evaluate our merchandise to ensure that the expected net realizable value of the merchandise held at the end of a fiscal period exceeds cost.  In the event that the expected net realizable value is less than cost, we accordingly reduce the value of that inventory.

Goodwill—We perform impairment tests of goodwill, annually or whenever events or circumstances change to indicate that the remaining net book value may not be recovered through sale or use, by comparing the book values of our reporting units to their estimated fair values. The estimated fair values of our reporting units are computed using estimates that include a discount factor in valuing future cash flows. There are assumptions and estimates underlying the determination of fair value and any resulting impairment loss. Another estimate using different, but still reasonable, assumptions could produce different results. During fiscal 2008, there was no impairment charge taken on our goodwill. During the fourth quarter of fiscal 2007, we recognized an impairment charge of $22 million for our Aaron Brothers goodwill.  See Note 3 to our consolidated financial statements for further information.

Impairment of Long-Lived Assets—We evaluate long-lived assets, other than goodwill and assets with indefinite lives, for indicators of impairment whenever events or changes in circumstances indicate their carrying amounts may not be recoverable. Management’s judgments regarding the existence of impairment indicators are based on market conditions and our operational performance, such as operating income and cash flows. The evaluation for long-lived assets is performed at the lowest level of identifiable cash flows, which is generally at the individual store level. Our evaluation requires consideration of a number of factors including changes in demographics and uncertain future events. Accordingly our accounting estimates may change from period to period. These factors could cause management to conclude that impairment indicators exist and require that tests be performed, which could result in a determination that the value of long-lived assets is impaired, resulting in a writedown to fair value.

Reserve for Closed Facilities—We maintain a reserve for future rental obligations, carrying costs, and other closing costs related to closed facilities, primarily closed and relocated stores. In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 146, Costs Associated With Disposal Activities, we recognize exit costs for any store closures at the time the store is closed. Such costs are recorded within the Cost of sales and occupancy expense line item on our Consolidated Statements of Operations.

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The cost of closing a store or facility is calculated as the lesser of the present value of future rental obligations remaining under the lease (less estimated sublease rental income) or the lease termination fee. The determination of the reserves is dependent on our ability to make reasonable estimates of costs to be incurred post-closure and of rental income to be received from subleases. In planning our store closures, we generally try to time our exits as close to the lease termination date as possible to minimize the need for sublease income to offset any remaining lease obligation. The reserves could vary materially if market conditions were to vary significantly from our assumptions.

Self-Insurance—We have insurance coverage for losses in excess of self-insurance limits for medical liability, general liability and workers’ compensation claims. Historically, it has been infrequent for incurred claims to exceed these self-insurance limits.

Self-insurance reserves are established for health care, fleet liability, general liability and workers’ compensation claims. These reserves are determined through actuarial studies, based on actual claims experience and an estimate of claims incurred but not reported. Actuarial projections of losses for general liability and workers’ compensation claims are subject to a high degree of variability.

Revenue Recognition—Revenue from sales of our merchandise is recognized at the time of the merchandise sale, excluding revenue from the sale of custom frames, which is recognized at the time of delivery. Revenue is presented net of sales taxes collected. We allow for merchandise to be returned under most circumstances and provide for a reserve of estimated returns. When calculating our deferred framing revenue, we currently estimate the length of time between the customer placing the order at the store and customer pick-up based on the best available information from our systems. A significant change in the length of time between the custom frame order and customer pick-up or a significant change in the underlying trends of our sales returns may materially affect our future operating results.

We record a gift card liability on the date we issue the gift card to the customer. We record revenue and reduce the gift card liability as the customer redeems the gift card. We escheat the value of unredeemed gift cards where required by law. Any remaining liabilities not subject to escheatment are evaluated to determine whether the likelihood of the gift card being redeemed is remote (gift card breakage). We recognize gift card breakage as revenue, by applying our estimate of the rate of gift card breakage over the period of estimated performance (approximately 36 months as of the end of fiscal 2008). Our estimates of the gift card breakage rate are applied to the estimated amount of gift cards that are expected to go unused that are not subject to escheatment and are based on customers’ historical redemption rates and patterns, which may not be indicative of future redemption rates and patterns.

Share-Based Compensation Expenses—SFAS No. 123(R), Share-Based Payment, requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair value over the requisite service period. Compensation cost is based on the grant date fair value of the award and ratably recognized as an expense over the effective vesting period. Determining fair value of our stock options requires judgment, including estimating the fair value at the date of grant, expected terms of the options, expected volatility of our Common Stock share price, expected dividends, and forfeitures. The fair value of stock options is estimated at the date of grant using the Black-Scholes-Merton option valuation model.

Income Taxes—We record income tax expense using the liability method for taxes and are subject to income tax in many jurisdictions, including the United States, various states and localities, and Canada. A current tax liability or asset is recognized for the estimated taxes payable or refundable on the tax returns for the current year and a deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized as income or expense in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized. In evaluating our ability to realize our deferred tax asset, we considered the following sources of future taxable income:

·Future reversals of existing taxable temporary differences;

·Future taxable income, exclusive of reversing temporary differences and carryforwards;

·Taxable income in prior carryback years; and

·Tax-planning strategies.

Our evaluation regarding whether a valuation allowance is required or should be adjusted also considers, among other things, the

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nature, frequency, and severity of recent losses, forecasts of future profitability and the duration of statutory carryforward periods. Our forecasts of future profitability represents our best estimate of these future events. If different assumptions had been used, our tax expense, assets, and liabilities could have varied from recorded amounts.

After conducting this assessment, the valuation allowance recorded against our deferred tax assets was $13 million and $11 million as of January 31, 2009 and February 2, 2008, respectively.  If actual results differ from estimated results or if we adjust these assumptions in the future, we may need to adjust our deferred tax assets or liabilities, which could impact our effective tax rate. Given our capital structure, we will continue to experience volatility in our effective tax rate over the near term.

General

Our business is highly seasonal, with higher sales in the third and fourth fiscal quarters. For the last ten fiscal years, our fourth quarter, which includes the Christmas selling season, has accounted for approximately 35% of our sales and approximately 51% of our operating income.

We continue to develop a fully integrated pricing and promotion strategy and will refine our existing strategy in future periods. A significant component of our pricing and promotion strategy involves changes in the breadth and depth of our promotional programs. Given the current soft macroeconomic and retail environments, sales declines could adversely affect operating income due to a deleveraging of operating expenses. As a result, our historical trends may not be indicative of future results.

We report on the basis of a 52 or 53-week fiscal year, which ends on the Saturday closest to January 31. References to fiscal year mean the year in which that fiscal year began. Fiscal 2008 ended on January 31, 2009, fiscal 2007 ended on February 2, 2008, and fiscal 2006 ended on February 3, 2007. Fiscal years 2008 and 2007 contained 52 weeks, while fiscal year 2006 contained 53 weeks.

Accounting Items

Fiscal 2007

Discontinued Operations—On October 16, 2007, we announced plans to align resources around our core retail chains, Michaels and Aaron Brothers stores.  As a result, we discontinued our concept businesses, Recollections and Star Decorators Wholesale (“Star”).  As of the end of fiscal 2007, we had closed 11 Recollections and three of the four Star locations.  The remaining location, Star Decorators Wholesale in Los Angeles, is being operated as a Michaels store.

Goodwill Impairment—During the fourth quarter of fiscal 2007, in connection with our annual impairment test, we recorded a goodwill impairment charge of $22 million related to our Aaron Brothers reporting unit.  The impairment charge represents the net carrying value of the Aaron Brothers goodwill.  During fiscal 2007, Aaron Brothers experienced a decline in sales and profitability.  These declines, coupled with our near-term financial forecasts, the decline of the retail segment of the U.S. economy, and our ongoing reassessment of expansion opportunities resulted in an estimated fair value that was lower than the carrying value of the reporting unit.  The resulting allocation of the estimated fair value to the reporting unit’s assets and liabilities indicated that a full impairment of goodwill was required.

Our fair value assessment was based on a combination of present value cash flow analysis, observable earnings multiples of other publicly-traded specialty retail companies, and use of earnings multiples resulting from market transactions of other specialty retail companies.

Fiscal 2006

Merger Expenses—During fiscal 2006, we expensed approximately $240 million of Merger-related costs, of which $205 million was classified as transaction expenses and $34 million was classified as related party expenses in our Consolidated Statement of Operations; the remaining $1 million was classified as interest expense.  Of the $240 million recorded in fiscal 2006, $218 million was recorded in our fourth quarter of fiscal 2006.  Approximately $138 million of the $240 million consisted of compensation expense (primarily share-based compensation) and $100 million was related to investment banking, legal, accounting, and other professional fees.

We capitalized $125 million of costs related to the issuance of our various debt instruments, which are more fully described in “Liquidity and Capital Resources” below.  These costs are being amortized over the lives of the respective debt instruments and recognized as a component of interest expense in our Consolidated Statement of Operations.

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As certain of the Merger expenses were not deductible for tax purposes, we incurred permanent differences which adversely impacted our effective tax rate, resulting in an effective tax rate for fiscal 2006 of 61.7%.

Results of Operations

The following table sets forth the percentage relationship to net sales of each line item of our Consolidated Statements of Operations. This table should be read in conjunction with the following discussion and with our consolidated financial statements, including the related notes.

	Fiscal Year
	2008		2007		2006
Net sales	100.0	%	100.0	%	100.0	%
Cost of sales and occupancy expense	63.7		61.7		61.5
Gross profit	36.3		38.3		38.5
Selling, general, and administrative expense	27.8		27.2		26.6
Transaction expenses	—		0.7		5.3
Goodwill impairment	—		0.5		—
Related party expenses	0.4		0.5		1.0
Store pre-opening costs	0.1		0.2		0.2
Operating income	8.0		9.2		5.4
Interest expense	7.9		9.8		2.7
Other (income) and expense, net	0.1		(0.2	)	(0.3	)
(Loss) income before income taxes and discontinued operations	—		(0.4	)	3.0
Provision for income taxes	0.1		0.1		1.8
(Loss) income before discontinued operations	(0.1	)	(0.5	)	1.2
Discontinued operations loss, net of income tax	—		(0.3	)	(0.1	)
Net (loss) income	(0.1	)%	(0.8	)%	1.1	%

Fiscal 2008 Compared to Fiscal 2007

Net Sales—Net sales decreased for fiscal 2008 by $45 million, or 1.2%, from fiscal 2007 due primarily to a decline in comparable store sales. Our comparable store sales decreased 4.6%, or $177 million, reflecting decreases in the average ticket and customer transactions of 2.5% and 2.1%, respectively. The fluctuation in the exchange rates between the US and Canadian dollars adversely impacted the comparable store sales by 20 basis points. The decrease in comparable store sales was partly offset by non-comparable new stores. Sales at stores opened during fiscal 2008 provided incremental revenue of $132 million.

We continue to evaluate all options available to us for our Aaron Brothers concept, which range from refining the concept to possible store rationalization. Certain of these options, if enacted, may result in material charges to our Consolidated Statement of Operations in future periods.

Cost of Sales and Occupancy Expense—Cost of sales and occupancy expense increased $48 million to $2.431 billion in fiscal 2008 from $2.383 billion in fiscal 2007.  As a percentage of net sales, cost of sales and occupancy expense increased 200 basis points as we realized a decline in merchandise margins of 110 basis points due to increased levels of promotional activity in response to the softness in the economic environment, particularly in the last half of the year in order to maximize gross margin dollars and reduce our inventory exposure. Occupancy costs increased 90 basis points, as a percentage of net sales, on a 3.6% increase in the number of stores due to a deleveraging of fixed costs on a decline in comparable store sales and overall average store volume.

Selling, General, and Administrative Expense—Selling, general, and administrative expense was $1.060 billion in fiscal 2008 compared to $1.051 billion in fiscal 2007. The $9 million expense increase was primarily due to increases in store count and higher corporate and store payroll.  The increase was partially offset by reduced bonus expense. As a percentage of net sales, selling, general, and administrative expense increased 60 basis points from 27.2% of sales in fiscal 2007 to 27.8% of sales in fiscal 2008 primarily due

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to decreased leverage associated with the decline in comparable store sales and an increase in planned in-store investments, corporate payroll and severance expense, partially offset by a reduction in bonus expense.

Transaction Expenses—Transaction expenses of $29 million incurred during fiscal 2007 relate primarily to bonus arrangements associated with the change in control that were ratably recognized for a period of one year following the Merger date, as well as other compensation expenses arising from change in control agreements.

Related Party Expenses—Related party expenses were $16 million for fiscal 2008 compared to $17 million in fiscal 2007 consisting primarily of $14 million of management fees and associated expenses paid to our Sponsors and Highfields Capital Management, LP during each year of fiscal 2008 and 2007.  Related party expenses in fiscal 2008 and fiscal 2007 also include $2 million and $3 million, respectively, of amortization expense related to the Separation Agreements as more fully described in Note 15 to the consolidated financial statements.

Interest Expense—Interest expense decreased from $378 million in fiscal 2007 to $302 million in fiscal 2008, primarily due to a lower average interest rate related to our variable-rate debt.

Provision for Income Taxes—The tax rate for fiscal 2008 was unfavorably impacted by non-deductible severance payments. The tax rate in fiscal 2007 was unfavorably impacted primarily by non-deductible severance payments and the write-off of goodwill.

Fiscal 2007 Compared to Fiscal 2006

Net Sales—Net sales increased for fiscal 2007 by $19 million, or 0.5%, over fiscal 2006 due primarily to non-comparable sales. Non-comparable sales are largely comprised of sales generated by new stores, as well as other non-recurring events such as the 53rd week of 2006. Our fiscal 2007 comparable store sales decreased 0.7%, or $26 million, reflecting decreases in customer transactions and custom framing deliveries of 3.2% and 0.1%, respectively, partially offset by increases in the average ticket of 2.6%. The fluctuation in the exchange rates between the US and Canadian dollars favorably impacted comparable store sales by 50 basis points.

Cost of Sales and Occupancy Expense—Cost of sales and occupancy expense increased $19 million due to a 3.9% increase in the number of stores operated in fiscal 2007.  Store cost of sales as a percentage of net sales improved 30 basis points as we realized improved margins from a reduction in breadth and depth of promotional programs and continued benefits from ongoing sourcing initiatives, partially offset by lower sell-through of seasonal products. Conversely, occupancy costs deleveraged, due to negative comparable-store sales performance.

The following table details the change in cost of sales and occupancy expense, as a percentage of net sales, from fiscal 2006 to 2007:

	Increase/(Decrease)
Cost of sales	(0.3	)%
Occupancy costs	0.5	%
Total decrease	0.2	%

Selling, General, and Administrative Expense—Selling, general, and administrative expense was $1.051 billion in fiscal 2007 compared to $1.023 billion in fiscal 2006. The $28 million expense increase was primarily due to an increase in the number of stores we operate compared to last year and additional advertising costs and other expenses resulting from our strategic initiatives. These strategic initiatives include our pricing and promotion strategy, consumer insight research, and product sourcing.

As a percentage of net sales, selling, general, and administrative expense increased 60 basis points from 26.6% of sales in fiscal 2006 to 27.2% of sales in fiscal 2007 primarily due to consulting fees and higher advertising expense.

Transaction Expenses—Transaction expenses of $29 million incurred during fiscal 2007 relate primarily to bonus arrangements associated with the change in control that were ratably recognized for a period of one year following the Merger date, as well as other compensation expenses arising from change in control agreements. Transaction expenses incurred during fiscal 2006 of $205 million related primarily to $137 million of share-based compensation with the remainder related to investment banking, legal, accounting, and other professional fees associated with the Merger.

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Related Party Expenses—Related party expenses were $17 million for fiscal 2007 and consisted primarily of $14 million of management fees and associated expenses paid to our Sponsors and Highfields Capital Management, LP.  Related party expenses in fiscal 2007 also include $3.0 million of amortization expense related to the Separation Agreements as more fully described in Note 15 to the consolidated financial statements. Related party expenses for fiscal 2006 resulted primarily from the Merger with approximately $27 million of transaction and management fees paid to our Sponsors, and $9 million related to various professional fees paid on behalf of our Sponsors.

Interest Expense—Interest expense increased from $105 million in fiscal 2006 to $378 million in fiscal 2007.  This increase was due to the debt issued associated with the Merger.

Provision for Income Taxes—The tax rate in fiscal 2007 was unfavorably impacted primarily by non-deductible severance payments and the write-off of goodwill. The tax rate in fiscal 2006 was unfavorably impacted by certain non-deductible Merger-related expenses.

Liquidity and Capital Resources

Our cash and equivalents increased $4 million from $29 million at the end of fiscal 2007 to $33 million at the end of fiscal 2008. We require cash principally for day-to-day operations, to finance capital investments, inventory for new stores, and inventory replenishment for existing stores, to service our outstanding debt, and for seasonal working capital needs.  An affiliate of our significant shareholders has purchased a portion of our outstanding debt through privately negotiated transactions (see “Item 13. Certain Relationships and Related Transactions, and Director Independence”), and we and our subsidiaries, affiliates, and significant shareholders may from time to time in the future seek to retire or purchase additional amounts of our outstanding debt (including publicly issued debt) through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions, by tender offer or otherwise.  Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors.  As described below under “Cash Flow from Investing Activities,” we took certain actions in fiscal 2008, and plan to take certain actions in fiscal 2009, to preserve liquidity, and we expect that our available cash, cash flow generated from operating activities, and funds available under our Asset-based revolving credit facility will be sufficient to fund planned capital expenditures, working capital requirements, debt repayments, debt service requirements and future growth for the foreseeable future.

As of March 30, 2009, our borrowing base under our Asset-based revolving credit facility was $758 million and we had $594 million of excess availability under that facility.

Cash Flow from Operating Activities

Cash flow provided by operating activities in fiscal 2008 was $59 million compared to $268 million in fiscal 2007. The decrease is primarily due to the timing of interest payments in fiscal 2008 and a 6.5% increase in inventories compared to fiscal 2007. The increase in inventory is attributable to a 3.6% increase in our ending store count, and a 2.3% increase in our average Michaels store inventory (including supporting distribution centers).The increase in average per store inventory is due, in part, to new products to be introduced in the first half of fiscal 2009.

Cash Flow from Investing Activities

Cash flow used in investing activities was attributable to the following capital expenditure activities:

	Fiscal Year
	2008		2007		2006
	(In millions)
New and relocated stores and stores not yet opened (1)	$	31	$	27	$	31
Existing stores	26		26		49
Distribution system expansion (2)	3		18		25
Information systems	24		26		33
Corporate and other	1		3		5
	$	85	$	100	$	143

(1)In fiscal 2008, capital expenditures primarily related to the opening of 51 Michaels stores and the relocation of 11 Michaels stores and one Aaron Brothers store.  In fiscal 2007, capital expenditures primarily related to the opening of 45 Michaels stores, two Aaron Brothers stores, and the relocation of 11 Michaels stores.  In fiscal 2006, capital expenditures primarily related to the opening of 43 Michaels stores, one Aaron Brothers store and the relocation of seven Michaels stores.

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(2)The change in capital expenditures related to the distribution system is primarily related to 2006 and 2007 expenditures associated with our Hybrid distribution network.

Capital expenditures in 2008 were lower than 2007 primarily as a result of the completion of our Centralia, Washington distribution center in fiscal 2007 and decisions to defer non-critical projects where possible in order to preserve liquidity.  Also, in fiscal 2008, we remodeled fewer stores than in fiscal 2007.

Given the current soft macroeconomic environment, we currently estimate that our capital expenditures will be reduced to approximately $50 million to $60 million in fiscal 2009. We plan to open 20 to 25 stores and invest selectively in the infrastructure required to support our long-term goals.

Cash Flow from Financing Activities

Subsequent to the Merger, cash flows from financing activities are related primarily to borrowings and repayments under our revolving credit facility and principal payments under our term loan facility.  Prior to the Merger, cash flows from financing activities primarily related to payments of dividends, repurchases of common stock and repayments of debt. See the “Debt” section below concerning further sources and uses of cash related to financing activities.

Debt

Prior to the Merger, our primary sources of short-term liquidity were cash generated by operations and proceeds from stock option exercises.  Subsequent to the Merger, our primary sources of short-term liquidity are cash generated by operations and borrowings under the asset-based revolving credit facility.

To finance the Merger, we issued 10% Senior Notes due 2014, 113/8% Senior Subordinated Notes due 2016, and 13% Subordinated Discount Notes due 2016 (collectively, the “Notes”).  We also executed an asset-based revolving credit facility as well as a senior secured term loan facility (collectively, the “Senior Credit Facilities”). Borrowings under our asset-based revolving credit facility are influenced by a number of factors as more fully described below.

Notes

On October 31, 2006, we issued (i) $750 million in principal amount of 10% Senior Notes due November 1, 2014; (ii) $400 million in principal amount at maturity of 113/8% Senior Subordinated Notes due November 1, 2016; and (iii) $469 million in principal amount of 13% Subordinated Discount Notes due November 1, 2016. Interest on the Senior Notes and the Senior Subordinated Notes is payable semi-annually in arrears on each May 1 and November 1, commencing on May 1, 2007.  No cash interest is payable on the Subordinated Discount Notes prior to November 1, 2011. Beginning on November 1, 2011, cash interest will accrue on the Subordinated Discount Notes and is payable semi-annually in arrears on each May 1 and November 1 (the first cash interest payment is May 1, 2012).  The Senior Notes are guaranteed, jointly and severally, on an unsecured basis, the Senior Subordinated Notes are guaranteed, jointly and severally, on an unsecured senior subordinated basis, and the Subordinated Discount Notes are guaranteed, jointly and severally, on an unsecured subordinated basis, in each case, by each of our subsidiaries, other than Aaron Brothers Card Services, LLC.

The indentures governing the Notes contain covenants limiting, among other things, the Company’s ability and the ability of the Company’s restricted subsidiaries to:

·incur additional debt;

·pay dividends or distributions on the Company’s capital stock or repurchase the Company’s capital stock;

·issue stock of subsidiaries;

·make certain investments;

·create liens on the Company’s assets to secure debt;

·enter into transactions with affiliates;

·merge or consolidate with another company; and

·sell or otherwise transfer assets.

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Prior to November 1, 2009, we may redeem up to 35% of the aggregate principal amount of each of the Notes with the net cash proceeds of one or more Equity Offerings (as defined in the indentures governing the Notes) at redemption prices that include a premium and subject to certain other terms and conditions, as described in the applicable indenture.  The Notes are also redeemable in whole or in part, at our option, at any time at redemption prices that include varying premiums until a certain date.  In addition, upon a change of control, we are required to make an offer to redeem all of the Notes at a premium with accrued and unpaid interest.

Asset-based revolving credit facility

On October 31, 2006, we executed a senior secured asset-based revolving credit facility with Banc of America Securities LLC and other lenders (“Asset-based revolving credit facility”). The Asset-based revolving credit facility provides senior secured financing of up to $1.0 billion, subject to a borrowing base as described below. As of January 31, 2009, the borrowing base was $747 million, of which we borrowed $148 million.  Borrowing capacity is available for letters of credit and borrowings on same-day notice.

The borrowing base equals the sum of (i) 90% of eligible credit card receivables and debit card receivables; (ii) between 85% and 87.5% of the appraised net orderly liquidation value of eligible inventory and of eligible letters of credit; (iii) a percentage of eligible in-transit inventory, less certain reserves; and, (iv) the sum of an additional 10% of the appraised net orderly liquidation value of eligible inventory and of eligible letters of credit plus an additional 5% of eligible credit card receivables and debit card receivables (collectively, the “last out tranche”), up to a maximum amount of $100 million.

The Asset-based revolving credit facility provides us with the right to request up to $200 million of additional commitments under this facility.  The lenders under this facility are not under any obligation to provide any such additional commitments, and any increase in commitments is subject to customary conditions precedent.  If we were to request any such additional commitments, and the existing lenders or new lenders were to agree to provide such commitments, the facility size could be increased to up to $1.2 billion, but our ability to borrow under this facility would still be limited by the amount of the borrowing base.

Borrowings under the Asset-based revolving credit facility bear interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the higher of (1) the prime rate of Bank of America, N.A. and (2) the federal funds effective rate plus 1/2 of 1% or (b) a LIBOR rate subject to certain adjustments, in each case plus an applicable margin. The initial applicable margin for borrowings is 0.50% for base rate borrowings and 1.50% for LIBOR borrowings. With respect to any last out tranche borrowings, the initial applicable margin is 1.50% for base rate borrowings and 2.50% for LIBOR borrowings. The applicable margin is subject to adjustment each fiscal quarter based on the excess availability under the Asset-based revolving credit facility.  Swingline Loans bear interest at a rate per annum equal to the base rate plus the applicable margin.

We are required to pay a commitment fee of 0.25% per annum on the unutilized commitments under Asset-based revolving credit facility.  We must also pay customary letter of credit fees and agency fees.

If, at any time, the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Asset-based revolving credit facility exceeds the lesser of (i) the commitment amount or (ii) the borrowing base, we will be required to repay outstanding loans and cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount.  If the amount available under the Asset-based revolving credit facility is less than $100 million for five consecutive business days, or a payment or bankruptcy event of default has occurred, we will be required to repay outstanding loans and cash collateralize letters of credit with the cash we are required to deposit daily in a collection account maintained with the agent under the Asset-based revolving credit facility. We may voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans at any time without premium or penalty other than customary breakage costs with respect to LIBOR loans. There is no scheduled amortization under the Asset-based revolving credit facility; the principal amount of the loans outstanding is due and payable in full on October 31, 2011.

The Asset-based revolving credit facility contains a number of covenants that, among other things and subject to certain exceptions, restricts the Company’s ability and the ability of its subsidiaries to:

·incur additional indebtedness;

·pay dividends on the Company’s capital stock or redeem, repurchase or retire the Company’s capital stock or its other indebtedness;

·make investments, loans, advances and acquisitions;

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·create restrictions on the payment of dividends or other amounts to the Company from its restricted subsidiaries;

·engage in transactions with affiliates of the Company;

·sell assets, including capital stock of the Company’s subsidiaries;

·consolidate or merge; and

·create liens.

The covenants limiting dividends and other restricted payments; investments, loans, advances and acquisitions; and prepayments or redemptions of indebtedness, each permit the restricted actions in an unlimited amount, subject to the satisfaction of certain payment conditions, principally that we must have at least $125 million of pro forma excess availability under the Asset-based revolving credit facility and that we must be in pro forma compliance with the fixed charge coverage ratio described in the next paragraph.

Although the Asset-based revolving credit facility does not require us to comply with any financial ratio maintenance covenants, if we have less than $75 million of excess availability under the Asset-based revolving credit facility at any time, we are not permitted to borrow any additional amounts unless our pro forma consolidated fixed charge coverage ratio (as defined in the Asset-based revolving credit facility) is at least 1.1 to 1.0. The Asset-based revolving credit facility also contains certain customary affirmative covenants and events of default.

Senior secured term loan facility

On October 31, 2006, we executed a $2.4 billion senior secured term loan facility with Deutsche Bank Securities Inc., and other lenders. The full amount was borrowed on October 31, 2006. We are required to make scheduled quarterly payments, each equal to 0.25% of the original principal amount of the term loans, for the first six years and three quarters, with the balance payable on October 31, 2013. Borrowings under the Senior secured term loan facility bear interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the higher of (1) the prime rate of Deutsche Bank and (2) the federal funds effective rate plus 1/2 of 1% or (b) a LIBOR rate, subject to certain adjustments, in each case plus an applicable margin. At issuance, the applicable margin was 2.00% with respect to base rate borrowings and 3.00% with respect to LIBOR borrowings, subject to downward adjustment based on the leverage and ratings thresholds set forth in the Senior secured term loan facility. During the fourth quarter of fiscal 2006, we amended the Senior secured term loan facility such that the applicable margin with respect to the LIBOR borrowings was lowered from 3.00% to 2.75%. On May 10, 2007, we amended the Senior secured term loan facility to reduce the applicable margin to 1.25% with respect to base rate borrowings and 2.25% with respect to LIBOR borrowings. Finally, the amendment eliminated the requirement that we maintain a specified consolidated secured debt ratio.

The Senior secured term loan facility requires us to prepay outstanding term loans with (a) 100% of the net proceeds of any debt issued by us or our subsidiaries (with exceptions for certain debt permitted to be incurred under the Senior secured term loan facility) and (b) commencing with the fiscal year ended February 2, 2008, 50% (which percentage will be reduced to 25% if our total leverage ratio is less than a 6.00:1.00 and will be reduced to 0% if our total leverage ratio is less than 5.00:1.00) of our annual Excess Cash Flow (as defined in the Senior secured term loan facility). We must also offer to prepay outstanding term loans at 100% of the principal amount to be prepaid, plus accrued and unpaid interest, with the proceeds of certain asset sales or casualty events under certain circumstances. We may voluntarily prepay outstanding loans under the Senior secured term loan facility at any time without premium or penalty other than customary breakage costs with respect to LIBOR loans.

The Senior secured term loan facility contains a number of negative covenants that are substantially similar to, but more restrictive in certain respects than, those governing the Notes as well as certain other customary affirmative and negative covenants and events of default. As of January 31, 2009, we were in compliance with all covenants.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Contractual Obligations

All of our significant contractual obligations are recorded on our Consolidated Balance Sheets or disclosed in our Notes to Consolidated Financial Statements.

We do not typically enter into off-balance sheet arrangements, except for arrangements related to operating lease commitments, service contract commitments, and letters of credit, as disclosed in the table below. Neither do we typically issue guarantees to third parties.

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As of January 31, 2009, our contractual obligations were as follows:

	Payments Due By Fiscal Year
			Less Than						More Than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
	(In millions)
Operating lease commitments (1)	$	1,614	$	325	$	544	$	372	$	373
Other commitments (2)	33		22		6		5		—
Purchase obligations (3)	40		40		—		—		—
Total debt (4)	4,066		173		49		2,420		1,424
Interest payments (5)	1,200		184		363		389		264
	$	6,953	$	744	$	962	$	3,186	$	2,061

(1)Our operating lease commitments generally include non-cancelable leases for property and equipment used in our operations. Excluded from our operating lease commitments are amounts related to insurance, taxes, and common area maintenance associated with property and equipment. Such amounts historically represented approximately 32% of the total lease obligation over the previous three fiscal years.

(2)Other commitments primarily include service contract obligations. Values within the Other commitments line item were calculated based on the time period remaining in the contract or to the earliest possible date of termination, if permitted to be terminated by Michaels upon notice, whichever is shorter.

(3)Purchase obligations represent legally binding commitments to purchase merchandise inventories, which are made in the normal course of business to meet operational requirements.

(4)Included in Total debt are the payments required under the terms of our 13% Subordinated Discount Notes due in 2016. These payments include $137 million of additional interest accretion, which has not been recognized as of January 31, 2009. See Note 6 to the consolidated financial statements.

(5)Interest payments associated with long-term debt. Debt associated with our Senior secured term loan facility was approximately $2.3 billion, which contains a variable interest rate. The interest payments in the table for the Senior secured term loan facility were based on the indexed interest rate in effect at January 31, 2009. Approximately $1.5 billion of debt was subject to fixed interest rates.

Additional information regarding our long-term debt and commitments and contingencies is provided in Note 6 and Note 12, respectively, of Notes to Consolidated Financial Statements.

Seasonality

Our business is highly seasonal, with higher sales in the third and fourth fiscal quarters. For the last ten fiscal years, our fourth quarter, which includes the Christmas selling season, has accounted for approximately 35% of our sales and approximately 51% of our operating income.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements, which is intended to increase consistency and comparability in fair value measurements by defining fair value, establishing a framework for measuring fair value and expanding disclosures about fair value measurements.  SFAS 157 was originally effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  In November 2007, the FASB placed a one year deferral for the implementation of SFAS 157 for nonfinancial assets and liabilities; however, SFAS 157 is effective for fiscal years beginning after November 15, 2007 for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in financial statements. We adopted all requirements of SFAS 157 as they relate to financial assets and liabilities on February 3, 2008. See Note 10 to our consolidated financial statements for further information on the impact of this standard to financial assets and liabilities. The requirements related to nonfinancial assets and liabilities will be adopted on February 1, 2009, as allowed by SFAS 157. We are currently assessing the impact of adopting SFAS 157 for nonfinancial assets and liabilities on our consolidated financial statements.

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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits companies to measure certain financial instruments and other items at fair value (at specified measurement dates) that are not currently required to be measured at fair value. Any unrealized gains or losses applicable to those items measured at fair value shall be reported in earnings. The decision to apply fair value is generally made on an instrument by instrument basis, is irrevocable, and is applied only to an entire instrument. We adopted SFAS 159 on February 3, 2008, and there was no impact on our consolidated financial statements as we did not choose to measure any eligible financial assets or liabilities at fair value.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R replaces SFAS No. 141, Business Combinations. The statement retains the purchase method of accounting used in business combinations but replaces SFAS 141 by establishing principles and requirements for the recognition and measurement of assets, liabilities and goodwill, including the requirement that most transaction costs and restructuring costs be expensed. In addition, the statement requires disclosures to enable users to evaluate the nature and financial effects of the business combination. SFAS 141 is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We will adopt SFAS 141R on February 1, 2009 for acquisitions on or after this date.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative data about the fair value of, and gains and losses on, derivative contracts, and details of credit-risk-related contingent features in hedged positions. The statement also requires enhanced disclosures regarding how and why entities use derivative instruments, how derivative instruments and related hedged items are accounted for in accordance with SFAS 133 and its related interpretation, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. We will adopt the new disclosure requirements of SFAS 161 in the first quarter of fiscal 2009.

ITEM 7A.  Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to fluctuations in exchange rates between the US and Canadian dollar, which is the functional currency of our Canadian subsidiary. During the second quarter of fiscal 2008, we executed foreign currency forward contracts to mitigate the effects of currency fluctuations, which we designated as a cash flow hedge. The objective of the forward contracts is to hedge intercompany payments for forecasted purchases of inventory by our Canadian subsidiary, which are denominated in US dollars.  The term of this cash flow hedge extends through the first quarter of fiscal 2009.

To achieve our objective and to minimize the risk of ineffectiveness, the notional values represent a portion of our Canadian subsidiary’s forecasted intercompany purchases.  Hedge ineffectiveness is recorded in Other income in the Consolidated Statement of Operations, as required. For the year ended January 31, 2009, the ineffective portion of the hedge was immaterial.

For the portion of the hedge that is effective the change in fair value of that hedge will initially be recorded in Accumulated other comprehensive income in the Consolidated Statement of Stockholders’ (Deficit) Equity.  As the underlying inventory is sold to our customers, amounts will be reclassified from Accumulated other comprehensive income to Cost of sales and occupancy expense in the Consolidated Statement of Operations. We also classify the cash flows from derivative instruments in prepaid and other in the Consolidated Statement of Cash Flows. The change in fair value of the hedge for the year ended January 31, 2009 was $2 million.

The table below provides the remaining quarterly notional values and the average CAD/USD exchange rate associated with the hedge (dollars in millions).

	Outstanding Notional Amount
Settlement Period	CAD Amount		USD Amount		Contract Rate
Quarter 1, 2009	$	12.2	$	12.2	1.001

We invest cash balances in excess of operating requirements primarily in money market mutual funds and short-term interest-bearing securities, generally with maturities of 90 days or less. Due to the short-term nature of our investments, the fair value of our cash and equivalents at January 31, 2009 approximated carrying value.

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We have market risk exposure arising from changes in interest rates on our Senior Credit Facilities. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for further detail. The interest rates on our Senior Credit Facilities will reprice periodically, which will impact our earnings and cash flow. The interest rates on our Notes issued in connection with the Merger are fixed.  Based on our overall interest rate exposure to variable rate debt outstanding as of January 31, 2009, a 1% increase or decrease in interest rates would increase or decrease pre-tax earnings by $24 million. A 1% increase in interest rates would decrease the fair value of our long-term fixed rate debt by approximately $15 million. A 1% decrease in interest rates would increase the fair value of our long-term fixed rate debt by approximately $16 million.  A change in interest rates would not materially affect the fair value of our variable rate debt as the debt reprices periodically.

During the first quarter of fiscal 2009, we purchased an interest rate cap to hedge the variability of cash flows associated with our interest payments on our Senior secured term loan that result from fluctuations in the three-month LIBOR rate. The cap limits our interest exposure on a notional value of $2.0 billion to the lesser of the three-month Libor rate or 7.0%.  The term of the cap is from April 15, 2009 through April 15, 2015.

ITEM 8.  Consolidated Financial Statements and Supplementary Data.

The Consolidated Financial Statements and Supplementary Data are included as an annex to this Annual Report on Form 10-K. See the Index to Consolidated Financial Statements and Supplementary Data on page F-1.

ITEM 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

ITEM 9A.  Controls and Procedures.

Included in this Annual Report on Form 10-K are certifications of our Chief Executive Officer and our Chief Financial Officer, which are required in accordance with Rule 15d-14 of the Securities Exchange Act of 1934.  This section includes information concerning the controls and controls evaluation referred to in the certifications.  Page F-3 of this Report includes the attestation report of Ernst & Young LLP, our independent registered public accounting firm, regarding its audit of the effectiveness of our internal control over financial reporting.  This section should be read in conjunction with the Ernst & Young attestation for a complete understanding of this section.

Evaluation of Disclosure Controls and Procedures

We maintain a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated by the SEC under the Securities Exchange Act of 1934).  An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.  We note that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Change in Internal Control over Financial Reporting

There has not been any change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) as promulgated by the SEC under the Securities Exchange Act of 1934) during our most recently completed fiscal quarter, the fourth quarter of fiscal 2008, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.  Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the

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transactions and dispositions of the assets of the company, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even when determined to be effective, can only provide reasonable, not absolute, assurance with respect to financial statement preparation and presentation.  Projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate as a result of changes in conditions or deterioration in the degree of compliance.

Management assessed the effectiveness of our internal control over financial reporting as of January 31, 2009.  Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its Internal Control—Integrated Framework.  Management’s assessment included the evaluation of such elements as the design and operating effectiveness of financial reporting controls, process documentation, accounting policies, and the overall control environment.  This assessment is supported by testing and monitoring performed or supervised by our Internal Control organization.

Based on our assessment, management believes that we maintained effective internal control over financial reporting as of January 31, 2009, the end of the fiscal year. The independent registered public accounting firm, Ernst & Young LLP, issued an attestation report on the effectiveness of our internal control over financial reporting. The Ernst & Young LLP report is included on Page F-3 of this Annual Report on Form 10-K.

ITEM 9B.  Other Information.

On March 10, 2009, we filed a Current Report on Form 8-K pursuant to Item 2.02 regarding our issuance of a press release announcing our financial condition and results of operations as of and for the fiscal year and fourth quarter ended January 31, 2009.  Subsequently, we have modified the manner in which we have accounted for the pending settlement with the Internal Revenue Service primarily related to stock options.

As a result of this change, the consolidated financial statements for the fiscal year ended January 31, 2009, now reflect a provision for income taxes of $3 million compared to a benefit for income taxes of $6 million as previously announced. The change had no effect on operating income or EBITDA. The following table sets forth the impact of this change on the amounts we previously announced (in millions).

	As Previously			As Currently
	Announced			Reported
Consolidated Statements of Operations
(Benefit) provision for income taxes	$	(6	)	$	3
(Loss) income before discontinue operations	4			(5		)
Net (loss) income	4			(5		)
Consolidated Balance Sheets
Additional paid-in capital	19			27
Accumulated deficit	(2,923		)	(2,931		)
Consolidated Statements of Cash Flows
Net (loss) income	4			(5		)
Net cash provided by operating activities	68			59
Tax benefit from stock options	0			9
Net cash provided by (used in) financing activities	21			30

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PART III

ITEM 10.  Directors, Executive Officers and Corporate Governance

DIRECTORS AND EXECUTIVE OFFICERS

Directors

Our current directors serve for a period of three years and until their successors are duly elected and qualified or until the earlier of their resignation, death or removal.

On September 30, 2008, David McVeigh resigned as a director.  By a written consent dated January 13, 2009, the stockholders of the Company elected Gerry Murphy to the Board to fill the vacancy created by the resignation of Mr. McVeigh.  On January 13, 2009, Matthew Kabaker resigned as a director.   By a written consent dated March 11, 2009, the stockholders of the Company elected Peter Wallace to the Board to fill the vacancy created by the resignation of Mr. Kabaker.

Four of our current directors are affiliates of Bain, while the remaining four are affiliates of Blackstone.  Taking into account the direct affiliation that each member of our Board has with either Bain or Blackstone, no current director of the Company is deemed to be “independent” under our previously adopted independence standards.

Set forth below is information concerning each of our directors, including their ages as of March 30, 2009, present principal occupations, other business experiences during the last five years, membership on committees of the Board and public company directorships and certain other directorships.  Except for Messrs. Murphy and Wallace (see above), each of the directors listed below has served on our Board since October 31, 2006.

			Committee
Name	Age	Position	Membership
Josh Bekenstein	50	Director	—
Michael S. Chae	40	Director	Compensation Committee
Todd M. Cook	37	Director	Audit Committee
Gerry M. Murphy	53	Director	—
Lewis S. Klessel	41	Director	Audit Committee
Matthew S. Levin	43	Director	Compensation Committee
James A. Quella	58	Director	Audit Committee
Peter F. Wallace	33	Director	Audit Committee

Mr. Bekenstein is a managing director at Bain Capital Partners.  Prior to joining Bain Capital Partners in 1984, Mr. Bekenstein spent several years at Bain & Company, where he was involved with companies in a variety of industries.  Mr. Bekenstein received an M.B.A. from Harvard Business School and a B.A. from Yale University.  Mr. Bekenstein serves as a director of several corporations, including Bombardier Recreational Products Inc., Dollarama Capital Corporation, Toys “R” Us, Inc., Burlington Coat Factory Warehouse Corporation and Bright Horizons Family Solutions Inc.

Mr. Chae is a senior managing director at The Blackstone Group in the private equity group.  Prior to becoming a senior managing director in January 2005, Mr. Chae was a principal of Blackstone from 2000 to 2004.  Mr. Chae graduated magna cum laude from Harvard College, and received an M.Phil from Cambridge University and a J.D. from Yale Law School.  He serves as a director of Hilton Hotels Corp., Universal Orlando, The Nielsen Company and The Weather Channel Companies.

Mr. Cook is a managing director of Bain Capital Partners.  Prior to becoming a managing director in December, 2008, Mr. Cook served in various capacities, most recently as a principal of Bain Capital Partners from 2003 to 2008.  Prior to joining Bain Capital Partners in 1996, Mr. Cook was a consultant at Bain & Company.  Mr. Cook received an M.B.A. from Stanford University Graduate School of Business where he was an Arjay Miller Scholar.  He also holds a B.E. in electrical engineering and a B.A. in economics from Dartmouth College.  Mr. Cook serves as a director of Dollarama Capital Corporation and Dunkin Brands Inc.

Mr. Murphy is a senior managing director at The Blackstone Group in the private equity group, which he joined in 2008.   Before joining Blackstone, Mr. Murphy spent five years as CEO of Kingfisher, a FTSE 100 company and the leading home improvement retailer in Europe and Asia. He has also served as CEO of Carlton Communications plc, Exel plc and Greencore Group plc.  Mr. Murphy serves as a director of United Biscuits Topco Limited, Kleopatra Acquisition Corp., Abbey National plc, Reckitt Benckiser Group plc, Hornbach Holding AG and for the Advisory Board of KP Germany Zweite GmbH.  Mr. Murphy received his BSc and PhD in food technology from University College Cork and a 1st Class MBS in marketing from University College Dublin.

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Mr. Klessel is an operating partner at Bain Capital Partners.  Prior to joining Bain Capital Partners, Mr. Klessel held a variety of operating and strategy leadership positions from 1997 to 2005 at The Home Depot, Inc., most recently as President of Maintenance Warehouse, a wholly-owned subsidiary that distributed maintenance products to facility management customers in the multi-housing, lodging, health-care and commercial sectors.  Mr. Klessel received an M.B.A. from Harvard Business School where he was a Baker Scholar, and a B.S. from the Wharton School at the University of Pennsylvania.  Mr. Klessel serves as a director of HD Supply, Inc.

Mr. Levin is a managing director at Bain Capital Partners.  Prior to joining Bain Capital Partners in 2000, Mr. Levin was a consultant at Bain & Company where he consulted in the consumer products and manufacturing industries.  Mr. Levin received an M.B.A. from Harvard Business School where he was a Baker Scholar.  He received a B.S. from the University of California at Berkeley.  Mr. Levin serves as a board member of several corporations, including Bombardier Recreational Products Inc., Dollarama Capital Corporation, Guitar Center, Inc., Toys “R” Us, Inc. and Unisource Worldwide, Inc.

Mr. Quella is a senior managing director and senior operating partner at Blackstone in the private equity group.  Prior to joining Blackstone in 2004, Mr. Quella was a managing director and senior operating partner with DLJ Merchant Banking Partners-CSFB Private Equity from June 2000 to February 2004.  Prior to that, Mr. Quella worked at Mercer Management Consulting and Strategic Planning Associates.  Mr. Quella received a B.A. in International Studies from the University of Chicago/University of Wisconsin-Madison and an M.B.A. from the University of Chicago.  Mr. Quella serves as a director of Graham Packaging Company, L.P., The Nielsen Company, Intelenet Global Services, Vanguard Health Systems, Inc. and Freescale Semiconductor, Inc.

Mr. Wallace is a managing director at Blackstone in the private equity group, which he joined in 1997.  Mr. Wallace received a B.A. in Government from Harvard College. Mr. Wallace serves on the Board of Directors of AlliedBarton Security Services, Crestwood Midstream Partners and The Weather Channel Companies.

Executive Officers

Our current executive officers, their ages as of March 30, 2009, and their business experience during at least the past five years are set forth below.  On March 4, 2009, Brian Cornell informed the Company that he would be resigning as Chief Executive Officer.  Mr. Cornell’s resignation will be effective as of April 2, 2009, on the terms set forth in his employment agreement.   On March 9, 2009, the Company announced that it had appointed Mr. John B. Menzer as the new Chief Executive Officer of the Company. Mr. Menzer will commence his employment with the Company no later than April 15, 2009. Prior to joining the Company, Mr. Menzer (age 57) served as Vice Chairman and Chief Administrative Officer of Wal-Mart Stores, Inc. from September 2005 to March 2008, Executive Vice President, President and Chief Executive Officer of Wal-Mart International from June 1999 to September 2005 and Executive Vice President and Chief Financial Officer of Wal-Mart Stores, Inc. from September 1995 to June 1999. Mr. Menzer serves as a director of Emerson Electric Co. No arrangement or understanding exists between Mr. Menzer and any other person pursuant to which Mr. Menzer was selected as an officer of the Company.

Name	Age	Position
Brian C. Cornell	50	Chief Executive Officer
Shelley G. Broader	44	President and Chief Operating Officer
Elaine D. Crowley	50	Executive Vice President—Chief Financial Officer
Stuart W. Aitken	37	Executive Vice President—Chief Marketing Officer
Nicholas E. Crombie	58	Executive Vice President—Store Operations
Thomas C. DeCaro	54	Executive Vice President—Supply Chain
Philo T. Pappas	50	Executive Vice President—Category Management
Weizhing “Wilson” Zhu	56	Executive Vice President—Global Sourcing
Shawn E. Hearn	43	Senior Vice President—Human Resources
Michael J. Jones	45	Senior Vice President—Chief Information Officer
Michael J. Veitenheimer	52	Senior Vice President—General Counsel and Secretary

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Mr. Cornell was named Chief Executive Officer in June 2007. Prior to joining Michaels, he served as Executive Vice President and Chief Marketing Officer of Safeway, Inc. since April 2004.  Prior to joining Safeway, Mr. Cornell served as President of Pepsi-Cola North America’s (“PCNA”) Food Services Division and Senior Vice President of Sales for PCNA, a role he assumed in March 2003.  Prior to joining PCNA, Mr. Cornell was Regional President of PepsiCo Beverages International’s European business and President of Tropicana Products International based in Belgium.  Mr. Cornell joined PepsiCo, Inc. when it acquired Tropicana from Seagram Company in 1998.  Mr. Cornell serves on the Board of Directors of Home Depot, Inc.

Ms. Broader was named President and Chief Operating Officer in June 2008.  Prior to joining Michaels, she served as President and Chief Executive Officer of Sweetbay Supermarkets, Inc., formerly doing business as Kash n’ Karry Food Stores, Inc., part of the U.S. division of Brussels based Delhaize Group since March 2006.  Ms. Broader previously served as President and Chief Operating Officer of Sweetbay Supermarkets from June 2003 to March 2006. Prior to joining Sweetbay Supermarkets, Ms Broader served in various management positions at Hannaford Bros. Co. from April 1991 to June 2003, most recently as Senior Vice President, Business Strategy, Marketing and Communications.  She serves on the Board of Directors, and is a member of the Audit Committee, of Raymond James Financial, Inc.

Ms. Crowley was named Executive Vice President — Chief Financial Officer in August 2008.  Prior to joining Michaels, she served in various capacities at The Bombay Company, Inc. since August 1990, including as Chief Financial Officer and Treasurer since December 2000 and as Senior Vice President, Chief Financial Officer and Treasurer since February 2002. On September 20, 2007, The Bombay Company, Inc. and its U.S. wholly-owed subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court, Northern District of Texas, Fort Worth Division.  Prior to joining The Bombay Company, Ms. Crowley was with Price Waterhouse from 1981 to 1990.

Mr. Aitken was promoted to Executive Vice President—Chief Marketing Officer in May 2008.  Prior to his promotion, Mr. Aitken had served as Senior Vice President— Consumer Strategy and Marketing since joining the Company in December 2007.  Prior to joining Michaels, Mr. Aitken served in various management positions at Safeway, Inc. from May 1999 to December 2007, most recently as Group Vice President of Marketing Strategies with responsibilities that included loyalty marketing, category management strategy, space planning, datamining, segmentation and innovation.

Mr. Crombie was promoted to Executive Vice President—Store Operations in May 2007.  Prior to his promotion, he served as Zone Vice President of Stores for Michaels Stores, Inc. since January 2002.    Prior to joining the Company, Mr. Crombie was Area Vice President, Mid-South for CVS from February 1999 to January 2002.  From January 1996 until February 1999, he was employed by Caldor, Inc. with store operations responsibilities, including Regional Vice President.  From November 1988 to January 1996, he was Director of Sales and Marketing and General Merchandising Manager for Major Appliances at Lechmere, Inc.

Mr. DeCaro was promoted to Executive Vice President—Supply Chain in June 2005. Prior to his promotion, Mr. DeCaro had served as Senior Vice President—Inventory Management since joining us in August 2000. From April 1998 until joining the Company, he was Vice President—Merchandise for The Walt Disney Company. Prior to this, he held the position of Senior Vice President—Merchandise Planning and Allocation for Kohl’s Department Stores from February 1996 to April 1998. In addition, Mr. DeCaro has held various positions in Merchandise Planning and Allocation and Finance for The Disney Store, The Limited Stores, May Department Stores, and Sanger Harris Department Stores.

Mr. Pappas was named Executive Vice President—Category Management in February 2009.  Prior to joining Michaels, he served as Chief Merchandising Officer at Tweeter Home Entertainment Group, Inc. from April 2003 to October 2008.  On June 11, 2007, Tweeter and each of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware in Wilmington, Delaware. Prior to joining Tweeter, Mr. Pappas served in various management positions at Staples, Inc. from November 1994 to April 2003, most recently as Senior Vice President of Merchandising.

Mr. Zhu was promoted to Executive Vice President—Global Sourcing in May 2008.  Prior to his promotion, Mr. Zhu had served as Senior Vice President—Strategic Sourcing since joining the Company in April 2007. From March 2003 until April 2007, he was Vice President, Private Brand Development and Global Sourcing at Office Depot, Inc.  Prior to joining Office Depot, Mr. Zhu served as Vice President, Global Sourcing for Hudson’s Bay Company in Canada from March 2001 to March 2003.  In addition,  Mr. Zhu has held various management positions at  Saks, Inc., Edison Brothers Stores, and Nulook Fashions.

Mr. Hearn was named Senior Vice President—Human Resources in February 2007. Prior to his promotion, Mr. Hearn had served as Vice President, Field Human Resources since joining Michaels in November 2002.  Prior to joining Michaels, he served in various

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operations, marketing, and human resource management positions at KMart Corporation from August 1981 to October 2002, most recently as Vice President, Advertising.

Mr. Jones was named Senior Vice President—Chief Information Officer in September 2004.  Prior to joining Michaels, he served in various management positions at Hollywood Entertainment Corporation from March 2002 to August 2004, most recently as Senior Vice President and Chief Information Officer.  Prior to joining Hollywood, Mr. Jones served in various management positions at KMart Corporation from February 1996 to July 2001, most recently as Vice President for Information Technology and Change Management.

Mr. Veitenheimer was named Senior Vice President—General Counsel and Secretary in January 2008. Prior to joining Michaels, Mr. Veitenheimer served as Senior Vice President of Law and Human Resources of The Bombay Company, Inc., from June 2007 to December 2007 after having served as a Senior Vice President since February 2006, its Secretary since July 1985 and its General Counsel since November 1983.  On September 20, 2007, The Bombay Company, Inc. and its U.S. wholly-owed subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court, Northern District of Texas, Fort Worth Division.  Prior to joining The Bombay Company, Mr. Veitenheimer was in private practice of law in Fort Worth, Texas.

CORPORATE GOVERNANCE

Our Board is responsible for governing Michaels’ business and affairs.  Highlights of Michaels’ corporate governance practices are described below.

Board Committees

Currently, our Board has two active standing committees, each of which is required by its charter to consist of no fewer than two directors.  The four members of the Audit Committee are Todd Cook (Chairman), Lewis Klessel, James Quella and Peter Wallace.  The two members of the Compensation Committee are Michael Chae and Matthew Levin.

As a result of the Merger, the Company’s Common Stock is held by a small number of stockholders, including funds managed by Bain and Blackstone (and other private equity funds) and certain members of our senior management.  In addition, Bain and Blackstone have agreed that they will each have the right to proportional representation on our Board, which has resulted in half of our Board being associated with Bain, with the remaining half being associated with Blackstone.  As the Company is now privately held and the members of our Board are selected by our Sponsors, the Board does not maintain policies and procedures by which Michaels’ stockholders may submit director candidates to the Board or the stockholders for consideration.

Compensation Committee

Please see “Item 11. Executive Compensation — Compensation Discussion and Analysis” for a description of the roles and responsibilities of our Compensation Committee.

Audit Committee

Our Board of Directors has a separately designated audit committee.  For most of fiscal year 2008, the Audit Committee consisted of four members: Matthew Kabaker (Chairman), Todd Cook, Lewis Klessel and David McVeigh.  On September 30, 2008, Mr. McVeigh resigned as a director and on January 13, 2009, Mr. Kabaker resigned as a director.  James Quella was appointed to the Audit Committee in January 2009, Peter Wallace was appointed to the Audit Committee in March 2009 and Mr. Cook was named Chairman of the Audit Committee upon the resignation of Mr. Kabaker.  Our Board has determined that each member of the Audit Committee is financially literate and has sufficient business and financial expertise to effectively perform his duties as a member of the Audit Committee. As the Company is now privately held and controlled by our Sponsors, our Board has determined that it is not necessary to designate one or more of our Audit Committee members as an “audit committee financial expert” at this time.  None of our Audit Committee members is an independent director due to their affiliations with the Sponsors. The current members of the Audit Committee are as follows:

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Audit Committee

Todd M. Cook (Chairman)

Lewis S. Klessel

James A. Quella

Peter F. Wallace

Under its charter, the Audit Committee is generally responsible for overseeing Michaels’ financial reporting process and assists the Board in fulfilling the Board’s oversight responsibilities with respect to: (i) the integrity of Michaels’ financial statements; (ii) Michaels’ compliance with legal and regulatory requirements; (iii) the qualifications and independence of Michaels’ independent registered public accounting firm; and (iv) the performance of the independent registered public accounting firm and of Michaels’ internal audit function.

Code of Business Conduct and Ethics

We adopted a Code of Business Conduct and Ethics that applies to, among others, our principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions. A copy of our Code of Business Conduct and Ethics is available on our Internet website at www.michaels.com under “Corporate Information.” We will post any amendments to our Code of Business Conduct and Ethics, or waivers of the Code for our executive officers, on our Internet website at www.michaels.com under “Corporate Information.”

ITEM 11. Executive Compensation.

COMPENSATION DISCUSSION AND ANALYSIS

Introduction

The following Compensation Discussion and Analysis relates to compensation paid to our executive officers named in the Summary Compensation Table for fiscal 2008.  Since completion of the Merger, our Compensation Committee has been comprised of Michael S. Chae and Matthew S. Levin, each of whom is affiliated with our current stockholders and, therefore, is not deemed an independent director.  During fiscal year 2008, several events occurred which impacted management and compensation decisions.  These included the hiring of a new President and Chief Operating Officer and a new Executive Vice President — Chief Financial Officer, the departure of the Company’s former President and Chief Financial Officer, the end of the protection period under our Change in Control Agreements and the adoption of a new Officer Severance Pay Plan.  Each of these events is more fully discussed below.

Compensation Program

Generally, our compensation program has continued the overall approach of our pre-Merger compensation program, modified as appropriate to reflect that we are now a privately-owned company with public debt.  The principal guiding objectives of our executive officer compensation program are:

·      attracting and retaining highly qualified individuals who make contributions that result in Michaels meeting its financial and strategic goals;

·      motivating employees to exceptional levels of operating and financial performance; and

·      aligning employee interests with the long-term goals of our stockholders.

Currently, the total compensation for our executive officers consists of three main components:  base salary, annual cash incentive bonuses and long-term equity-based incentive compensation awards.  The philosophy and the strategy of the cash incentive compensation program for our executive officers are to provide higher annual cash incentive compensation for exceptional corporate and financial performance.  While the Compensation Committee takes into account tax and accounting considerations in structuring the components of our compensation program, these considerations are secondary to the primary objectives of the compensation program described above.

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Compensation Strategy

The Compensation Committee approves and recommends to the Board the compensation for all executive officers.  The Board is ultimately responsible for determining the compensation of our executive officers, although under our certificate of incorporation equity-based awards must also be approved by a majority of our stockholders.  Both the Compensation Committee and the Board receive recommendations with respect to decisions regarding the executive officers, other than the Chief Executive Officer, by senior management, principally the Chief Executive Officer and the Senior Vice President — Human Resources.  In determining compensation levels for the executive officers, the Compensation Committee considers the scope of an individual’s responsibilities, an individual’s performance and prior experience, the performance of the Company and the attainment of planned financial and strategic initiatives.  These factors are evaluated by the Compensation Committee and the Board with no particular weight given to any one factor.  The Compensation Committee considers overall past compensation and incentives in determining the compensation of executive officers and seeks to assure that the executives have appropriate incentives to achieve high levels of corporate performance.  The Compensation Committee, through its members’ involvement in numerous other portfolio companies, has access to compensation-related information to assist the Committee with respect to the Company’s overall compensation program for employees generally, as well as compensation for executive officers.  Recommendations to the Board by the Compensation Committee are therefore predominantly based on the experience of the members of the Compensation Committee and alignment with the overall strategic direction and goals of the Company.

Named Executive Officers

This Compensation Discussion and Analysis and the executive compensation discussion and tables that immediately follow describe the process, strategy and elements of the Company’s compensation plan as applied to certain of its executive officers.  Those individuals include Brian C. Cornell, Chief Executive Officer, Shelley G. Broader, President and Chief Operating Officer, Elaine D. Crowley, Executive Vice President — Chief Financial Officer, Stuart W. Aitken, Executive Vice President — Chief Marketing Officer, Thomas C. DeCaro, Executive Vice President — Supply Chain, Jeffrey N. Boyer, who served as President and Chief Financial Officer for part of the year, Thomas M. Bazzone, who served as Executive Vice President — Specialty Businesses for part of the year, Harvey S. Kanter, who served as Executive Vice President — Managing Director for part of the year, and Lisa K. Klinger, who served as Interim Chief Financial Officer for part of the year.  These officers are referred to as our “Named Executive Officers.”

Compensation Elements

Base Salaries

Base salaries for our executive officers are established based on the scope of their responsibilities, individual performance and prior experience, Michaels’ operating and financial performance and the attainment of planned financial and strategic initiatives, taking into account the knowledge of the members of the Compensation Committee regarding competitive market compensation paid by companies for similar positions.  The Compensation Committee sets base salaries at a level designed to attract and retain highly qualified individuals who make contributions that result in Michaels meeting its operating and financial goals.  Base salaries are reviewed and adjusted annually as deemed appropriate by the Compensation Committee.  The Compensation Committee has discretion to adjust base salary during the fiscal year and exercised that discretion in fiscal 2008, as described below.

On June 4, 2007, Mr. Cornell was named Chief Executive Officer of the Company.  Pursuant to his negotiated employment agreement, Mr. Cornell’s base salary was set at $1,000,000, subject to increase from time to time by the Board of Directors, in its sole discretion.  In setting Mr. Cornell’s base salary, the Committee considered Mr. Cornell’s compensation at his prior employer and the level of compensation needed to recruit Mr. Cornell to the Company.  In the opinion of the members of the Compensation Committee, based on their experience with other companies, including other portfolio companies, this salary level represented a competitive market level for the position.

In March 2008, the Compensation Committee reviewed recommendations regarding 2008 annual base salary rates for the executive officer group based on the criteria set forth above.  Pursuant to this review, the Compensation Committee determined that such salaries were generally appropriate for the position and responsibilities assigned to each executive officer.  As such, the base salary increases below the level of Chief Executive Officer were adjusted within normal company merit guidelines.  Mr. Cornell’s base salary remained at $1,000,000.  Merit guidelines are determined by reviewing and participating in benchmark surveys, as well as giving consideration to the Company’s overall budget for employee compensation.  Based upon this information, the Company has

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utilized a 3.5% to 4% annual merit rate for the past several years.  The resulting adjustments are reflected below.

Name	2007 Base Salary		2008 Base Salary
Jeffrey N. Boyer	$	625,000	$	640,625
Thomas M. Bazzone	361,550		374,204
Thomas C. DeCaro	335,075		348,478
Harvey S. Kanter	370,050		381,153

Neither Mr. Aitken nor Ms. Klinger was a member of the executive officer group in March 2008.  Mr. Aitken was promoted to the position of Executive Vice President — Chief Marketing Officer in May 2008 and received an increase in his annual base salary from $280,005 to $325,000, in connection with his promotion.  No adjustment was made to Ms. Klinger’s base salary of $270,000 in connection with her service as Interim Chief Financial Officer.

In June 2008, Ms. Broader was named President and Chief Operating Officer of the Company.  Pursuant to her offer letter with the Company, Ms. Broader’s base salary was set at $625,000, with salary increases to be consistent with our policy of advancement on an individual merit basis.  In setting Ms. Broader’s base salary, the Committee considered Ms. Broader’s compensation at her prior employer and the level of compensation needed to recruit Ms. Broader to the Company.

In August 2008, Ms. Crowley was named Executive Vice President — Chief Financial Officer of the Company.  Pursuant to her offer letter with the Company, Ms. Crowley’s base salary was set at $300,000, with salary increases to be consistent with our policy of advancement on an individual merit basis.  In setting Ms. Crowley’s base salary, the Committee considered Ms. Crowley’s compensation at her prior employer and the level of compensation needed to recruit Ms. Crowley to the Company.

In the opinion of the members of the Compensation Committee, based on their experience with other companies, including other portfolio companies, the salary levels for Ms. Broader and Ms. Crowley represented a competitive market level for their positions.

Annual Bonuses

In April 2008, the Compensation Committee recommended and the Board approved the Fiscal Year 2008 Bonus Plan (the “Bonus Plan”) for the Named Executive Officers to provide financial incentives to those and other members of management who were in positions to make important contributions to Michaels’ success.  The structure of the Bonus Plan and the specific objectives relating to bonus payments were proposed by the Company’s Chief Executive Officer and Senior Vice President — Human Resources and were reviewed and adjusted by the Compensation Committee.  The Bonus Plan tied 75% of the available bonus to Michaels’ attainment of a financial objective (which included consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”), less an inventory charge), and 25% of the available bonus to the individual’s job performance.  In addition, for Mr. Bazzone, our Executive Vice President — Specialty Businesses, the objectives included business unit EBITDA.  Under the Bonus Plan, before any business unit or individual performance payout would be earned, the actual results of the financial objective (EBITDA, less an inventory charge) were required to meet the threshold established by the Compensation Committee. Each participating Named Executive Officer was entitled to a bonus equal to a certain percentage of that executive officer’s base salary.  The Compensation Committee set threshold, target and maximum performance levels for each position.  The final award depended on the actual level of performance achieved; however, the Compensation Committee retained discretion to make adjustments in its sole discretion.  The target levels of performance for the bonus goals were set at levels that the Compensation Committee and the Board believed to be reasonably achievable in view of Michaels’ historical annual performance.  Additional specific information regarding the targets and objectives is set forth below in the discussion of fiscal 2008 results.

Lisa Klinger’s bonus in fiscal 2008 was established based on her position as Senior Vice President—Finance and Treasurer, and was not modified in connection with her service as Interim Chief Financial Officer. Ms. Klinger’s target annual bonus opportunity was set pursuant to the Bonus Plan at 40% of her base salary.  In connection with Mr. Aitken’s promotion in May 2008, the Board adjusted his target annual bonus opportunity under the Bonus Plan to 50% of his new base salary.  Pursuant to Mr. Aitken’s offer letter from the Company effective December 2007, Mr. Aitken was guaranteed a bonus of $110,000 for fiscal year 2008.  Pursuant to Ms. Broader’s offer letter from the Company, Ms. Broader’s target annual bonus opportunity pursuant to the Bonus Plan was set at 70% of base salary, prorated to the commencement of her employment.  Ms. Broader’s target bonus of $255,208 was guaranteed for fiscal 2008.  Pursuant to Ms. Crowley’s offer letter from the Company, Ms. Crowley’s target annual bonus opportunity pursuant to the Bonus Plan was set at 50% of base salary, prorated to the commencement of her employment.

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The target percentages set for fiscal 2008 and the threshold, target and maximum payments for each of the Named Executive Officers for fiscal 2008 were as follows:

	Brian C. Cornell		Shelley G. Broader (1)		Elaine D. Crowley (1)		Stuart W. Aitken		Thomas C. DeCaro		Jeffrey N. Boyer		Thomas M. Bazzone		Harvey S. Kanter		Lisa K. Klinger
Percentage of Base Salary
Target	100	%	70	%	50	%	50	%	50	%	70	%	50	%	50	%	40	%
Threshold	35	%	24.5	%	17.5	%	17.5	%	17.5	%	24.5	%	17.5	%	17.5	%	14	%
Maximum	200	%	140	%	100	%	100	%	100	%	140	%	100	%	100	%	80	%
Financial Weightings
Overall Company Results	75	%	75	%	75	%	75	%	75	%	75	%	25	%	75	%	75	%
Division/Dept. Results	—		—		—		—		—		—		50	%	—		—
Individual Performance	25	%	25	%	25	%	25	%	25	%	25	%	25	%	25	%	25	%

(1) Bonuses for Ms. Broader and Ms. Crowley were prorated based on the commencement date of their employment.

Provided that the EBITDA threshold is met, individual performance accounts for up to 25% of target bonus for each of the Named Executive Officers.  Each officer is evaluated annually based upon competencies and pre-established individual objectives.  Performance against these measures is determined by the Compensation Committee on a scaled rating of Exceeds Expectations, Solid Performance or Mixed Performance.  No specified weighting is given to each measure and considerable discretion resides with the Compensation Committee in its evaluation of personal performances.

In March 2009, the Compensation Committee reviewed the Company’s financial results as applicable to the pre-established fiscal 2008 annual bonus opportunities for the Named Executive Officers.  As described previously, the financial objective of Company performance that was applicable to all the named executive officers was EBITDA, less an inventory charge.  For fiscal 2008, the EBITDA-adjusted goal for target-level bonuses was $488.7 million and the threshold set by the Compensation Committee and approved by the Board at the beginning of the year was $452.7 million, which represented approximately 94% of target.  For the fiscal year, the Company did not achieve its EBITDA threshold.  As a result, with the exception of guaranteed bonuses of $255,208 and $110,000 awarded to Ms. Broader and Mr. Aitken respectively, no bonuses were paid to the Named Executive Officers for fiscal 2008.  Such guaranteed bonuses are listed in the Summary Compensation Table under the heading “Bonus.”

Long-Term Equity-Based Compensation

On February 15, 2007, our Board and stockholders approved the Michaels Stores, Inc. 2006 Equity Incentive Plan, as well as certain specific grants under the plan to key employees.  In addition, the stockholders granted the Board authority to make plan grants to other eligible participants in the future.  The plan has been established to advance the interests of Michaels and its affiliates by providing for the grant of equity-based awards to eligible participants (key employees and directors of, and consultants and advisors to, Michaels or its affiliates).  Awards under the plan are intended to align the long-term incentives of our executives and stockholders.  Grants are awarded when an executive is hired and are adjusted for subsequent promotions.

Each option is divided into six tranches with escalating exercise prices.  Grants are made at or above fair market value.  Currently, the lowest exercise price is $15.00 per share, which was determined by the Board to be the fair market value per share of our Common Stock on the date that the 2006 Equity Incentive Plan was adopted and continues to be at or above fair market value.  Each tranche vests 20% on each of the first through fifth anniversaries of the grant date and all unvested options vest immediately upon a change of control, as defined in the Amended and Restated Stockholders Agreement dated February 16, 2007 among Michaels and its stockholders.    The amounts of awards were based on each Named Executive Officer’s position at Michaels and the total target compensation packages deemed appropriate for such positions.  The Compensation Committee and the Board felt these awards were reasonable and consistent with the nature of the individuals’ responsibilities and satisfied the goals of competitive compensation and the retention of key executive officers.  The tranche structure of the option awards, with increasing exercise prices in each tranche, is designed to incentivize long-term performance by tying the value of the options to long-term increases in the value of our Common Stock.

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Ms. Broader and Ms. Crowley were hired, and Mr. Aitken was promoted to an Executive Vice President, during fiscal 2008.  As a result, the following options were granted to Named Executive Officers in fiscal year 2008:

	Number of Shares of Common Stock Underlying Stock Options
Name	Total Shares	Tranche 1 (Exercise Price $15.00 Per Share)	Tranche 2 (Exercise Price $22.50 Per Share)	Tranche 3 (Exercise Price $30.00 Per Share)	Tranche 4 (Exercise Price $37.50 Per Share)	Tranche 5 (Exercise Price $45.00 Per Share)	Tranche 6 (Exercise Price $52.50 Per Share)
Shelley G. Broader	567,648	189,216	189,216	47,304	47,304	47,304	47,304
Elaine D. Crowley	454,192	151,398	151,398	37,849	37,849	37,849	37,849
Stuart W. Aitken	170,320	56,774	56,774	14,193	14,193	14,193	14,193

Ms. Broader was also granted a restricted stock award pursuant to the 2006 Equity Incentive Plan in fiscal 2008.  The restricted stock award covers 54,134 shares with 20% vesting on each of the first five anniversaries from June 23, 2008 (vesting would accelerate in the event of Ms. Broader’s death or disability).  In the judgment of the Compensation Committee and the Board, the restricted stock award was appropriate for Ms. Broader’s position and was instrumental to the Company’s successful recruiting of Ms. Broader as President and Chief Operating Officer.

Other Benefits and Perquisites

Our Named Executive Officers also receive certain other benefits and perquisites.  During fiscal 2008, these benefits included annual matching contributions to executive officers’ 401(k) accounts and variable universal life plan accounts, the payment of life insurance premiums, Company-paid medical benefits and, in some cases, reimbursement for income taxes on taxable benefits.  Effective March 1, 2009, the Company suspended the variable universal life plan account match for its highly compensated employees.  Our Chief Executive Officer and President and Chief Operating Officer and former President and Chief Financial Officer, were also entitled to the use of Company-owned or leased automobiles.    The Compensation Committee and the Board believe these benefits and perquisites are reasonable and consistent with the nature of the individual’s responsibilities, provide a competitive level of total compensation to our executives and serve as an important element in retaining those individuals.  The cost to Michaels of these benefits to the Named Executive Officers is set forth in the Summary Compensation Table under the column “All Other Compensation” and detail about each element is set forth in the table presented in footnote 3 to the Summary Compensation Table.

Employment and Change in Control Severance Agreements

Mr. Cornell has an employment agreement with Michaels that was entered at the time of his appointment which includes certain severance benefits in the event of termination other than for cause or by Mr. Cornell for good reason, as such terms are defined in the agreement.  The specific terms of Mr. Cornell’s employment agreement are discussed following the Summary Compensation Table and also in the section entitled “Executive and Director Compensation — Potential Payments Upon Termination or Change in Control.”  On March 4, 2009, Mr. Cornell informed the Company that he would be resigning as the Chief Executive Officer.  Mr. Cornell’s resignation will be effective as of April 2, 2009.  The benefits payable to him pursuant to his employment agreement may be found in the sections entitled “Cornell Employment Agreement” and “Executive and Director Compensation — Potential Payments Upon a Change in Control.”

On April 26, 2006, to encourage the then Named Executive Officers and other members of management to remain with Michaels during the strategic alternatives process that led to the completion of the Merger on October 31, 2006, the Board approved change in control severance agreements with Messrs. Boyer, DeCaro, Bazzone and Kanter.  A more detailed description of these agreements may be found in the section entitled “Executive and Director Compensation — Potential Payments Upon a Change in Control.”  The protection period under our Change in Control Agreements ended on October 31, 2008.

Mr. Boyer was separated from the Company on April 4, 2008, and his change in control benefits were triggered.  Pursuant to his agreement, Mr. Boyer was paid: (i) three times the sum of his annual base salary plus the greater of his average annual bonus or target

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bonus; (ii) his prorated target annual bonus for fiscal 2008; (iii) three years of continued welfare benefits and fringe benefits for Mr. Boyer, subject to certain limitations and restrictions; (iv) a credit representing three years of participation in the Company’s savings and retirement plans; and (v) outplacement counseling not to exceed $50,000.  Mr. Boyer executed a Separation Agreement and Release, which included, in addition to a release of all claims against the Company, a forfeiture of all outstanding stock options and a confidentiality, non-solicitation and non-interference agreement.  The actual amounts paid to Mr. Boyer are set forth in the section entitled “Executive and Director Compensation — Potential Payments Upon a Change in Control,” and are reflected in the Summary Compensation Table under the heading “All Other Compensation.”

Messrs. Bazzone and Kanter were also separated from the Company on May 25, 2008 and July 2, 2008, respectively, and their change in control benefits were triggered.  Pursuant to their agreements, each of Messrs. Bazzone and Kanter were paid: (i) two times the sum of their annual base salary plus the greater of their average annual bonus or target bonus; (ii) their prorated target annual bonus for fiscal 2008; (iii) two years of continued welfare benefits and fringe benefits for themselves and their spouses and dependants, subject to certain limitations and restrictions; (iv) a credit representing two years of participation in the Company’s savings and retirement plans; and (v) outplacement counseling not to exceed $50,000.  Each of Messrs. Bazzone and Kanter executed a Separation Agreement and Release, which included, in addition to a release of all claims against the Company, a forfeiture of all outstanding stock options and a confidentiality, non-solicitation and non-interference agreement.  The actual amounts paid to Messrs. Bazzone and Kanter are set forth in the section entitled “Executive and Director Compensation — Potential Payments Upon a Change in Control,” and are reflected in the Summary Compensation Table under the heading “All Other Compensation.”

In April 2008, the Board approved the Company’s Officer Severance Pay Plan (the “OSPP”), which was amended in July 2008.  The OSPP was established by the Company to provide certain severance benefits, subject to the terms and conditions of the OSPP, to designated officers (those with a position of Vice President or above, or an equivalent title as approved by the Compensation Committee, and excluding the Chief Executive Officer) in the event that their employment is permanently terminated as a result of a “Qualifying Termination” (as defined in the OSPP and described below).  A more detailed description of the OSPP may be found in the section entitled “Executive and Director Compensation — Potential Payments Upon a Change in Control.”   None of the Named Executive Officers received a payment under the OSPP during fiscal 2008.

IRS Limits on Deductibility

Following the Merger, the equity securities of Michaels are no longer publicly traded; accordingly, Section 162(m) of the Internal Revenue Code no longer applies to Michaels.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

THE COMPENSATION COMMITTEE

Michael S. Chae

Matthew S. Levin

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EXECUTIVE AND DIRECTOR COMPENSATION

Summary Compensation Table

According to SEC rules, the Summary Compensation Table shall include each of the following: (i) all individuals serving as principal executive officer or acting in a similar capacity during the last completed fiscal year; (ii) all individuals serving as principal financial officer or acting in a similar capacity during the last completed fiscal year; (iii) the three most highly compensated executive officers other than the principal executive officer and principal financial officer who were serving as executive officers at the end of the last completed fiscal year; and (iv) up to two additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer at the end of the last completed fiscal year.The following table summarizes the compensation for the fiscal years indicated paid to or earned by the following persons who were previously defined as Named Executive Officers:  Brian C. Cornell (who served as principal executive officer), Elaine D. Crowley (who, beginning on August 18, 2008, served as principal financial officer), Jeffrey N. Boyer (who served as principal financial officer during a portion of the year), Lisa K. Klinger (who served as interim principal financial officer during a portion of the year), Shelley G. Broader, Stuart W. Aitken and Thomas C. DeCaro (the three other most highly compensated individuals who were serving as executive officers at the end of fiscal 2008), and Thomas M. Bazzone and Harvey S. Kanter (who would have been among the three most highly compensated executive officers other than the principal executive officer and principal financial officer if they had they been executive officers at the end of the fiscal year).

		Salary	Bonus		Stock Awards	Option Awards	Non-Equity Incentive Plan Compensation	All Other Compensation	Total
Name and Principal Position	Year	($)	($)		($) (1)	($) (1)	($) (2)	($) (3)	($)
Brian C. Cornell,	2008	1,000,000	—		999,998	2,039,825	—	130,397	4,170,220
Chief Executive Officer (4)	2007	607,692	2,500,000		749,998	1,330,320	538,533	92,341	5,818,884
Shelley G. Broader	2008	372,596	755,208	(6)	121,802	390,320	—	395,734	2,035,660
President and Chief Operating
Officer (5)
Elaine D. Crowley	2008	132,692	150,000	(8)	—	199,257	—	117,039	598,988
Executive Vice President
— Chief Financial Officer (7)
Stuart W. Aitken	2008	310,385	110,000	(9)	—	317,585	—	189,265	927,235
Executive Vice President
— Chief Marketing Officer
Thomas C. DeCaro,	2008	346,416	—		—	349,577	—	70,661	766,654
Executive Vice President	2007	335,075	—		—	349,577	131,852	187,266	1,003,770
— Supply Chain	2006	275,731	—		—	256,295	151,250	452,220	1,135,496
Jeffrey N. Boyer,	2008	157,752	—		—	—	N/A	5,026,010	5,183,762
Former President and	2007	625,000	—		—	1,179,825	244,063	205,968	2,254,856
Chief Financial Officer (10)	2006	499,039	—		—	329,288	480,208	709,889	2,018,424
Thomas M. Bazzone,	2008	190,426	—		—	—	N/A	1,860,961	2,051,387
Former Executive Vice President	2007	361,550	—		—	349,577	63,741	213,278	988,146
— Specialty Businesses (11)	2006	339,346	35,292		—	422,578	157,198	952,210	1,906,624
Harvey S. Kanter,	2008	163,947	—		—	—	N/A	1,347,825	1,511,772
Former Executive Vice President	2007	370,052	—		—	349,577	93,031	215,828	1,028,488
— Managing Director (12)	2006	330,529	—		—	317,108	188,573	534,492	1,370,702
Lisa K. Klinger	2008	269,481	—		—	218,487	—	57,137	545,105
Former Senior Vice President
— Finance and Treasurer (13)

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(1)  Amounts set forth in the Stock Awards and Option Awards columns represent the aggregate amount recognized for financial statement reporting purposes with respect to the Named Executive Officers for the fiscal year indicated, disregarding the estimate of forfeitures related to service-based vesting conditions, but otherwise computed in accordance with the Statement of Financial Accounting Standards (“SFAS”) No. 123, as amended by SFAS No 123(R), “Share-Based Payment” (“SFAS 123(R)”), based on the assumptions set forth in Note 8 of Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K.

(2) As discussed in further detail in the preceding section “Compensation Discussion and Analysis — Compensation Elements — Annual Bonuses”, only guaranteed bonuses were payable pursuant to the Bonus Plan for fiscal year 2008, and such guaranteed amounts are set forth under the “Bonus” column.

(3) The table below reflects the fiscal 2008 components of this column.

	Brian C. Cornell	Shelley G. Broader	Elaine D. Crowley	Stuart W. Aitken	Thomas C.  DeCaro	Jeffrey N. Boyer		Thomas M. Bazzone		Harvey S. Kanter		Lisa K. Klinger
Medical Benefits ($)	45,095	27,927	19,948	45,095	45,095	3,263		14,600		12,160		45,407
Insurance Premiums ($)	3,122	1,275	1,263	1,897	3,924	2,337		1,436		1,826		1,796
Company Contributions to 401(k) and Group Universal Life Plan ($)	40,416	—	—	2,759	14,291	3,517		14,418		14,854		6,862
Change in Control and Severance Payments ($) (a)	—	—	—	—	—	5,005,351	(b)	1,823,557	(c)	1,311,784	(d)	—
Tax Reimbursement ($) (e)	22,001	233,473	95,570	29,987	7,093	1,112		6,950		7,201		2,814
Relocation ($)	300	127,860	—	109,269	—	—		—		—		—
Auto ($)	19,463	4,941	—	—	—	10,430		—		—		—
Other ($) (f)	—	258	258	258	258	—		—		—		258
Total Other	130,397	395,734	117,039	189,265	70,661	5,026,010		1,860,961		1,347,825		57,137

(a) The amounts in this row reflect the dollar amounts received by the Named Executive Officers pursuant to Change in Control Agreements entered into in April 2006, which were triggered by the Merger and such executive’s subsequent departure from the Company.

(b) In connection with Mr. Boyer’s separation, he received (A) change in control cash payments totaling $3,343,362, including his prorated 2008 target bonus of $76,173; (B) a company-owned vehicle valued at $79,200, and $3,500 for the remaining value owed to Mr. Boyer pursuant to Company’s Policy Regarding Company Cars; (C) continuation of health and welfare benefits and payments of $12,972; (D) a payment of $100,301 representing contributions to retirement plans calculated as 3% of the change in control cash payments; (E) office equipment valued at $700; (F) cost attributable to miscellaneous gifts by Mr. Boyer paid for by the Company of $390; and (G) tax reimbursements totaling $1,464,926.

(c) In connection with Mr. Bazzone’s separation, he received (A) change in control cash payments totaling $1,200,016, including his prorated 2008 target bonus of $77,404; (B)  continuation of health and welfare benefits and payments of $31,135; (C) a payment of $36,000 representing contributions to retirement plans calculated as 3% of the change in control cash payments; (D) $25,000 in outplacement services; (E) office equipment valued at $700; and (F) tax reimbursements totaling $530,706.

(d) In connection with Mr. Kanter’s separation, he received (A) change in control cash payments totaling $1,202,459, including his prorated 2008 target bonus of $59,000; (B) continuation of health and welfare benefits and payments of $33,185; (C) a payment of $36,074 representing contributions to retirement plans calculated as 3% of the change in control cash payments; (D) $25,000 in outplacement services; (E) $8,875 in legal expenses; (F) office equipment valued at $700; and (G) tax reimbursements totaling $5,491.

(e)Reimbursement of income taxes is related to signing bonus, relocation, legal expenses, executive gifts, long-term disability insurance premiums and Company matching contributions under the Group Universal Life Plan.  Messrs. Boyer, Bazzone and Kanter’s tax reimbursement related to their change in control and severance is included under “Change in Control and Severance Payments,” as specified in notes (b), (c) and (d) above.

(f)The amounts in this column reflect for Ms. Broader, Ms. Crowley, Mr. Aitken, Mr. DeCaro and Ms. Klinger the cost attributable to executive gifts.

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(4)	Mr. Cornell became our Chief Executive Officer on June 4, 2007, and his compensation for fiscal 2007 reflects a partial fiscal year.
(5)	Ms. Broader became our President and Chief Operating Officer on June 23, 2008, and her compensation reflects a partial fiscal year.
(6)	Represents signing bonus of $500,000 and guaranteed fiscal year 2008 bonus of $255,208 provided to Ms. Broader pursuant to her offer letter.
(7)	Ms. Crowley became our Executive Vice President-Chief Financial Officer on August 18, 2008, and her compensation reflects a partial fiscal year.
(8)	Represents signing bonus provided to Ms. Crowley pursuant to her offer letter.
(9)	Represents guaranteed fiscal year 2008 bonus provided to Mr. Aitken.
(10)	Mr. Boyer served as President and Chief Financial Officer until April 4, 2008 when he separated from the Company.
(11)	Mr. Bazzone served as Executive Vice President-Specialty Business until July 2, 2008 when he separated from the Company.
(12)	Mr. Kanter served as Executive Vice President-Managing Director until May 25, 2008 when he separated from the Company.
(13)	Ms. Klinger served as Interim Chief Financial Officer from April 5, 2008 to August 17, 2008. She continued to serve as Senior Vice President-Finance and Treasurer until February 20, 2009 when she separated from the Company.

Grants of Plan-Based Awards for Fiscal 2008

The following table sets forth the plan-based awards granted to Named Executive Officers pursuant to Company plans during fiscal 2008.

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Grants of Plan-Based Awards (1)

		Estimated Future Payouts Under Non- Equity Incentive Plan Awards (2)			All Other Stock Awards: Number Shares of	All Other Option Awards: Number of Securities Underlying	Exercise or Base Price of Option	Grant Date Fair Value of Stock and Option
Name and Principal Position	Grant Date	Threshold ($)	Target ($)	Maximum ($)	Stock (#)	Options (#)	Awards ($/Sh)(3)	Awards ($)(4)
Brian C. Cornell,
Chief Executive Officer	N/A	350,000	1,000,000	2,000,000
Shelley G. Broader,
President and Chief Operating Officer (5)	N/A	89,323	255,208	510,417
	7/28/2008				54,134			812,010
	7/28/2008					189,216	15.00	1,191,153
	7/28/2008					189,216	22.50	828,198
	7/28/2008					47,304	30.00	169,538
	7/28/2008					47,304	37.50	149,008
	7/28/2008					47,304	45.00	135,857
	7/28/2008					47,304	52.50	128,383
Elaine D. Crowley,
Executive Vice President
— Chief Financial Officer (6)	N/A	21,875	62,500	125,000
	9/12/2008					151,398	15.00	926,541
	9/12/2008					151,398	22.50	632,238
	9/12/2008					37,849	30.00	126,870
	9/12/2008					37,849	37.50	111,541
	9/12/2008					37,849	45.00	101,133
	9/12/2008					37,849	52.50	94,244
Stuart W. Aitken,
Executive Vice President
— Chief Marketing Officer (7)	N/A	56,875	162,500	325,000
	6/4/2008					56,774	15.00	298,654
	6/4/2008					56,774	22.50	177,362
	6/4/2008					14,193	30.00	32,474
	6/4/2008					14,193	37.50	25,902
	6/4/2008					14,193	45.00	22,070
	6/4/2008					14,193	52.50	19,217
Thomas C. DeCaro,
Executive Vice President
— Supply Chain	N/A	60,984	174,239	348,478
Jeffrey N. Boyer,
Former President and Chief Financial Officer	N/A	26,661	76,173	152,346
Thomas M. Bazzone,
Former Executive Vice President
— Specialty Businesses	N/A	27,091	77,404	154,808
Harvey S. Kanter,
Former Executive Vice President
— Managing Director	N/A	20,650	59,000	118,001
Lisa K. Klinger
Former Senior Vice President
— Finance and Treasurer	N/A	37,800	108,000	216,000

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(1)	All equity awards noted below were granted under the 2006 Equity Incentive Plan.
(2)	The threshold, target and maximum amounts in these columns have been provided in accordance with Item 402(d) of Regulation S-K and show the range of payouts targeted for fiscal 2008 for performance under the Bonus Plan as discussed in further detail in “Compensation Discussion and Analysis — Compensation Elements — Annual Bonuses.” For Ms. Broader, Ms. Crowley, Mr. Boyer, Mr. Bazzone and Mr. Kanter, these amounts reflect pro rated values for the partial year each executive was employed. Only guaranteed bonuses are payable pursuant to the Bonus Plan for fiscal year 2008 which have been previously approved and are expected to be paid in April 2009, as reflected in the Summary Compensation Table in the column entitled “Bonus.”
(3)	All grants of stock options under the 2006 Equity Incentive Plan have an exercise price equal to or greater than the fair market value of our Common Stock on the date of grant. Because the Company is a privately-held company and there is no market for our Common Stock, the fair market value of our Common Stock is determined by our Board of Directors based on available information that is material to the value of our Common Stock, including the value of the Company immediately prior to the Merger, subsequent third party valuation reports, the principal amount of the Company’s indebtedness, the Company’s actual and projected financial results, and fluctuations in the market value of publicly-traded companies in the retail industry.
(4)	The amounts in this column represent the fair value of the award on the date of the grant as calculated in accordance with SFAS No. 123(R).
(5)	Stock options were granted to Ms. Broader on July 28, 2008, and vest at the rate of 20% per year on each of the first through fifth anniversaries of June 23, 2008, or earlier upon a change in control (as defined in the Stockholders Agreement). Ms. Broader’s restricted stock awards vest 20% on June 23, 2009, June 23, 2010, June 23, 2011, June 23, 2012, and June 23, 2013.
(6)	Stock options were granted to Ms. Crowley on September 12, 2008, and vest at the rate of 20% per year on each of the first through fifth anniversaries of September 12, 2008, or earlier upon a change in control (as defined in the Stockholders Agreement).
(7)	Stock options were granted to Mr. Aitken June 4, 2008, and vest at the rate of 20% per year on each of the first through fifth anniversaries of June 4, 2008, or earlier upon a change in control (as defined in the Stockholders Agreement).

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Cornell Employment Agreement

The compensation for Brian C. Cornell described in the Summary Compensation Table and the Grants of Plan-Based Awards Table above, were in accordance with the terms of his employment agreement with Michaels, pursuant to which he serves as Chief Executive Officer of Michaels.  The agreement became effective June 4, 2007.  The agreement provides for an annual base salary of $1,000,000.  Mr. Cornell was eligible for an annual bonus for each completed fiscal year during his employment, with a target amount of 100% of his base salary and a maximum bonus potential of 200% of his base salary, based on performance targets established by the Board, with the actual amount of any bonus being in the sole discretion of the Board.  As an inducement to enter into the employment agreement, in connection with the commencement of his employment Mr. Cornell was paid a signing bonus of $2,500,000 and granted 133,333 shares of restricted stock.  In addition, in connection with the commencement of his employment Mr. Cornell was granted an option to purchase 2,270,966 shares of Common Stock.  For a more detailed description of the restricted stock and options grants, see the Outstanding Equity Awards at Fiscal Year-End table below.  Mr. Cornell was also entitled to participate in benefit plans standard for Michaels’ senior executive officers, including life insurance plans.

On March 4, 2009, Mr. Cornell informed the Company that he would be resigning as Chief Executive Officer.  Mr. Cornell’s employment agreement states that he is required to give the Company 60 days prior written notice of resignation and the Board may, at its election, choose to waive Mr. Cornell’s notice obligation but is still required to pay him for the applicable notice period.  The Board waived a portion of the notice period and Mr. Cornell’s resignation shall be effective April 2, 2009 and he will be paid only through that date.  Any restricted shares or stock options held by Mr. Cornell that are unvested as of the effective date of his resignation, will be cancelled pursuant to the terms of the 2006 Equity Incentive Plan and Mr. Cornell’s restricted stock and option agreements.

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Outstanding Equity Awards at Fiscal Year-End

	Option Awards				Stock Awards
Name and Principal Position	Number of Securities Underlying Unexercised Options Exercisable	Number of Securities Underlying Unexercised Options Unexercisable	Option Exercise Price	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested	Market Value of Shares or Units of Stock That Have Not Vested ($)
Brian C. Cornell
Chief Executive Officer (1)					66,666	284,664
	151,398	605,591	15.00	6/3/2015
	151,398	605,591	22.50	6/3/2015
	37,849	151,398	30.00	6/3/2015
	37,849	151,398	37.50	6/3/2015
	37,849	151,398	45.00	6/3/2015
	37,849	151,398	52.50	6/3/2015
Shelley G. Broader
President and Chief					54,134	231,152
Operating Officer (2)	—	189,216	15.00	7/27/2016
	—	189,216	22.50	7/27/2016
	—	47,304	30.00	7/27/2016
	—	47,304	37.50	7/27/2016
	—	47,304	45.00	7/27/2016
	—	47,304	52.50	7/27/2016
Elaine D. Crowley
Executive Vice President					N/A	N/A
— Chief Financial Officer (3)	—	151,398	15.00	9/11/2016
	—	151,398	22.50	9/11/2016
	—	37,849	30.00	9/11/2016
	—	37,849	37.50	9/11/2016
	—	37,849	45.00	9/11/2016
	—	37,849	52.50	9/11/2016
Stuart W. Aitken
Executive Vice President					N/A	N/A
— Chief Marketing Officer (4)	—	56,774	15.00	6/3/2016
	—	56,774	22.50	6/3/2016
	—	14,193	30.00	6/3/2016
	—	14,193	37.50	6/3/2016
	—	14,193	45.00	6/3/2016
	—	14,193	52.50	6/3/2016
	18,925	75,699	15.00	12/17/2015
	18,925	75,699	22.50	12/17/2015
	4,731	18,925	30.00	12/17/2015
	4,731	18,925	37.50	12/17/2015
	4,731	18,925	45.00	12/17/2015
	4,731	18,925	52.50	12/17/2015

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Thomas C. DeCaro,
Executive Vice President					N/A	N/A
— Supply Chain (5)	30,280	121,118	15.00	2/15/2015
	30,280	121,118	22.50	2/15/2015
	7,570	30,279	30.00	2/15/2015
	7,570	30,279	37.50	2/15/2015
	7,570	30,279	45.00	2/15/2015
	7,570	30,279	52.50	2/15/2015
Jeffrey N. Boyer,
Former President and Chief
Financial Officer (6)	N/A	N/A	N/A	N/A	N/A	N/A
Thomas M. Bazzone,
Former Executive Vice President
— Specialty Businesses (7)	N/A	N/A	N/A	N/A	N/A	N/A
Harvey S. Kanter,
Former Executive Vice President
— Managing Director (8)	N/A	N/A	N/A	N/A	N/A	N/A
Lisa K. Klinger
Former Senior Vice President
— Finance and Treasurer (9)					N/A	N/A
	18,925	75,699	15.00	2/15/2015
	18,925	75,699	22.50	2/15/2015
	4,731	18,925	30.00	2/15/2015
	4,731	18,925	37.50	2/15/2015
	4,731	18,925	45.00	2/15/2015
	4,731	18,925	52.50	2/15/2015

(1)	Stock options were granted to Mr. Cornell on June 4, 2007, and vest at the rate of 20% per year on each of the first through fifth anniversaries of February 16, 2007, or earlier upon a change in control (as defined in the Stockholders Agreement). Mr. Cornell’s restricted stock award vested as to 50% of the shares on June 4, 2008 and the remaining 50% of the shares are scheduled to vest on June 4, 2009. On March 4, 2009, Mr. Cornell informed the Company that he would be resigning as Chief Executive Officer effective April 2, 2009. Any restricted shares or stock options held by Mr. Cornell that are unvested as of the effective date of his resignation, will be cancelled pursuant to the terms of the 2006 Equity Incentive Plan and Mr. Cornell’s restricted stock and option agreements.
(2)	Stock options were granted to Ms. Broader on July 28, 2008, and vest at the rate of 20% per year on each of the first through fifth anniversaries of June 23, 2008, or earlier upon a change in control (as defined in the Stockholders Agreement). Ms. Broader’s restricted stock award vests 20% on June 23, 2009, June 23, 2010, June 23, 2011, June 23, 2012, and June 23, 2013.
(3)	Stock options were granted to Ms. Crowley on September 12, 2008, and vest at the rate of 20% per year on each of the first through fifth anniversaries of September 12, 2008, or earlier upon a change in control (as defined in the Stockholders Agreement).
(4)	Stock options were granted to Mr. Aitken on December 18, 2007 and June 4, 2008, and vest at the rate of 20% per year on each of the first through fifth anniversaries of December 18, 2007 and June 4, 2008, respectively, or earlier upon a change in control (as defined in the Stockholders Agreement).
(5)	Stock options were granted to Mr. DeCaro on February 16, 2007, and vest at the rate of 20% per year on each of the first through fifth anniversaries of February 16, 2007, or earlier upon a change in control (as defined in the Stockholders Agreement).
(6)	Mr. Boyer separated from the Company on April 4, 2008, and all options previously granted to him were cancelled.

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(7)	Mr. Bazzone separated from the Company on July 2, 2008, and all options previously granted to him were cancelled.
(8)	Mr. Kanter separated from the Company on May 25, 2008, and all options previously granted to him were cancelled.
(9)	Stock options were granted to Ms. Klinger on February 16, 2007, and vest at the rate of 20% per year on each of the first through fifth anniversaries of February 16, 2007, respectively, or earlier upon a change in control (as defined in the Stockholders Agreement). Ms. Klinger separated from the Company on February 20, 2009 and has until 60 days from such date to exercise 113,549 options that were vested as of February 20, 2009.

Option Exercises and Stock Vested for Fiscal 2008

The following table shows the number of stock awards held by our named executive officers that vested during fiscal year 2008.   No stock options were exercised during fiscal year 2008.

	Option Awards		Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)	Number of Shares Acquired on Vesting  (#)	Value Realized on Vesting ($)
Brian C. Cornell
Chief Executive Officer	—	—	66,667	1,000,005	(1)
Shelley G. Broader
President and Chief Operating Officer	—	—	—	—
Elaine D. Crowley
Executive Vice President
— Chief Financial Officer	—	—	—	—
Stuart W. Aitken
Executive Vice President
— Chief Marketing Officer	—	—	—	—
Thomas C. DeCaro,
Executive Vice President
— Supply Chain	—	—	—	—
Jeffrey N. Boyer,
Former President and Chief Financial Officer	—	—	—	—
Thomas M. Bazzone,
Former Executive Vice President
— Specialty Businesses	—	—	—	—
Harvey S. Kanter,
Former Executive Vice President
— Managing Director	—	—	—	—
Lisa K. Klinger
Former Senior Vice President
— Finance and Treasurer	—	—	—	—

55

(1)        The shares were valued on the June 4, 2008 vesting date for Mr. Cornell’s restricted shares.

Pension Benefits

The Company has no pension plans.

Nonqualified Deferred Compensation for Fiscal 2008

The Company has no nonqualified deferred compensation plans.

Potential Payments Upon Termination Or Change In Control

The rights to payments upon termination or change in control of each of the Named Executive Officers is governed by agreements between such officer and the Company.  Mr. Cornell’s employment contract, which commenced June 4, 2007, specifies certain benefits that are payable to him in the event of termination.  Mr. DeCaro, Executive Vice President — Supply Chain, as well as Messrs. Boyer, Bazzone and Kanter (each of whom separated from the Company during the first half of fiscal 2008), were parties to Change in Control Agreements entered into on April 26, 2006, which specified benefits upon termination on or prior to October 31, 2008 (the second anniversary of the Merger).  Ms. Broader, Ms. Crowley, Mr. Aitken, Mr. DeCaro and Ms. Klinger, participate in the OSPP, adopted by the Board in April 2008 and amended in July 2008.

Rights and Potential Payments on Termination for Cause, Death, Disability and Voluntary Resignation

Cause. Each of the respective agreements and the OSPP provides that no payments or benefits are due to the Named Executive Officer in the event of a termination for cause except amounts accrued and payable to such executive through the termination date.

Death.  In the event that a termination results from the death of an officer, each Named Executive Officer is provided a life insurance policy by the Company with a $1 million benefit, which would be payable to the officer’s beneficiaries.  Under the Stockholders Agreement, upon any termination of a Named Executive Officer’s employment by reason of the executive’s death, the executive’s estate has the option to sell to the Company all or any portion of the vested shares of the Common Stock owned by the Named Executive Officer within 60 days after the date of termination, at the fair market value of the shares as of the date they are repurchased. In addition, Mr. Cornell’s unvested restricted stock and Ms. Broader’s unvested restricted stock would vest, and had estimated values of $284,664 and $231,152, respectively, as of the last day of fiscal 2008.

Disability. In the event a Named Executive Officer becomes disabled, which causes his or her termination, the Company provides an executive long-term disability policy for the benefit of such executives which would provide disability benefits after 90 days in the amount of 67% of monthly compensation up to $20,000 per month.  This benefit generally continues until the disability is resolved or age 65.  Mr. Cornell’s employment agreement further provides that he would be paid his full salary for the 90 days prior to the commencement of disability benefits, which equates to $246,575 (based on his fiscal 2008 base salary).  Under the Stockholders Agreement, upon any termination of a Named Executive Officer’s employment by reason of the executive’s disability, the executive has the option to sell to the Company all or any portion of the vested shares of the Common Stock owned by the Named Executive Officer within 60 days after the date of termination, at the fair market value of the shares as of the date they are repurchased. In addition, Mr. Cornell’s unvested restricted stock and Ms. Broader’s unvested restricted stock would vest and had estimated values of $284,664 and $231,152, respectively, as of the last day of fiscal 2008.

Voluntary Resignation.  In the event of a voluntary resignation of any of the Named Executive Officers, there are no payments or benefits that continue beyond what is accrued and payable through the termination date.  Mr. Cornell’s agreement states that he is required to give the Company 60 days prior written notice of resignation and the Board may, at its election, choose to waive Mr. Cornell’s notice obligation but is still required to pay him for the applicable notice period.  In connection with Mr. Cornell’s notice of resignation on March 4, 2009, the Board waived a portion of the notice period and Mr. Cornell’s resignation is to be effective April 2, 2009.  Due to his voluntary resignation, Mr. Cornell will be paid his normal base salary through the effective date of his resignation and will be provided normal benefits through the effective date of his resignation.

Rights and Potential Payments Upon a Change in Control or Termination Without Cause or With Good Reason

56

Change in Control Agreements

Prior to the Merger, Michaels entered into Change in Control Agreements with Messrs. Boyer, Bazzone, DeCaro, and Kanter on April 26, 2006.  Under the Change in Control Agreements, because a change in control (as defined in the Change in Control Agreements) occurred on October 31, 2006 as a result of the Merger, the executive became immediately entitled to the following benefits:

·Accelerated vesting of all equity-based compensation awards;

·Continued employment with Michaels in an equivalent position for two years following the change in control, unless earlier terminated;

·Base compensation, cash bonus awards, long-term incentive opportunities and retirement, welfare and fringe benefits for two years following the change in control (unless earlier terminated) at levels at least equal to the compensation and benefits received by the executive immediately prior to the change in control; and

·Comprehensive officer liability insurance coverage and continued indemnification rights.

Executives who are party to a Change in Control Agreement are also entitled to severance benefits if the executive’s employment is terminated under certain circumstances after a change in control.  Under the Change in Control Agreements, the Merger constituted a change in control, and an executive is entitled to those severance benefits if, during the two-year period after October 31, 2006, the executive is terminated without cause (termination with cause includes conviction of a felony involving moral turpitude or misappropriation of assets, fraud or willful misconduct that is materially detrimental to the Company, and willful and continued failure to perform the executive’s duties) or resigns for good reason (which includes significant changes in an executive’s duties, responsibilities or reporting relationships, failure to provide equivalent compensation and benefits and being required to relocate 50 or more miles).  If terminated or separated from Michaels under those circumstances, the executive would be entitled to the following additional benefits under the Change in Control Agreement:

·a lump-sum cash severance payment equal to two times (three times for our then co-Presidents) the sum of (i) the executive’s base salary in effect on the date of termination and (ii) the greater of the average annual incentive award for the previous three fiscal years and the target annual bonus for the year of termination;

·a prorated target annual bonus for the year of termination;

·the continuation of welfare and fringe benefits for two years (three years for our then co-Presidents) after termination of employment;

·the accelerated vesting of all equity-based compensation awards and the termination of any restrictions and forfeiture provisions related to such awards, except for stock options granted under the 2006 Equity Incentive Plan through the date of this filing;

·two additional years (three additional years for our then co-Presidents) of service credit (or payment in lieu) for purposes of computing the executive’s accrued benefits under our Retirement Plans; and

·reimbursement for the cost of executive level outplacement services (subject to a $50,000 ceiling).

In order to obtain severance benefits under a Change in Control Agreement, an executive must first execute a separation agreement with Michaels that includes a waiver and release of any and all claims against Michaels and a commitment that, for one year following termination, the executive will not solicit or hire any employee of Michaels or its subsidiaries and will not interfere with any relationship between Michaels and its employees, customers or suppliers.  In addition to the foregoing, in accordance with the Change in Control Agreements, Michaels will make certain tax “gross-up” payments to address taxes, interest and penalties that may be imposed under applicable tax laws in connection with golden parachute payments and will reimburse the executive for certain legal fees and related expenses.

57

On October 31, 2008, the protection period under the Change in Control Agreements ended.  None of the current executive officers of the Company, including Mr. DeCaro, have any existing rights to severance payments under the Change in Control Agreements.  In fiscal year 2008, each of Messrs. Boyer, Bazzone and Kanter received severance payments under the Change in Control Agreements as a result of their separation from the Company prior to October 31, 2008.

Cornell Employment Agreement

Mr. Cornell joined the Company on June 4, 2007, and was not a party to a Change in Control Agreement.  However, Mr. Cornell has an employment agreement that provides benefits to him in the event of a termination of his employment without cause or by him for good reason.  In either circumstance, for the two-year period following the date of termination he would be entitled to receive a severance benefit equal to (i) his base salary at the rate in effect on the date of termination, (ii) the amount of his annual target bonus for the year of termination and (iii) continued medical benefits.  These benefits are contingent on Mr. Cornell signing and returning to the Company a timely and effective release of claims in the form provided by the Company.  The severance pay is payable on a pro-rated basis at the Company’s regular payroll periods and in accordance with its normal payroll practices.

Pursuant to Mr. Cornell’s agreement, “cause” shall mean the following events or conditions, as determined by the Board in its reasonable judgment:  (i) the refusal or failure to perform (other than by reason of disability), or material negligence in the performance of, his duties and responsibilities to the Company or any of its Affiliates (as defined in Mr. Cornell’s agreement), or refusal or failure to follow or carry out any reasonable direction of the Board, and the continuance of such refusal, failure or negligence for a period of 10 days after notice; (ii) the material breach of any provision of any material agreement between Mr. Cornell and the Company or any of its Affiliates; (iii) fraud, embezzlement, theft or other dishonesty with respect to the Company or any of its Affiliates; (iv) the conviction of, or plea of nolo contendere to any felony or any other crime involving dishonesty or moral turpitude; and (v) any other conduct that involves a breach of fiduciary obligation.

The term “good reason” is defined as (i) removal without Mr. Cornell’s consent from the position of Chief Executive Officer, (ii) a material diminution in the nature or scope of his responsibilities, duties or authority which is not cured within a specified notice period but provided however that the Company’s failure to continue Mr. Cornell’s appointment or election as a director or officer of any of its Affiliates, a change in reporting relationships resulting from the direct or indirect control of the Company (or successor corporation) by another corporation or other entity and any diminution of the business of the Company or any of its Affiliates or any sale or transfer of equity, property or other assets of the Company or any of its Affiliates  shall not constitute “good reason;” or (iii) the material failure of the Company to provide him the base salary and benefits in accordance with the terms of the agreement, excluding an inadvertent failure which is cured within a specified notice period.

In addition to an employment agreement, Mr. Cornell entered agreements providing for his restricted stock grant and his stock option grant.  These agreements provide that in the event of a change in control, Mr. Cornell’s restricted stock and stock options immediately vest.  However, had a change of control occurred on the last day of fiscal year 2008, although vested, the stock options would have had no value because the lowest exercise price of $15.00 per share was above the stock price as of such date.

Mr. Cornell is subject to confidentiality covenants.  In addition, Mr. Cornell is subject to non-competition and non-solicitations restrictions for a period of two years following resignation.  The employment agreement provides no change in control severance benefits.

On March 4, 2009, Mr. Cornell informed the Company that he would be resigning as Chief Executive Officer effective April 2, 2009.  Any restricted shares or stock options held by Mr. Cornell that are unvested as of the effective date of his resignation, will be cancelled pursuant to the terms of the 2006 Equity Incentive Plan and Mr. Cornell’s restricted stock and option agreements.  Due to his voluntary resignation, Mr. Cornell will be paid his normal base salary and will be provided normal benefits through the effective date of his resignation.

Officer Severance Pay Plan

In April 2008, the Board approved the OSPP, which was amended in July 2008.  The OSPP was established by the Company to provide certain severance benefits, subject to the terms and conditions of the OSPP, to designated officers (those with a position of Vice President or above, or an equivalent title as approved by the Compensation Committee, and excluding the Chief Executive

58

Officer) in the event that their employment is permanently terminated as a result of a “Qualifying Termination.”  For purposes of the OSPP, an executive is subject to a “Qualifying Termination” if:

·the executive is on active payroll or is on an approved leave of absence with a right to reinstatement at the time their employment terminates;

·the executive’s employment is terminated by the Company other than for “Cause” (which includes a failure to perform - or material negligence in the performance of - the executive’s duties, a material breach of a material agreement between the executive and the Company, fraud, embezzlement, theft, other dishonesty, the conviction of or plea of guilty or nolo contendere to a crime involving dishonesty of moral turpitude, breach of a fiduciary duty to the Company or violation of Company policy that inflicts damage to the Company) and other than a result of death or disability;

·the executive is not offered, nor has accepted, other employment with (1) an affiliate of the Company, (2) a successor of the Company, or (3) a purchaser of some or all of the assets of the Company: (a) in a position which the executive is qualified to perform regardless of whether the executive is subject to, among other things, a new job title, different reporting relationships or a modification of the executive’s duties and responsibilities; (b) that, when compared with the executive’s last position with the Company, provides a comparable base salary and bonus opportunity; and (c) there is no change in the executive’s principal place of employment to a location more than  35 miles from the executive’s principal place of employment immediately prior to the Qualifying Termination; and

·the executive continues employment until the termination date designated by the Company or such earlier date to which the Company agrees, and, during the period from the date the executive receives notice of termination until the termination date, the executive continues to perform to the reasonable satisfaction of the Company.

Executives subject to a Qualifying Termination are entitled to the following benefits:

·severance pay at the following levels: (i) for the position of Vice President with less than two years of service, six months of base salary continuation; (ii) for the position of Vice President with two or more years of service, twelve months of base salary continuation; (iii) for the position of Senior Vice President, Executive Vice President or President with less than two years of service, twelve months of base salary continuation; and (iv) for the position of Senior Vice President, Executive Vice President or President with two or more years of service, eighteen months of base salary continuation;

·a prorated target annual bonus for the year of termination; and

·the continuation of welfare and fringe benefits for the salary continuation period.

In order to obtain severance benefits under the OSPP, an executive must first execute a severance agreement and release with Michaels that includes a waiver and release of any and all claims against Michaels and a commitment that, for one year following termination, the executive will not solicit or hire any employee or distributor or vendor of Michaels or its subsidiaries and will not directly or indirectly compete with, or join an organization that directly or indirectly competes with, Michaels. Additionally, an executive officer will not be eligible for benefits under the OSPP if he or she is eligible for severance pay or other termination benefits (other than incidental perquisites such as continued use of a Company vehicle or an air travel allowance) under any other severance pay plan or under any employment agreement or other agreement with the Company or any of its affiliates.

Equity Plans

Each of the Named Executive Officers currently employed with the Company have entered into stock option agreements that provide for vesting upon a change in control.  Additionally, Ms. Broader has a restricted stock agreement that provides that her restricted stock shall vest upon a change in control.  However, had a change of control occurred on the last day of fiscal year 2008, although vested, the stock options would have had no value because the lowest exercise price of $15.00 per share was above the stock price as of such date.

59

Estimated Separation Payments

The table below reflects the amount of compensation payable under Mr. Cornell’s employment agreement (including his Stock Option Agreement and Restricted Stock Agreement) and under the OSPP described above to each of the Named Executive Officers other than Mr. Cornell as of the end of fiscal 2008 in the event of involuntary termination without cause or resignation for good reason.  The amounts shown, except for Messrs. Boyer, Bazzone and Kanter and Ms. Klinger, assume that such termination was effective as of the last day of the prior fiscal year, January 31, 2009.  For Messrs. Boyer, Bazzone and Kanter, the amounts shown are the actual amounts they were paid, or credited for, as a result of their separation from the Company during fiscal 2008.  For Ms. Klinger, the amounts shown are the actual amounts she was paid, or credited for, as a result of her separation on February 20, 2009, as well as amounts expected to be paid for continuing benefits during her 18 month severance period pursuant to the OSPP.  The actual amounts, or value, to be paid to the other Named Executive Officers can only be determined at the time of such executive’s separation from the Company.

	Executive Payments and Benefits upon Termination Without Cause or by Executive with Good Reason ($)
Brian C. Cornell (1)
Salary	2,000,000
Bonus	2,000,000
Restricted Stock	284,664
Retirement Benefits	—
Welfare Benefits	104,864	(2)
Automobile	40,946	(3)
Outplacement	—
Tax Reimbursements	—
Total	4,430,474
Shelley G. Broader
Salary	625,000
Bonus	268,493
Restricted Stock	231,152
Retirement Benefits	—
Welfare Benefits (4)	57,744
Automobile	—
Tax Reimbursements	—
Total	1,182,389
Elaine D. Crowley
Salary	300,000
Bonus	69,041
Retirement Benefits	—
Welfare Benefits (4)	57,587
Outplacement	—
Tax Reimbursements	—
Total	426,628
Stuart W. Aitken
Salary	325,000
Bonus	162,500
Retirement Benefits	—
Welfare Benefits (4)	57,655
Outplacement	—
Tax Reimbursements	—
Total	545,155

60

Thomas C. DeCaro
Salary	522,717
Bonus	174,239
Retirement Benefits	—
Welfare Benefits (4)	86,523
Outplacement	—
Tax Reimbursements	—
Total	783,479
Jeffrey N. Boyer
Salary	1,921,876
Bonus	1,421,486	(5)
Retirement Benefits (6)	100,301
Welfare Benefits (7)	14,062
Automobile	82,700	(8)
Outplacement	—
Tax Reimbursements	1,464,926
Total	5,005,351	(9)
Thomas M. Bazzone
Salary	748,408
Bonus	451,608	(10)
Retirement Benefits (6)	36,000
Welfare Benefits (7)	31,835
Outplacement	25,000
Tax Reimbursements	530,706
Total	1,823,557
Harvey S. Kanter
Salary	762,306
Bonus	440,153	(11)
Retirement Benefits (6)	36,074
Welfare Benefits (7)	42,760
Outplacement	25,000
Tax Reimbursements	5,491
Total	1,311,784	(12)
Lisa K. Klinger
Salary	405,000
Bonus	5,940	(13)
Retirement Benefits	—
Welfare Benefits (14)	86,529
Outplacement	—
Tax Reimbursements	—
Total	497,469

(1)	On March 4, 2009, Mr. Cornell informed the Company that he would be resigning as Chief Executive Officer effective April 2, 2009. Because his resignation will be a voluntary resignation other than for good reason, Mr. Cornell will not be eligible for the compensation set forth in the above table.
(2)	Represents estimated cost of two years of continued benefits, including medical, long-term disability, life insurance, and executive and spouse physicals.
(3)	Represents personal use of automobile for 24 months.
(4)	Represents the value of total fiscal 2008 medical, dental and vision actual costs plus a 15% trend factor of benefits for the number of years of severance for each of Ms. Broader, Ms. Crowley, Mr. Aitken and Mr. DeCaro, as applicable.
(5)	Includes $76,173 for prorated fiscal 2008 bonus.

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(6)	Calculated as 3% of total payment of base salary and bonus payments for Company matching contribution to retirement plans.
(7)	Represents continued benefits, including medical, long-term disability, life insurance, and executive and spouse physicals, office equipment, reimbursement for legal expenses, and, in the case of Mr. Boyer, the cost attributable to miscellaneous gifts by Mr. Boyer paid for by the Company. For a further description of these benefits see footnote 3 to the Summary Compensation Table.
(8)	Represents a company-owned vehicle valued at $79,200 and $3,500 for the remaining value owed to Mr. Boyer pursuant to Company’s Policy Regarding Company Cars.
(9)	Excludes $1,000,000 that the Company paid to Mr. Boyer to acquire shares of his Common Stock (see “Share Repurchase Rights” below).
(10)	Includes $77,404 for prorated fiscal 2008 bonus.
(11)	Includes $59,000 for prorated fiscal 2008 bonus.
(12)	Excludes $300,000 that the Company paid to Mr. Kanter to acquire shares of his Common Stock (see “Share Repurchase Rights” below).
(13)	Represents $5,940 for prorated fiscal 2009 bonus pursuant to the OSPP.
(14)	Represents $1,200 paid to Ms. Klinger for welfare benefits on the termination date and $85,059 for the value of total fiscal 2008 medical, dental and vision actual costs plus a 15% trend factor of benefits expected to be paid during her 18 month severance period pursuant to the OSPP.

Share Repurchase Rights

Under the Stockholders Agreement, upon any termination of a Named Executive Officer’s employment by reason of the executive’s death or disability, the executive or his/her estate has the option to sell to the Company all or any portion of the vested shares of the Common Stock owned by the Named Executive Officer within 60 days after the date of termination, at the fair market value of the shares as of the date they are repurchased.

Upon termination of a Named Executive Officer’s employment for any reason, the Company has the option to purchase all or any portion of the executive’s shares that were originally purchased from the Company, at the fair market value of the shares.  If the Company elects to purchase the executive’s shares, it must deliver notice to the executive no later than 240 days after (but not before the date that is one day after the six-month anniversary of) the later of (i) the date of termination or (ii) the exercise of any option originally granted to the executive or the date upon which any unvested shares granted to the executive become vested shares.  With respect to those shares issued to a Named Executive Officer directly or indirectly pursuant to an incentive plan, the Company may purchase all or any portion of the executive’s shares at the fair market value of the shares (upon delivery of the notice as described in the immediately preceding sentence), if the executive’s employment is terminated due to death, disability, by the Company without cause or by the executive for good reason (or in circumstances in which the Company would have no grounds to terminate the executive for cause). If the Named Executive Officer’s employment is terminated by the Company for cause, the Company may purchase all or any portion of the executive’s shares at the lesser of the cost or the fair market value of the shares

Assuming a repurchase of the shares on the last day of fiscal 2008, the Named Executive Officers (or their estates) would have received the following amounts for their shares: Brian C. Cornell, $1,138,668; Shelley G. Broader, $231,152; Elaine D. Crowley, $0; Stuart W. Aitken, $0; Thomas C. DeCaro, $113,868; Jeffrey N. Boyer, $1,000,000, which is the actual amount he was paid for his shares upon separation from the Company on April 4, 2008; Thomas M. Bazzone, $0; Harvey S. Kanter, $300,000, which is the actual amount he was paid for his shares upon separation from the Company on May 25, 2008; and Lisa K. Klinger, $22,776.

Director Compensation for Fiscal 2008

The current directors are not paid any fees for services as directors and they do not receive reimbursement for their expenses.

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ITEM 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

PRINCIPAL STOCKHOLDERS AND MANAGEMENT OWNERSHIP

The following table presents information regarding the number of shares of Michaels Common Stock beneficially owned as of March 30, 2009 (unless otherwise indicated) by each of Michaels’ directors and the Named Executive Officers (as defined in “Item 11. Executive Compensation — Compensation Discussion and Analysis — Executive and Director Compensation — Summary Compensation Table”), and the current directors and executive officers of Michaels as a group.  In addition, the table presents information about each person or entity known to Michaels to beneficially own 5% or more of Michaels Common Stock.  Unless otherwise indicated by footnote, the beneficial owner exercises sole voting and investment power over the shares noted below.  The percentage of beneficial ownership for our directors and executive officers, both individually and as a group, is calculated based on 120,975,951 shares of Michaels Common Stock outstanding as of March 30, 2009. Other than beneficial ownership information relating to the Company’s executive officers, the beneficial ownership information set forth below was provided by or on behalf of our Directors, our Sponsors, and Highfields, and the Company has not independently verified the accuracy or completeness of the information so provided.

	Amount and
	Nature of
	Beneficial		Percent
Name of Beneficial Owner	Ownership (1)		of Class (1)
Josh Bekenstein	—		*
Michaels S. Chae	—		*
Todd Cook	—		*
Lewis Klessel	—		*
Matthew S. Levin	—		*
Gerry Murphy	—		*
James A. Quella	—		*
Peter Wallace	—		*
Brian C. Cornell	1,175,053	(4)	*
Shelley G. Broader	54,134		*
Elaine D. Crowley	—		*
Stuart W. Aitken	56,774	(5)	*
Thomas C. Decaro	208,343	(6)	*
Jeffrey N. Boyer	—	(7)	*
Thomas M. Bazzone	—	(8)	*
Harvey S. Kanter	—	(9)	*
Lisa K. Klinger	118,882	(10)	*
Michaels Holdings, LLC (2) (3)	110,373,482		91.2	%
Bain Capital Investors, LLC and related funds (2)	110,373,482		91.2	%
Affiliates of The Blackstone Group, L.P. (3)	110,373,482		91.2	%
Highfields Capital Management, L.P. and related funds (11)	7,333,250		6.1	%
All current directors and executive officers as a group (19 persons)	2,078,000	(12)	1.7	%

*Less than one percent.

(1)Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, a person has beneficial ownership of any securities as to which such person, directly or indirectly, through any contract, arrangement, undertaking, relationship or otherwise has or shares voting power and/or investment power or as to which such person has the right to acquire such voting and/or investment power within 60 days.  Percentage of beneficial ownership by a person as of a particular date is calculated by dividing the number of shares beneficially owned by such person by the sum of the number of shares outstanding as of such date and the number of unissued shares as to which such person has the right to acquire voting and/or investment power within 60 days.  Unless otherwise indicated, the number of shares shown includes outstanding shares of Common Stock owned as of March 30, 2009 by the person indicated.

(2)Includes the 110,373,482 shares owned by Michaels Holdings LLC over which Bain Capital Investors, LLC and related funds may be deemed, as a result of their ownership of 50% of Michaels Holdings LLC’s total outstanding shares and certain

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provisions of Michaels Holdings LLC’s operating agreement, to have shared voting and dispositive power.  Bain Capital Investors, LLC (“BCI”) is the administrative member of and makes investment and voting decisions on behalf of Bain Capital Integral Investors 2006, LLC.  Investment and voting decisions by BCI are made jointly by three or more individuals who are managing directors of the entity, and therefore no individual managing director of BCI is the beneficial owner of the shares ultimately of Michaels Common Stock directly owned by Michaels Holdings LLC. Messrs. Bekenstein, Cook and Levin are Managing Directors and Members of BCI, and they may therefore be deemed to share voting and dispositive power with respect to all the shares of Common Stock beneficially owned by Bain Capital Integral Investors 2006, LLC.  Messrs. Bekenstein, Cook and Levin disclaim beneficial ownership of any shares beneficially owned by BCI. Mr. Klessel does not have voting or dispositive power over any shares of Common Stock that may be deemed to be beneficially owned by BCI.  The address of Messrs. Bekenstein, Cook and Levin, and each of the Bain entities is c/o Bain Capital Partners, LLC, 111 Huntington Avenue, Boston, Massachusetts 02199.

(3)Includes the 110,373,482 shares owned by Michaels Holdings LLC over which affiliates of The Blackstone Group L.P. may be deemed, as a result of their ownership of 50% of Michaels Holdings LLC’s total outstanding shares and certain provisions of Michaels Holdings LLC’s operating agreement, to have shared voting and dispositive power.  Affiliates of The Blackstone Group L.P. include Blackstone Capital Partners V L.P., BCP V-S L.P., Blackstone Family Investment Partnership V L.P., Blackstone Family Investment Partnership V-A L.P., Blackstone Participation Partnership V L.P. and BCP V Co-Investors L.P. (collectively, the “Blackstone Funds”).    Blackstone Management Associates V L.L.C. (“BMA V”) is the general partner of each of the Blackstone Funds.  BMA V L.L.C. (“BMA”) is the sole member of BMA V, and may, therefore, be deemed to have shared voting and investment power over the shares.   Investment and voting decisions by BMA are made jointly by three or more individuals who are managing directors, and therefore no individual managing director of BMA is the beneficial owner of the shares of Michaels Common Stock directly owned by Michaels Holdings LLC. Messrs. Chae, Murphy and Quella are members of BMA, and they may therefore be deemed to share voting and dispositive power with respect to the shares. Messrs. Chae, Murphy and Quella disclaim any beneficial ownership of any shares beneficially owned by BMA. Mr. Wallace does not have voting or dispositive power over any shares of Common Stock that may be deemed beneficially owned by Blackstone. The address of Messrs. Chae, Murphy and Quella, and each of the Blackstone entities is c/o The Blackstone Group, L.P., 345 Park Avenue, New York, New York 10154.

(4)Includes 454,193 stock options that vested on February 16, 2008 and 454,193 stock options that vested on February 16, 2009.

(5)Includes 56,774 stock options that vested on December 18, 2008.

(6)Includes 90,838 stock options that vested on February 16, 2008 and 90,838 stock options that vested on February 16, 2009.

(7)Mr. Boyer separated from the Company on April 4, 2008.

(8)Mr. Bazzone separated from the Company on July 2, 2008.

(9)Mr. Kanter separated from the Company on May 25, 2008.

(10)Includes 56,774 stock options that vested on February 16, 2008 and 56,774 stock options that vested on February 16, 2009. Ms. Klinger separated from the Company on February 20, 2009. Pursuant to the terms of the 2006 Equity Incentive Plan, she has 60 days from such date to exercise her vested options.

(11)The address of Highfields Capital Management, LP and its related funds is 200 Clarendon Street, Boston, Massachusetts 02116.

(12)Consistent with the disclaimers of beneficial ownership of Messrs. Bekenstein, Cook, Levin, Chae, Murphy and Quella contained in notes (2) and (3) above, this number does not include the 110,373,482 shares of Michaels Common Stock that may be deemed to be beneficially owned by each of (a) Bain Capital Investors, LLC and related funds and (b) Affiliates of The Blackstone Group.  The total includes 1,691,866 vested options held by executive officers of the Company.

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EQUITY COMPENSATION PLAN INFORMATION

On February 15, 2007, the Board of Directors and stockholders approved the 2006 Equity Incentive Plan, as well as certain specific grants under the plan to key employees.  In addition, the stockholders granted the Board authority to make plan grants to other eligible participants in the future, which has occurred.  The following table gives information about equity awards under the above-mentioned plan as of March 30, 2009.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted- average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	10,287,462	$	26.25	3,869,504
Equity compensation not approved by security holders	N/A	N/A		N/A
Total	10,287,462	$	26.25	3,869,504

ITEM 13. Certain Relationships and Related Transactions, and Director Independence.

We pay an annual management fee to the Sponsors in the amount of $12 million and an annual management fee to Highfields Capital Management LP in the amount of $1 million.

We have a participation agreement with CoreTrust Purchasing Group (“CPG”), which designates CPG as our exclusive supplier of certain non-merchandise supplies and equipment. In exchange, we are offered non-merchandise supplies and equipment from a variety of vendors at a pre-determined price. We do not pay any fees to participate in this group arrangement, and we can terminate our participation at any time prior to the expiration of the agreement without penalty. The vendors separately pay fees to CPG for access to CPG’s consortium of customers. The Blackstone Group, one of our Sponsors, entered into an agreement with CPG whereby The Blackstone Group receives a portion of the gross fees vendors pay to CPG based on the volume of purchases made by us and other participants.

Bain Capital owns an approximate 55% ownership stake in an external vendor we utilize to print our circular advertisements.  Payments associated with this vendor during fiscal 2008 were $43.5 million.  We currently anticipate that our payments to this vendor in fiscal 2009 will be commensurate with those in fiscal 2008.

The Blackstone Group owns an approximate 65% interest in an external vendor we utilize to count our store inventory. Payments associated with this vendor during fiscal 2008 were $5.6 million.  We currently anticipate that our payments to this vendor in fiscal 2009 will be $7.5 million.

Bain Capital owns an approximate 26% ownership stake in an external vendor we utilize for non-merchandise supplies.  Payments associated with this vendor during fiscal 2008 were approximately $2.8 million.  We currently anticipate that our payments to this vendor in fiscal 2009 will be commensurate with those in fiscal 2008.

During the first quarter of fiscal 2008, The Blackstone Group acquired an approximate 72% ownership stake in an external vendor we utilize for all of the candy-type items in our stores.  Payments associated with this vendor during fiscal 2008 were $18.3 million.  We currently anticipate that our payments to this vendor in fiscal 2009 will be commensurate with those in fiscal 2008.

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During the second quarter of fiscal 2008, the Company entered into an agreement with Equity Healthcare LLC (“Equity Healthcare”), an affiliate of The Blackstone Group, who negotiates with providers of standard administrative services for health benefit plans and related services.  Equity Healthcare also provides quality of service monitoring.  Because of the combined purchasing power of its client participants, Equity Healthcare is able to negotiate pricing terms for providers that are believed to be more favorable than the companies could obtain for themselves on an individual basis.  For this service, Equity Healthcare receives a fee of $2 per employee per month (“PEPM Fee”) from the Company.  As the Company had 6,793 employees enrolled in health and welfare benefit plans as of January 2009, the annual amount payable by the Company under the agreement would be $0.2 million.

Equity Healthcare may also receive a fee from one or more of the health plans that have entered into a contract with Equity Healthcare (“Health Plan Fees”) if the total number of employees from The Blackstone Group portfolio companies (which includes the Company) joining such health plans exceeds specified thresholds.  If and when Equity Healthcare reaches the point at which the aggregate of its receipts from the PEPM Fee and the Health Plan Fees have covered all of its allocated costs, it will apply the incremental revenues derived from all such fees to (a) reduce the PEPM Fee; (b) avoid or reduce an increase in the PEPM Fee that might otherwise occur on renewal of the agreement between Equity Healthcare and the Company; or (c) arrange for additional services to the Company at no cost or reduced cost.

The Blackstone Group owns an approximate 6% ownership stake in an external vendor we utilize for waste management services. Payments associated with this vendor during fiscal 2008 were $3.4 million.  We currently anticipate that our payments to this vendor in fiscal 2009 will be $5.5 million.

The Blackstone Group owns an approximate 99% ownership stake in an external vendor we utilize as our preferred hotel provider. Payments associated with this vendor during fiscal 2008 were $0.4 million.  We currently anticipate that our payments to this vendor in fiscal 2009 will be commensurate with those in fiscal 2008.

The Blackstone Group owns an approximate 13% ownership stake in an external vendor we utilize for certain integrated software and processing services. Payments associated with this vendor during fiscal 2008 were $0.2 million.  We currently anticipate that our payments to this vendor in fiscal 2009 will be commensurate with those in fiscal 2008.

Our current directors are affiliates of Bain Capital or The Blackstone Group.  As such, some or all of our directors may have an indirect material interest in payments with respect to debt securities of the Company that have been purchased, or for which transactions are pending, by affiliates of Bain Capital and The Blackstone Group.  As of the date hereof, such affiliates beneficially own or will own approximately $233.3 million face amount of our Subordinated Discount Notes due 2016.

The Company has not adopted any formal policies or procedures for the review, approval or ratification of certain related-party transactions that may be required to be reported under the SEC disclosure rules.  Such transactions, if and when they are proposed or have occurred, have traditionally been (and will continue to be) reviewed by our Board on a case-by-case basis.  The Board may consider any relevant factors when reviewing the appropriateness of a related-party transaction, including (i) the importance of the transaction to the Company, (ii) the amount involved in the proposed transaction, (iii) the specific interest of the director or executive officer (or immediate family members of same) in the proposed transaction, and (iv) the overall fairness of the terms of the transaction to the Company.

As discussed in Item 10 above, no current director of our Board is deemed to be “independent” under our previously adopted independence standards.  See “Item 10.  Directors and Executive Officers of the Registrant.”

ITEM 14.  Principal Accountant Fees and Services.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S FEES

The following table presents fees for professional audit services rendered by Ernst & Young LLP for the audit of Michaels’ annual financial statements for each of fiscal 2008 and 2007, and fees billed for other services rendered by Ernst & Young LLP (in thousands).

	2008		2007
Audit Fees (1)	$	1,190	$	1,258
Audit-Related Fees (2)	54		45

(1)Audit Fees consist principally of fees for the audit of our annual financial statements and review of our financial statements included in our quarterly reports on Form 10-Q for those years, audit services provided in connection with compliance with the requirements of the Sarbanes-Oxley Act of 2002, and fees incurred in connection with the filing of registration statements with the SEC.

(2)Audit-Related Fees for fiscal 2008 and fiscal 2007 consist principally of fees related to employee benefit plans and statutory audits.

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The Audit Committee Charter requires that the Audit Committee pre-approve all audit and non-audit engagements, fees, terms and services in a manner consistent with the Sarbanes-Oxley Act of 2002 and all rules and applicable listing standards promulgated by the SEC, except that such non-audit services need not be pre-approved if (i) the aggregate amount of all such non-audit services provided to Michaels constitutes not more than 5% of the total amount of fees paid by Michaels to its independent registered public accounting firm during the fiscal year in which the non-audit services are provided, (ii) such services were not recognized by Michaels at the time of engagement to be non-audit services, and (iii) such services were promptly brought to the attention of the Audit Committee and approved by the Audit Committee prior to completion of the audit.  The Audit Committee Charter permits the Audit Committee, at the time of the annual audit engagement, to pre-approve audit fees of up to 15% of the engagement fees for unanticipated additional audit costs within the scope of the audit. Any additional audit fees must be approved by the Chairman of the Audit Committee or any other member of the Audit Committee to whom the Audit Committee delegates such authority. The Audit Committee may delegate the authority to grant any pre-approvals to one or more members of the Audit Committee, provided that such member(s) reports any pre-approvals to the Audit Committee at its next scheduled meeting.  The services performed by Ernst & Young LLP in fiscal 2008 and 2007 were approved in accordance with the policies and procedures established by the Audit Committee.

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PART IV

ITEM 15.  Exhibits and Financial Statement Schedules.

a) The following documents are filed as a part of this report:

(1)Consolidated Financial Statements:

See Index to Consolidated Financial Statements and Supplementary Data on page F-1.

(2)Exhibits:

The exhibits listed below and on the accompanying Index to Exhibits immediately following the financial statement schedules are filed or incorporated by reference into this Annual Report on Form 10-K.

EXHIBIT INDEX

Exhibit
Number	Description of Exhibit
2.1	Agreement and Plan of Merger, dated as of June 30, 2006, among Bain Paste Mergerco, Inc., Blackstone Paste Mergerco, Inc., Bain Paste Finco, LLC, Blackstone Paste Finco, LLC and Michaels Stores, Inc. (previously filed as Exhibit 2.1 to Form 8-K filed by Registrant on July 6, 2006, SEC File No. 001-09338).
2.2	First Amendment to Agreement and Plan of Merger, dated as of September 1, 2006, among Bain Paste Mergerco, Inc., Blackstone Paste Mergerco, Inc., Bain Paste Finco, LLC, Blackstone Paste Finco, LLC and Michaels Stores, Inc. (previously filed as Exhibit 2.1 to Form 8-K filed by Registrant on September 5, 2006, SEC File No. 001-09338).
3.1	Amended and Restated Certificate of Incorporation of Michaels Stores, Inc. (previously filed as Exhibit 3.1 to Form 10-K filed by Registrant on May 3, 2007, SEC File No. 001-09338).
3.2	Amended and Restated Bylaws of Michaels Stores, Inc. (previously filed as Exhibit 3.2 to Form 8-K filed by Registrant on November 6, 2006, SEC File No. 001-09338).
4.1	Senior Indenture, dated as of October 31, 2006, among Michaels Stores, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as trustee (previously filed as Exhibit 4.1 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).
4.2	Senior Subordinated Indenture, dated as of October 31, 2006, among Michaels Stores, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as trustee (previously filed as Exhibit 4.2 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).
4.3	Subordinated Discount Indenture, dated as of October 31, 2006, among Michaels Stores, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as trustee (previously filed as Exhibit 4.3 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).
4.4	Registration Rights Agreement, dated as of October 31, 2006, among Michaels Stores, Inc. and certain stockholders thereof (previously filed as Exhibit 4.7 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).
10.1	Michaels Stores, Inc. 2006 Equity Incentive Plan (previously filed as Exhibit 10.1 to Form 8-K filed by Registrant on February 21, 2007, SEC File No. 001-09338).*
10.2	Form of Stock Option Agreement under the Registrant’s 2006 Equity Incentive Plan (previously filed as Exhibit 10.2 to Form 8-K filed by Registrant on February 21, 2007, SEC File No. 001-09338).*
10.3	Form of Restricted Stock Award Agreement under the Michaels Stores, Inc. 2006 Equity Incentive Plan (previously filed as Exhibit 10.3 to Form 10-Q filed by the Registrant on June 6, 2008, SEC File No. 001-09338).*
10.4	Form of Change in Control Severance Agreement (previously filed as Exhibit 10.2 to Form 10-Q filed by Registrant on June 13, 2006, SEC File No. 001-09338).*

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10.5	Form of Change in Control Retention Bonus Plan (previously filed as Exhibit 10.3 to Form 10-Q filed by Registrant on June 13, 2006, SEC File No. 001-09338).*
10.6	Fiscal Year 2008 Bonus Plan Summary for Executive Officers (previously filed as Exhibit 10.1 to Form 8-K filed by Registrant on April 9, 2008, SEC File No. 001-09338).*
10.7	Form of Fiscal Year 2008 Bonus Plan (previously filed as Exhibit 10.1 to Form 10-Q filed by Registrant on June 6, 2008, SEC File No. 001-09338).*
10.8	Employment Agreement, dated June 4, 2007, between Michaels Stores, Inc. and Brian C. Cornell (previously filed as Exhibit 10.2 to Form 10-Q filed by Registrant on June 11, 2007, SEC File No. 001-09338).*
10.9	Letter Agreement, dated May 19, 2008, between Michaels Stores, Inc. and Shelley G. Broader (previously filed as Exhibit 10.4 to Form 10-Q filed by Registrant on June 6, 2008, SEC File No. 001-09338).*
10.10	Letter Agreement dated July 17, 2008, between Michaels Stores, Inc. and Elaine D. Crowley (previously filed as Exhibit 99.2 to Form 8-K filed by Registrant on July 24, 2008, SEC File No. 001-09338).*
10.11	Restricted Stock Award Agreement, dated June 4, 2007, between Michaels Stores, Inc. and Brian C. Cornell (previously filed as Exhibit 10.4 to Form 10-Q filed by Registrant on June 11, 2007, SEC File No. 001-09338).*
10.12	Stock Option Agreement, dated June 4, 2007, between Michaels Stores, Inc. and Brian C. Cornell (previously filed as Exhibit 10.5 to Form 10-Q filed by Registrant on June 11, 2007, SEC File No. 001-09338).*
10.13	Stockholders Agreement, dated as of October 31, 2006, among Michaels Stores, Inc. and certain stockholders thereof (previously filed as Exhibit 10.1 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).
10.14	Amended and Restated Stockholders Agreement, dated as of February 16, 2007, among Michaels Stores, Inc. and certain stockholders thereof (previously filed as Exhibit 10.23 to Form 10-K filed by Registrant on May 3, 2007, SEC File No. 001-09338).
10.15	Management Agreement, dated as of October 31, 2006, among Michaels Stores, Inc., Bain Capital Partners, LLC and Blackstone Management Partners V LLC (previously filed as Exhibit 10.2 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).*
10.16	Management Agreement, dated as of October 31, 2006, between Michaels Stores, Inc. and Highfields Capital Management LP (previously filed as Exhibit 10.3 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).*
10.17	Michaels Stores, Inc. Amended Officer Severance Pay Plan (filed herewith).*
10.18	Separation and Release Agreement, dated April 9, 2008, between Michaels Stores, Inc. and Jeffrey N. Boyer (filed herewith).*
10.19	Separation and Release Agreement, dated May 27, 2008, between Michaels Stores, Inc. and Harvey S. Kanter (previously filed as Exhibit 10.5 to Form 10-Q filed by Registrant on June 6, 2008, SEC File No. 001-09338).*
10.20	Separation Agreement and Release, dated July 2, 2008, between Michaels Stores, Inc. and Thomas M. Bazzone (previously filed as Exhibit 10.5 to Form 8-K filed by Registrant on July 9, 2008, SEC File No. 001-09338).*
10.21	Separation Agreement, dated October 31, 2006, between Charles J. Wyly, Jr. and Michaels Stores, Inc. (previously filed as Exhibit 10.27 to Form 10-K filed by Registrant on May 3, 2007, SEC File No. 001-09338).*
10.22	Separation Agreement, dated October 31, 2006, between Sam Wyly and Michaels Stores, Inc. (previously filed as Exhibit 10.28 to Form 10-K filed by Registrant on May 3, 2007, SEC File No. 001-09338).*
10.23	Form of Director Indemnification Agreement between Michaels Stores, Inc. and certain directors thereof (previously filed as Exhibit 10.36 to Form 10-K filed by Registrant on March 30, 2006, SEC File No. 001-09338).
10.24	Form of Officer Indemnification Agreement between Michaels Stores, Inc. and certain officers thereof (previously filed as Exhibit 10.37 to Form 10-K filed by Registrant on March 30, 2006, SEC File No. 001-09338).
10.25	Credit Agreement, dated as of October 31, 2006, among Michaels Stores, Inc., as lead borrower, the facility

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	guarantors named therein, Bank of America, N.A., as administrative agent and collateral agent, Deutsche Bank Securities Inc., as syndication agent, Credit Suisse, JPMorgan Chase Bank, N.A., Wells Fargo Retail Finance, LLC, as co-documentation agents, the lenders named therein, and Banc of America Securities LLC, Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc., as joint lead arrangers and joint bookrunners (previously filed as Exhibit 10.4 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).
10.26	Credit Agreement, dated as of October 31, 2006, among Michaels Stores, Inc., Deutsche Bank AG New York Branch, as administrative agent, the other lenders named therein, JPMorgan Chase Bank, N.A., as syndication agent, and Bank of America, N.A. and Credit Suisse, as co-documentation agents, and Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Banc of America Securities LLC as co-lead arrangers and joint bookrunners (previously filed as Exhibit 10.5 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).
10.27	First Amendment to Credit Agreement, dated as of January 19, 2007, to the Credit Agreement, dated as of October 31, 2006, among Michaels Stores, Inc., Deutsche Bank AG New York Branch, as administrative agent, the other lenders named therein, JPMorgan Chase Bank, N.A., as syndication agent, and Bank of America, N.A. and Credit Suisse, as co-documentation agents, and Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Banc of America Securities LLC as co-lead arrangers and joint bookrunners (previously filed as Exhibit 10.1 to Form 8-K filed by Registrant on January 25, 2007, SEC File No. 001-09338).
10.28	Second Amendment to Credit Agreement, dated as of May 10, 2007, to the Credit Agreement, dated as of October 31, 2006, among Michaels Stores, Inc., Deutsche Bank AG New York Branch, as administrative agent, the other lenders named therein, JPMorgan Chase Bank, N.A., as syndication agent, and Bank of America, N.A. and Credit Suisse, as co-documentation agents, and Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Banc of America Securities LLC as co-lead arrangers and joint bookrunners (previously filed as Exhibit 10.1 to Form 8-K filed by Registrant on May 11, 2007, SEC File No. 001-09338).
10.29	Master Services Agreement, dated as of January 16, 2009, by and between Michaels Stores, Inc. and Tata America International Corporation (filed herewith).
10.30	Michaels Stores, Inc. Employees 401(k) Plan, effective March 1, 2009 (filed herewith).*
21.1	Subsidiaries of Michaels Stores, Inc. (previously filed as Exhibit 21.1 to Form 10-K filed by Registrant on April 11, 2005, SEC File No. 001-09338).
23.1	Consent of Independent Registered Public Accounting Firm (filed herewith).
31.1	Certifications of Brian C. Cornell pursuant to §302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certifications of Elaine D. Crowley pursuant to §302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

*Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K.

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MICHAELS STORES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following Consolidated Financial Statements of Michaels Stores, Inc. are included in response to Item 8:

Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets at January 31, 2009 and February 2, 2008	F-4
Consolidated Statements of Operations for the fiscal years ended January 31, 2009, February 2, 2008, and February 3, 2007	F-5
Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2009, February 2, 2008, and February 3, 2007	F-6
Consolidated Statements of Stockholders’ (Deficit) Equity for the fiscal years ended January 31, 2009, February 2, 2008, and February 3, 2007	F-7
Notes to Consolidated Financial Statements for the fiscal years ended January 31, 2009, February 2, 2008, and February 3, 2007	F-8
Unaudited Supplemental Quarterly Financial Data for the fiscal years ended January 31, 2009 and February 2, 2008	F-37

All schedules have been omitted because they are not applicable or the required information is included in the financial statements or the notes thereto.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Michaels Stores, Inc.

We have audited the accompanying consolidated balance sheets of Michaels Stores, Inc. as of January 31, 2009 and February 2, 2008, and the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for each of the three years in the period ended January 31, 2009. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 Michaels Stores, Inc. at January 31, 2009 and February 2, 2008 and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 31, 2009, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 7 to the consolidated financial statements, in fiscal 2007, the Company changed its method of accounting for income tax uncertainties.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Michaels Stores, Inc.’s internal control over financial reporting as of January 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 1, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Dallas, TX

April 1, 2009

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Michaels Stores, Inc.

We have audited Michaels Stores, Inc.’s internal control over financial reporting as of January 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Michaels Stores, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting (see Item 9A). Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Michaels Stores, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 31, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Michaels Stores, Inc. as of January 31, 2009 and February 2, 2008, and the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for each of the three years in the period ended January 31, 2009 of Michaels Stores, Inc. and our report dated April 1, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Dallas, TX

April 1, 2009

F-3

MICHAELS STORES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions except share data)

	January 31,			February 2,
	2009			2008
ASSETS
Current assets:
Cash and equivalents	$	33		$	29
Merchandise inventories	900			845
Prepaid expenses and other	73			70
Deferred income taxes	41			31
Income tax receivable	2			5
Total current assets	1,049			980
Property and equipment, at cost	1,214			1,155
Less accumulated depreciation	(832		)	(722		)
	382			433
Goodwill	94			94
Debt issuance costs, net of accumulated amortization of $39 and $22, respectively	86			103
Deferred income taxes	12			—
Other assets	2			4
	194			201
Total assets	$	1,625		$	1,614
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	230		$	221
Accrued liabilities and other	275			332
Current portion of long-term debt	173			122
Income taxes payable	2			—
Current liabilities - discontinued operations	1			4
Total current liabilities	681			679
Long-term debt	3,756			3,741
Deferred income taxes	—			4
Other long-term liabilities	74			80
Long-term liabilities - discontinued operations	1			2
Total long-term liabilities	3,831			3,827
	4,512			4,506
Commitments and contingencies
Stockholders’ deficit:
Common Stock, $0.10 par value, 220,000,000 shares authorized; 118,376,402 shares issued and outstanding at January 31, 2009; 118,421,069 shares issued and outstanding at February 2, 2008	12			12
Additional paid-in capital	27			12
Accumulated deficit	(2,931		)	(2,926		)
Accumulated other comprehensive income	5			10
Total stockholders’ deficit	(2,887		)	(2,892		)
Total liabilities and stockholders’ deficit	$	1,625		$	1,614

See accompanying Notes to Consolidated Financial Statements.

F-4

MICHAELS STORES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions)

	Fiscal Year
	2008			2007			2006
Net sales	$	3,817		$	3,862		$	3,843
Cost of sales and occupancy expense	2,431			2,383			2,364
Gross profit	1,386			1,479			1,479
Selling, general, and administrative expense	1,060			1,051			1,023
Transaction expenses	—			29			205
Goodwill impairment	—			22			—
Related party expenses	16			17			38
Store pre-opening costs	6			6			5
Operating income	304			354			208
Interest expense	302			378			105
Other (income) and expense, net	4			(7		)	(12		)
(Loss) income before income taxes and discontinued operations	(2		)	(17		)	115
Provision for income taxes	3			5			71
(Loss) income before discontinued operations	(5		)	(22		)	44
Discontinued operations loss, net of income tax benefits of $0, $5 and $2, respectively	—			(10		)	(3		)
Net (loss) income	$	(5	)	$	(32	)	$	41

See accompanying Notes to Consolidated Financial Statements.

F-5

MICHAELS STORES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

	Fiscal Year
	2008			2007			2006
Operating activities:
Net (loss) income	$	(5	)	$	(32	)	$	41
Adjustments:
Depreciation and amortization	129			125			119
Share-based compensation	8			6			15
Tax benefits from stock options exercised	—			—			(12		)
Impairment of discontinued operations	—			6			—
Goodwill impairment	—			22			—
Deferred financing costs amortization	17			17			5
Other	—			(1		)	—
Accretion of subordinated discount notes	39			35			6
Changes in assets and liabilities:
Merchandise inventories	(67		)	3			(63		)
Prepaid expenses and other	3			3			(11		)
Deferred income taxes and other	(24		)	(19		)	(26		)
Accounts payable	5			23			31
Accrued interest	(40		)	38			35
Accrued liabilities and other	(4		)	8			8
Income taxes payable	5			21			26
Other long-term liabilities	(7		)	13			(17		)
Net cash provided by operating activities	59			268			157
Investing activities:
Additions to property and equipment	(85		)	(100		)	(143		)
Net cash used in investing activities	(85		)	(100		)	(143		)
Financing activities:
Issuance of Notes	—			—			1,400
Payment of debt issuance costs	—			—			(125		)
Borrowings on asset-based revolving credit facility	922			919			1,005
Payments on asset-based revolving credit facility	(871		)	(1,029		)	(800		)
Borrowings on senior secured term loan facility	—			—			2,400
Repayments on senior secured term loan facility	(24		)	(24		)	(55		)
Equity investment of Sponsors	—			—			1,649
Payment for old Common Stock in the Merger	—			—			(5,806		)
Equity investment of Management	—			8			—
Cash dividends paid to stockholders	—			—			(58		)
Repurchase of old Common Stock	—			—			(66		)
Repurchase of new Common Stock	(2		)	(1		)	—
Proceeds from stock options exercised	—			—			36
Tax benefits from stock options	9			—			12
Proceeds from issuance of old Common Stock and other	—			—			2
Payment of capital leases	(4		)	(7		)	—
Change in cash overdraft	—			(37		)	(32		)
Other	—			2			2
Net cash provided by (used in) financing activities	30			(169		)	(436		)
Net increase (decrease) in cash and equivalents	4			(1		)	(422		)
Cash and equivalents at beginning of period	29			30			452
Cash and equivalents at end of period	$	33		$	29		$	30
Supplemental Cash Flow Information:
Cash paid for interest	$	285		$	288		$	55
Cash paid for income taxes	$	15		$	22		$	79

See accompanying Notes to Consolidated Financial Statements.

F-6

MICHAELS STORES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

For the Three Years Ended January 31, 2009

(In millions except share data)

																			Accumulated
											Accumulated								Other
							Additional				(Deficit)/				Treasury				Comprehensive
	Number of		Common				Paid-in				Retained				Stock,				Income/
	Shares		Stock				Capital				Earnings				at Cost				(Loss)				Total
Balance at January 28, 2006	390,093,783		$		39		$		388		$		881		$		(28	)	$		8		$		1,288
Comprehensive income:
Net income	—		—				—				41				—				—				41
Foreign currency translation and other	—		—				—				—				—				(1			)	(1			)
Total comprehensive income																							40
Exercise of stock options and other	7,344,606		1				37				—				—				—				38
Share based compensation	—		—				15				—				—				—				15
Tax benefit from exercise stock options	—		—				12				—				—				—				12
Dividends declared	—		—				—				(45			)	—				—				(45			)
Acquisition of treasury stock	(5,665,733	)													(66			)	—				(66			)
Retirement of treasury stock	—		(1			)	(93			)	—				94				—				—
Acquisition and retirement of treasury stock in connection with the Merger	(384,439,323	)	(38			)	(1,997			)	(3,771			)	—				—				(5,806			)
Issuance of stock	110,640,063		11				1,648				—				—				—				1,659
Equity issuance costs	—		—				(10			)	—				—				—				(10			)
Balance at February 3, 2007	117,973,396		12				—				(2,894			)	—				7				(2,875			)
Comprehensive loss:
Net loss	—		—				—				(32			)	—				—				(32			)
Foreign currency translation and other	—		—				—				—				—				3				3
Total comprehensive loss																							(29			)
Share based compensation and other	—		—				5				—				—				—				5
Repurchase of stock	(93,333	)	—				(1			)	—				—				—				(1			)
Issuance of stock	541,006		—				8				—				—				—				8
Balance at February 2, 2008	118,421,069		12				12				(2,926			)	—				10				(2,892			)
Comprehensive loss:
Net loss	—		—				—				(5			)	—				—				(5			)
Foreign currency translation and other	—		—				—				—				—				(5			)	(5			)
Total comprehensive loss																							(10			)
Share based compensation and other	—		—				7				—				—				—				7
Tax benefit from stock options	—		—				9				—				—				—				9
Repurchase of stock	(111,334	)	—				(2			)	—				—				—				(2			)
Issuance of stock	66,667		—				1				—				—				—				1
Balance at January 31, 2009	118,376,402		$	12			$	27			$	(2,931		)	$	—			$	5			$	(2,887		)

See accompanying Notes to Consolidated Financial Statements.

F-7

MICHAELS STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Summary of Significant Accounting Policies

Description of Business

Michaels Stores, Inc. (together with its subsidiaries, unless the text otherwise indicates) owns and operates a chain of specialty retail stores in 49 states and Canada featuring arts, crafts, framing, floral, decorative wall décor, and seasonal merchandise for the hobbyist and do-it-yourself home decorator. Our wholly-owned subsidiary, Aaron Brothers, Inc., operates a chain of framing and art supply stores located in 9 states.

Fiscal Year

We report on the basis of a 52 or 53-week fiscal year, which ends on the Saturday closest to January 31. References to fiscal year mean the year in which that fiscal year began. Fiscal 2008 ended on January 31, 2009, fiscal 2007 ended on February 2, 2008, and fiscal 2006 ended on February 3, 2007. Fiscal year 2006 contained 53 weeks, while fiscal 2008 and 2007 each contained 52 weeks.

Consolidation

Our consolidated financial statements include the accounts of Michaels Stores, Inc. and all wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.

Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Foreign Currency Translation

The functional currency of our Canadian operations is the Canadian dollar. Translation adjustments result from translating our Canadian subsidiary’s financial statements into U.S. dollars. Balance sheet accounts are translated at exchange rates in effect at the balance sheet date. Income statement accounts are translated at average exchange rates during the year. Resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in our Consolidated Statements of Stockholders’ (Deficit) Equity and as a part of other (income) and expense in our Consolidated Statements of Operations. The cumulative translation adjustment in fiscal 2008 was $2 million, net of deferred taxes of $2 million, while in fiscal 2007, the cumulative translation adjustment was $12 million, net of deferred taxes of $8 million.  In fiscal 2008 and fiscal 2006, transaction losses of $4 million and $1 million, respectively related to foreign currency exchange rates while fiscal 2007 results include transaction gains of $7 million.

Cash and Equivalents

Cash and equivalents are comprised of highly liquid instruments with original maturities of three months or less and $17 million of credit card clearing accounts as of January 31, 2009, and February 2, 2008. Cash equivalents are carried at cost, which approximates fair value. We record interest income earned from our cash and equivalents as a component of other (income) and expense, net, in our financial statements. In fiscal 2008, we had an immaterial amount of interest income.  Interest income was $1 million and $10 million for fiscal 2007 and 2006, respectively.

Merchandise Inventories

We value our merchandise inventories at the lower of cost or market, with cost determined using a weighted average method. Cost is calculated based upon the purchase order cost of an item at the time it is received by us, and includes the cost of warehousing, handling, purchasing, and importing the inventory, as well as inbound and outbound transportation, partially offset by vendor allowances. This net inventory cost is recognized through cost of sales when the inventories are sold. Due to systems limitations, it is impracticable for us to assign specific costs and allowances to individual units of inventory. As such, to match net inventory costs against the related revenues, we must use all available information to appropriately estimate the net inventory costs to be deferred and recognized each period. Significant changes to our estimate of when inventory is sold could materially affect the amount of the deferral, and subsequent income statement recognition, of the net inventory costs.

F-8

Vendor allowances, which primarily represent volume rebates and cooperative advertising funds, are recorded as a reduction of the cost of the merchandise inventories. We generally earn vendor allowances as a consistent percentage of certain merchandise purchases with no minimum purchase requirements. Typically, our vendor allowance programs extend for a period of 12 months. We recognized vendor allowances of $149 million, or 3.9% of net sales, in fiscal year 2008, $141 million, or 3.7% of net sales, in fiscal year 2007, and $144 million, or 3.7% of net sales, in fiscal 2006. During the three fiscal years ended January 31, 2009, the number of vendors from which vendor allowances were received ranged from approximately 740 to 790. We did not have any material vendor allowance programs in fiscal 2008, 2007, and 2006 that were based on purchase volume milestones.

We utilize perpetual inventory records to value inventory in our stores. Physical inventory counts are performed in a significant number of stores during each fiscal quarter by a third party inventory counting service, with substantially all stores open longer than one year subject to at least one annual count. We adjust our perpetual records based on the results of the physical counts.

We maintain a provision for estimated shrinkage based on the actual historical results of our physical inventories. We compare our estimates to the actual results of the physical inventory counts as they are taken and adjust the shrink estimates accordingly. We also evaluate our merchandise to ensure that the expected net realizable value of the merchandise held at the end of a fiscal period exceeds cost.  In the event that the expected net realizable value is less than cost, we record adjustments to the value of inventory.

Property and Equipment

Property and equipment is recorded at cost. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets.  Amortization of property under capital leases is on a straight-line basis over the lease term and is included in depreciation expense.  We expense repairs and maintenance costs as incurred. We capitalize and depreciate significant renewals or betterments that substantially extend the life of the asset. Useful lives are generally estimated as follows (in years):

Buildings	30
Leasehold improvements	10	*
Fixtures and equipment	8
Computer equipment	5

*We amortize leasehold improvements over the lesser of 10 years or the remaining lease term of the underlying facility.

Goodwill

Under the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, we perform impairment tests of goodwill, annually or whenever events or circumstances change to indicate that the asset value may not be recovered, by comparing the book values of our reporting units to their estimated fair values. The estimated fair values of our reporting units are computed using estimates that include a discount factor in valuing future cash flows. There are assumptions and estimates underlying the determination of fair value and any resulting impairment loss. Another estimate using different, but still reasonable, assumptions could produce different results. We have performed the required impairment tests of goodwill and the tests have not resulted in an impairment charge in fiscal 2008 or fiscal 2006.  In connection with our annual impairment test in fiscal 2007, we recorded a goodwill impairment charge of $22 million related to our Aaron Brothers reporting unit. See Note 3 for further information.

Impairment of Long-Lived Assets

When events or changes in circumstances occur that indicate the carrying value of our assets may not be recoverable, we evaluate our long-lived assets for impairment by comparing the carrying value of the assets with their estimated future undiscounted cash flows. If it is determined that an impairment loss has occurred, the loss would be recognized during that period. The impairment loss is calculated as the difference between asset carrying values and the present value of estimated net cash flows or comparable market values, giving consideration to recent operating performance and pricing trends. In fiscal 2008, we recorded an impairment loss of $5 million related to underperforming stores, of which $3 million is reflected in cost of sales and occupancy expense and $2 million is

F-9

reflected in selling, general and administrative expense on the Consolidated Statement of Operations. Our impairment analysis contains certain uncertainties including our estimate of future cash flows and discount rates. If actual results differ from these estimates, we may be exposed to additional impairment losses that may be material.

Reserve for Closed Facilities

We maintain a reserve for future rental obligations, carrying costs, and other costs related to closed facilities, primarily closed and relocated stores. In accordance with the provisions of SFAS No. 146, Costs Associated With Disposal Activities, we recognize exit costs for any store closures at the time the store is closed.

The cost of closing a store or facility is calculated based on management’s estimate of costs to exit the lease, which generally represents the lesser of the present value of future rental obligations remaining under the lease (less estimated sublease rental income) or the lease termination fee.

The following is a detail of account activity related to closed facilities, excluding those related to the discontinued operations of Star Decorators Wholesale (“Star”) and Recollections as discussed in Note 2:

	Fiscal Year
	2008			2007			2006
	(in millions)
Balance at beginning of fiscal year	$	5		$	4		$	4
Additions (reductions) charged to costs and expenses	3			4			2
Payment of rental obligations and other	(3		)	(3		)	(2		)
Balance at end of fiscal year	$	5		$	5		$	4

Insurance Liabilities

We use a combination of insurance and self-insurance for our workers’ compensation, general liability, and employee-related health care plans. We pay premiums for these coverages, a portion of which are paid by our associates for health care costs. In addition, under our self-insurance, we pay all claims up to the limits provided for in our contracts. Liabilities associated with these plans are actuarially estimated, giving consideration to historical claims experience and industry trends. In the event our insurance carriers are unable to pay claims submitted to them, we would record a liability for such estimated payments we expect to incur.

Revenue Recognition

Revenue from sales of our merchandise is recognized at the time of the merchandise sale, excluding revenue from custom frames, which is recognized at the time of delivery. Revenue is presented net of sales taxes collected. We allow for merchandise to be returned under most circumstances and provide a reserve for estimated returns.

We record a gift card liability on the date we issue the gift card to the customer. We record revenue and reduce the gift card liability as the customer redeems the gift card. We escheat the value of unredeemed gift cards where required by law. Any remaining liabilities not subject to escheatment are evaluated to determine whether the likelihood of the gift card being redeemed is remote (gift card breakage). We recognize gift card breakage as revenue, by applying our estimate of the rate of gift card breakage over the period of estimated performance (approximately 36 months as of the end of fiscal 2008). Our estimates of the gift card breakage rate are applied to the estimated amount of gift cards that are expected to go unused that are not subject to escheatment and are based on customers’ historical redemption rates and patterns, which may not be indicative of future redemption rates and patterns. During fiscal 2008, 2007 and 2006, we recognized approximately $2 million, $3 million and $2 million, respectively, related to such gift card balances.

Costs of Sales and Occupancy Expenses

Included in our costs of sales are the following:

·purchase price or invoiced cost of merchandise, net of vendor allowances and rebates,

·inbound freight, inspection costs, and duties,

·warehousing, handling, and transporting costs (including internal transfer costs such as distribution center to store freight

F-10

costs) and purchasing and receiving costs, and

·share-based compensation costs for those employees involved in preparing inventory for sale.

These costs are included in merchandise inventories and expensed as the merchandise is sold.

Included in our occupancy expenses are the following:

·store expenses such as rent, insurance, taxes, common area maintenance, utilities, repairs and maintenance,

·amortization of store buildings and leasehold improvements,

·store closure costs, and

·store remodel costs.

We record rent expense ratably over the term of the lease beginning with the date we take possession of or control the physical access to the premises. We record leasehold improvement reimbursements as a liability and ratably adjust the liability as a reduction to rent expense over the lease term beginning with the date we take possession of or control the physical access to the premises.

Selling, General, and Administrative Costs

Included in our selling, general, and administrative costs are store personnel costs (including share-based compensation), store operating expenses, advertising expenses, store depreciation expense, and corporate overhead costs.

Advertising costs are expensed in the period in which the advertising first occurs. Our cooperative advertising allowances are accounted for as a reduction in the purchase price of merchandise since an obligation to advertise specific product does not exist in our cooperative advertising arrangements.

Advertising expenses were $176 million, $173 million, and $165 million for fiscal 2008, 2007, and 2006, respectively, and are included in selling, general, and administrative expense.

Store Pre-Opening Costs

We expense all start-up activity costs as incurred, which primarily include store pre-opening costs. Rent expense incurred prior to the store opening is recorded in cost of sales and occupancy expense on our Consolidated Statement of Operations.

Income Taxes

We record income tax expense using the liability method for taxes and are subject to income tax in many jurisdictions, including the United States, various states and localities, and Canada. A current tax liability or asset is recognized for the estimated taxes payable or refundable on the tax returns for the current year and a deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized as income or expense in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized. In evaluating our ability to realize our deferred tax asset, we considered the following sources of future taxable income:

·Future reversals of existing taxable temporary differences;

·Future taxable income, exclusive of reversing temporary differences and carryforwards;

·Taxable income in prior carryback years; and

·Tax-planning strategies.

Our evaluation regarding whether a valuation allowance is required or should be adjusted also considers, among other things, the nature, frequency, and severity of recent losses, forecasts of future profitability and the duration of statutory carryforward periods. Our forecasts of future profitability represents our best estimate of these future events. If different assumptions had been used, our tax expense, assets, and liabilities could have varied from recorded amounts.

After conducting this assessment, the valuation allowance recorded against our deferred tax assets was $13 million and $11

F-11

million as of January 31, 2009 and February 2, 2008, respectively.  If actual results differ from estimated results or if we adjust these assumptions in the future, we may need to adjust our deferred tax assets or liabilities, which could impact our effective tax rate. Given our capital structure, we will continue to experience volatility in our effective tax rate over the near term.

Share-Based Compensation

SFAS No. 123(R), Share-Based Payment, requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair value over the requisite service period. Compensation cost is based on the grant date fair value of the award and ratably recognized as an expense over the effective vesting period.

Beginning with our adoption of SFAS No. 123(R), we report excess tax benefits as a cash inflow in the financing section of our statement of cash flows and would record a tax deficiency, if any, as a cash outflow from operating activities. For fiscal 2006, we reported $83 million of excess tax benefits as a cash inflow to financing activities.  For fiscal 2007, we did not have any tax benefits or tax deficiencies associated with share-based awards. For fiscal 2008, we reported $9 million of excess tax benefits as a cash inflow to financing activities. The fiscal 2008 benefits relate to a favorable tax settlement with the IRS regarding stock options matters from prior years.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which is intended to increase consistency and comparability in fair value measurements by defining fair value, establishing a framework for measuring fair value and expanding disclosures about fair value measurements.  SFAS 157 was originally effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  In November 2007, the FASB placed a one year deferral for the implementation of SFAS 157 for nonfinancial assets and liabilities; however, SFAS 157 is effective for fiscal years beginning after November 15, 2007 for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in financial statements.  We adopted all requirements of SFAS 157 as they relate to financial assets and liabilities on February 3, 2008.  See Note 10 for further information on the impact of this standard to financial assets and liabilities. The requirements related to nonfinancial assets and liabilities will be adopted on February 1, 2009, as allowed by SFAS 157. We are currently assessing the impact of adopting SFAS 157 for nonfinancial assets and liabilities on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits companies to measure certain financial instruments and other items at fair value (at specified measurement dates) that are not currently required to be measured at fair value. Any unrealized gains or losses applicable to those items measured at fair value shall be reported in earnings. The decision to apply fair value is generally made on an instrument by instrument basis, is irrevocable, and is applied only to an entire instrument. We adopted SFAS 159 on February 3, 2008, and there was no impact on our consolidated financial statements as we did not choose to measure any eligible financial assets or liabilities at fair value.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R replaces SFAS No. 141, Business Combinations. The statement retains the purchase method of accounting used in business combinations but replaces SFAS 141 by establishing principles and requirements for the recognition and measurement of assets, liabilities and goodwill, including the requirement that most transaction costs and restructuring costs be expensed. In addition, the statement requires disclosures to enable users to evaluate the nature and financial effects of the business combination. SFAS 141 is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We will adopt SFAS 141R on February 1, 2009 for acquisitions on or after this date.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative data about the fair value of, and gains and losses on, derivative contracts, and details of credit-risk-related contingent features in hedged positions. The statement also requires enhanced disclosures regarding how and why entities use derivative instruments, how derivative instruments and related hedged items are accounted for in accordance with SFAS 133 and its related interpretation, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. We will adopt the new disclosure requirements of SFAS 161 in the first quarter of fiscal 2009.

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Note 2.   Discontinued Operations

On October 16, 2007, we announced plans to align resources around our core retail chains, Michaels and Aaron Brothers stores.  As a result, we discontinued our concept businesses, Recollections and Star.  As of the end of fiscal 2007, we had closed 11 Recollections and three of the four Star locations.  The remaining Star location was converted to a Michaels store.

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, at the time of the announcement we performed impairment analyses for these stores.  Based on estimated future cash flows, an impairment loss for property and equipment of $6 million was recognized during the third quarter of fiscal 2007.  Also, $1 million of related severance and termination costs were recorded during the third quarter of fiscal 2007. During the fourth quarter of fiscal 2007, we recognized $4 million of lease termination costs.

The following is a detail of liability account activity related to discontinued operations:

	Fiscal Year
	2008			2007
	(in millions)
Balance at beginning of fiscal year	$	6		$	—
Additions (reductions) charged to costs and expenses	—			6
Payment of rental obligations and other	(3		)	—
Balance at end of fiscal year	$	3		$	6

As of the end of fiscal 2008, we have lease termination liabilities of $2 million. As of the end of fiscal 2007, we had liabilities of $4 million and $1 million related to lease termination costs and severance and termination costs, respectively.

All costs associated with the disposal of these concept businesses are reflected in discontinued operations on the Consolidated Statements of Operations.

Note 3.   Goodwill Impairment

During the fourth quarter of fiscal 2007, in connection with our annual impairment test, we recorded a goodwill impairment charge of $22 million related to our Aaron Brothers reporting unit.  The impairment charge represents the net carrying value of the Aaron Brothers goodwill.  During fiscal 2007, Aaron Brothers experienced a significant decline in sales and profitability.  These declines, coupled with our near-term financial forecasts, the deterioration of the retail segment of the U.S. economy, and our ongoing reassessment of expansion opportunities, resulted in an estimated fair value that was considerably lower than the carrying value of the reporting unit.  The resulting allocation of the estimated fair value to the reporting unit’s assets and liabilities indicated that a full impairment of goodwill was required.

Our fair value assessment was based on a combination of present value cash flow analysis, observable earnings multiples of other publicly-traded specialty retail companies, and use of earnings multiples resulting from market transactions of other specialty retail companies.

Note 4.   Merger Transaction

On October 31, 2006, substantially all of the Common Stock of Michaels Stores, Inc. was acquired through a merger transaction (the “Merger”) by affiliates of two private investment firms, Bain Capital Partners, LLC and The Blackstone Group  (collectively, together with their applicable affiliates, the “Sponsors”), with certain shares retained by affiliates of Highfields Capital Partners (a then-existing shareholder of Michaels Stores, Inc.). As a result of the Merger, Michaels Holdings LLC, an entity controlled by the Sponsors, owns approximately 93% of our outstanding Common Stock, which is no longer publicly traded. We accounted for the Merger as a leveraged recapitalization whereby the historical book value of the assets and liabilities of Michaels will be maintained with no push down accounting required.

The Merger consideration paid to then-existing equity holders was approximately $5.8 billion, with fees and expenses totaling an additional $240 million. The purchase price was funded by:

·Aggregate cash equity contribution by the Sponsors of approximately $1.7 billion;

·Retention of certain shares held by affiliates of Highfields Capital Partners totaling $110 million;

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·The issuance of the following debt (See Note 6 for further information concerning our issuance of debt):

·$750 million of 10% Senior Notes due 2014;

·$400 million of 113/8% Senior Subordinated Notes due 2016;

·$250 million of 13% Subordinated Discount Notes due 2016;

·$2.4 billion Senior secured term loan facility; and,

·$400 million of borrowings under our Asset-based revolving credit facility.

·Our available cash as of the date of the Merger.

The Merger occurred simultaneously with the closing of the financing and equity transactions described above as well as the termination of our previous $300 million senior unsecured credit facility with Bank of America, N.A. (Credit Agreement).

In connection with the completion of the Merger, we entered into management agreements with each of the Sponsors pursuant to which the Sponsors will provide management services to us until December 31, 2016, with evergreen extensions thereafter.  Pursuant to these agreements, the Sponsors will receive an aggregate annual management fee equal to $12 million and reimbursement for out-of-pocket expenses incurred by them in connection with the provision of services pursuant to the agreements.  In addition, pursuant to these agreements, the Sponsors received, in connection with the completion of the Merger, aggregate transaction fees of approximately $60 million in connection with services provided by them related to the Merger.  Finally, the management agreements provide that the Sponsors are entitled to receive fees in connection with certain subsequent financing, acquisition, disposition and change of control transactions of 1% of the gross transaction value of any such transaction.  The management agreements include customary exculpation and indemnification provisions in favor of the Sponsors.  The management agreements may be terminated by the Sponsors at any time and terminate automatically upon an initial public offering or a change of control unless we and the Sponsors determine otherwise.  Upon termination, each provider of management services will be entitled to a termination fee calculated based on the present value of the annual fees due during the remaining period from the date of termination to the tenth anniversary of the date of the Merger.

In connection with the completion of the Merger, we entered into a management agreement with Highfields Capital Management LP, an affiliate of the Highfields Capital Partners, that provides for an annual management fee of $1 million for services that Highfields Capital Management LP renders to us following the completion of the Merger.

During fiscal 2006, we expensed approximately $240 million of Merger-related costs, of which $205 million was classified as transaction expenses and $34 million was classified as related party expenses in our Consolidated Statement of Operations; the remaining $1 million was classified as interest expense.  See Note 15 for further information concerning related party expenses. Of the $240 million recorded in fiscal 2006, $218 million was recorded in our fourth quarter of fiscal 2006.  Approximately $138 million of the $240 million consisted of compensation expense (primarily share-based compensation) and $100 million was related to investment banking, legal, accounting, and other professional fees.

We capitalized $125 million of costs related to our issuance of various debt instruments.  We amortize the deferred financing costs over the lives of the respective debt agreements (which range from five to ten years) and record the amortization to interest expense. As further described in Note 15 below, we paid $3 million to each of Charles Wyly and Sam Wyly pursuant to a Separation Agreement.  We capitalized the Separation Agreements and amortize them over their two year lives. Our expected amortization expense pertaining to the deferred financing costs and Separation Agreements for each of the next five fiscal years and thereafter is as follows:

	Fiscal Year (in millions)
	2009		2010		2011		2012		2013		Thereafter
Amortization Expense	$	17	$	17	$	16	$	14	$	12	$	10

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Note 5.  Detail of Certain Balance Sheet Accounts

	January 31,		February 2,
	2009		2008
	(In millions)
Property and equipment:
Land and buildings	$	2	$	2
Fixtures and equipment	910		864
Leasehold improvements	302		289
	$	1,214	$	1,155
Accrued liabilities and other:
Salaries, bonuses, and other payroll-related costs	$	110	$	122
Accrued interest	32		72
Taxes, other than income and payroll	45		42
Gift certificate and gift card liability	22		23
Other	66		73
	$	275	$	332

Note 6.  Debt

Our debt consisted of the following for fiscal 2008 and fiscal 2007:

	Interest Rate	Fiscal 2008		Fiscal 2007
		(In millions)
Senior notes	10.000%	$	750	$	750
Senior subordinated notes	11.375%	400		400
Subordinated discount notes	13.000%	332		293
Senior secured term loan	Variable	2,297		2,321
Asset-based revolving credit facility	Variable	148		97
Other	5.970%	2		2
Total debt		3,929		3,863
Less current portion		173		122
Long-term debt		$	3,756	$	3,741

10% Senior Notes due 2014

On October 31, 2006, we issued $750 million in principal amount of 10% Senior Notes due November 1, 2014. Interest is payable semi-annually in arrears on each May 1 and November 1, commencing on May 1, 2007. The Senior Notes are guaranteed, jointly and severally, on an unsecured senior basis, by each of our subsidiaries, other than Aaron Brothers Card Services, LLC.

The Senior Notes and the guarantees thereof are our and the guarantors’ unsecured senior obligations and (i) rank senior in right of payment to all of our and the guarantors’ existing and future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the Senior Notes (including the Senior Subordinated Notes and the Subordinated Discount Notes described below); (ii) rank equally in right of payment to all of our and the guarantors’ existing and future debt and other obligations that are not, by their terms, expressly subordinated in right of payment to the Senior Notes; and (iii) are effectively subordinated to all of our and the guarantors’ existing and future secured debt (including obligations under the Senior Credit Facilities) to the extent of the value of the assets securing such debt.

At any time prior to November 1, 2010, we may redeem all or a part of the Senior Notes at a redemption price equal to the sum of (i) 100% of the principal amount of the Senior Notes redeemed; (ii) the Applicable Premium (as defined in the Senior Indenture); and

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(iii) accrued and unpaid interest to the date of redemption.

On and after November 1, 2010, we may redeem all or part of the Senior Notes at the redemption prices (expressed as percentages of principal amount of the Senior Notes) set forth below, plus accrued and unpaid interest to the applicable date of redemption if redeemed during the twelve-month period beginning on November 1 of each of the years indicated below:

Year	Percentage
2010	105.000	%
2011	102.500	%
2012 and thereafter	100.000	%

In addition, until November 1, 2009, we may, at our option, on one or more occasions redeem up to 35% of the aggregate principal amount of Senior Notes at a redemption price equal to 110.000% of the aggregate principal amount thereof, plus accrued and unpaid interest, to the applicable date of redemption, with the net cash proceeds of one or more Equity Offerings (as defined in the Senior Indenture); provided that at least 50% of the aggregate principal amount of Senior Notes remains outstanding immediately after the occurrence of each such redemption, and that each such redemption occurs within 90 days of the date of closing of each such Equity Offering.

Upon a change in control, we are required to offer to purchase all of the Senior Notes at a price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest.

The Senior Indenture contains covenants limiting, among other things, the Company’s ability and the ability of the Company’s restricted subsidiaries to:

·incur additional debt;

·pay dividends or distributions on the Company’s capital stock or repurchase the Company’s capital stock;

·issue stock of subsidiaries;

·make certain investments;

·create liens on the Company’s assets to secure debt;

·enter into transactions with affiliates;

·merge or consolidate with another company; and

·sell or otherwise transfer assets.

113/8% Senior Subordinated Notes due 2016

On October 31, 2006, we issued $400 million in principal amount of 113/8% Senior Subordinated Notes due November 1, 2016.  Interest is payable semi-annually in arrears on each May 1 and November 1, commencing on May 1, 2007. The Senior Subordinated Notes are guaranteed, jointly and severally, on an unsecured senior subordinated basis, by each of our subsidiaries, other than Aaron Brothers Card Services, LLC.

The Senior Subordinated Notes and the guarantees thereof are our and the guarantors’ unsecured senior subordinated obligations and (i) are subordinated in right of payment to all of our and the guarantors’ existing and future senior debt, including the Senior  Credit Facilities and the Senior Notes; (ii) rank equally in right of payment to all of our and the guarantors’ future senior subordinated debt; (iii) are effectively subordinated to all of our and the guarantors’ existing and future secured debt (including the Senior Credit Facilities) to the extent of the value of the assets securing such debt; and (iv) rank senior in right of payment to all of our and the guarantors’ existing and future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the Senior Subordinated Notes, including the Subordinated Discount Notes.

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At any time prior to November 1, 2011, we may redeem all or a part of the Senior Subordinated Notes, at a redemption price equal to the sum of (i) 100% of the principal amount of Senior Subordinated Notes redeemed; (ii) the Applicable Premium (as defined in the Senior Subordinated Indenture); and (iii) accrued and unpaid interest to the date of redemption.

On and after November 1, 2011, we may redeem all or part of the Senior Subordinated Notes at the redemption prices (expressed as percentages of principal amount of the Senior Subordinated Notes) set forth below, plus accrued and unpaid interest to the applicable date of redemption if redeemed during the twelve-month period beginning on November 1 of each of the years indicated below:

Year	Percentage
2011	105.688	%
2012	103.792	%
2013	101.896	%
2014 and thereafter	100.000	%

In addition, until November 1, 2009, we may, at our option, on one or more occasions redeem up to 35% of the aggregate principal amount of Senior Subordinated Notes at a redemption price equal to 111.375% of the aggregate principal amount thereof, plus accrued and unpaid interest, to the applicable date of redemption, with the net cash proceeds of one or more Equity Offerings (as defined in the Senior Subordinated Indenture); provided that at least 50% of the aggregate principal amount of Senior Subordinated Notes remains outstanding immediately after the occurrence of each such redemption, and that each such redemption occurs within 90 days of the date of closing of each such Equity Offering.

Upon a change in control, we are required to offer to purchase all of the Senior Subordinated Notes at a price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest. The Senior Subordinated Notes indenture contains restrictive covenants substantially similar to those of the Senior Notes described above.

13% Subordinated Discount Notes due 2016

On October 31, 2006, we issued $469 million in principal amount at maturity of 13% Subordinated Discount Notes due on November 1, 2016. No cash interest is payable on the Subordinated Discount Notes prior to November 1, 2011. Beginning on November 1, 2011, cash interest will accrue and is payable semi-annually in arrears on each May 1 and November 1 (the first cash interest payment date is May 1, 2012). The Subordinated Discount Notes are guaranteed, jointly and severally, on an unsecured subordinated basis, by each of our subsidiaries, other than Aaron Brothers Card Services, LLC.

The Subordinated Discount Notes and the guarantees thereof are our and the guarantors’ unsecured subordinated obligations and (i) are subordinated in right of payment to all of our and the guarantors’ existing and future senior debt (including the Senior Credit Facilities, the Senior Notes and the Senior Subordinated Notes); and (ii) are effectively subordinated to all of our and the guarantors’ secured debt (including the Senior Credit Facilities to the extent of the value of the assets securing such debt).

At any time prior to November 1, 2011, we may redeem all or part of the Subordinated Discount Notes at a redemption price equal to the sum of 100% of the Accreted Value (as defined in the Subordinated Discount Indenture) of the Subordinated Discount Notes redeemed plus the Applicable Premium (as defined in the Subordinated Discount Indenture) as of the date of redemption.

On and after November 1, 2011, we may redeem all or part of the Subordinated Discount Notes at the redemption prices (expressed as percentages of Accreted Value of the Subordinated Discount Notes to be redeemed) set forth below, plus accrued and unpaid interest (to the extent not already included in Accreted Value) as of the applicable date of redemption (if redeemed during the twelve-month period beginning on November 1 of each of the years indicated below:

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Year	Percentage
2011	106.500	%
2012	104.333	%
2013	102.167	%
2014 and thereafter	100.000	%

In addition, until November 1, 2009, we may, at our option, on one or more occasions redeem up to 35% of the aggregate principal amount of Subordinated Discount Notes at a redemption price equal to 113.000% of the Accreted Value thereof, with the net cash proceeds of one or more Equity Offerings (as defined in the Subordinated Discount Indenture); provided that at least 50% of the sum of the aggregate principal amount at maturity of Subordinated Discount Notes originally remains outstanding immediately after the occurrence of each such redemption, and that each such redemption occurs within 90 days of the date of closing of each such Equity Offering.

On May 1, 2012, and, if necessary, any interest payment date thereafter prior to the maturity date, we are required to redeem a portion of each Subordinated Discount Note outstanding on such date equal to an amount sufficient, but not in excess of the amount necessary, to ensure that a Subordinated Discount Note will not be an “applicable high yield discount obligation” within the meaning of Section 163(i)(1) of the Internal Revenue Code of 1986. These redemptions are to be at a price equal to 100% of the Accreted Value as of the date of redemption.

Upon a change in control, we are required to offer to purchase all of the Subordinated Discount Notes at a price in cash equal to 101% of the Accreted Value, plus accrued and unpaid interest. The Subordinated Discount indenture contains restrictive covenants substantially similar to those of the Senior Notes described above.

As of April 2, affiliates of the Sponsors own or have transactions pending, and will own approximately $233 million of the outstanding Subordinated Discount Notes.

Asset-based revolving credit facility

On October 31, 2006, we executed a senior secured asset-based revolving credit facility with Banc of America, N.A. and other lenders (“Asset-based revolving credit facility”). The Asset-based revolving credit facility provides senior secured financing of up to $1.0 billion, subject to a borrowing base as described below. As of January 31, 2009, the borrowing base was $747 million, of which we borrowed $148 million, which was classified as current debt on our balance sheet.  Borrowing capacity is available for letters of credit and borrowings on same-day notice. Unused letters of credit as of January 31, 2009 totaled $69 million, of which $44 million relate to standby letters of credit.

The borrowing base equals the sum of (i) 90% of eligible credit card receivables and debit card receivables; (ii) between 85% and 87.5% of the appraised net orderly liquidation value of eligible inventory and of eligible letters of credit; (iii) a percentage of eligible in-transit inventory, less certain reserves; and, (iv) the sum of an additional 10% of the appraised net orderly liquidation value of eligible inventory and of eligible letters of credit plus an additional 5% of eligible credit card receivables and debit card receivables (collectively, the “last out tranche”), up to a maximum amount of $100 million.

The Asset-based revolving credit facility provides us with the right to request up to $200 million of additional commitments under this facility.  The lenders under this facility are not under any obligation to provide any such additional commitments, and any increase in commitments is subject to customary conditions precedent.  If we were to request any such additional commitments, and the existing lenders or new lenders were to agree to provide such commitments, the facility size could be increased to up to $1.2 billion, but our ability to borrow under this facility would still be limited by the amount of the borrowing base.

Borrowings under the Asset-based revolving credit facility bear interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the higher of (1) the prime rate of Bank of America, N.A. and (2) the federal funds effective rate plus 1/2 of 1% or (b) a LIBOR rate subject to certain adjustments, in each case plus an applicable margin. The initial applicable margin for borrowings is 0.50% for base rate borrowings and 1.50% for LIBOR borrowings. With respect to any last out tranche borrowings, the initial applicable margin is 1.50% for base rate borrowings and 2.50% for LIBOR borrowings. The applicable margin is subject to adjustment each fiscal quarter based on the excess availability under the Asset-based revolving credit facility.  Swingline Loans bear interest at a rate per annum equal to the base rate plus the applicable margin.

We are required to pay a commitment fee of 0.25% per annum on the unutilized commitments under the Asset-based revolving credit facility.  We must also pay customary letter of credit fees and agency fees.

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If, at any time, the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Asset-based revolving credit facility exceeds the lesser of (i) the commitment amount or (ii) the borrowing base, we will be required to repay outstanding loans and cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount.  If the amount available under the Asset-based revolving credit facility is less than $100.0 million for five consecutive business days, or a payment or bankruptcy event of default has occurred, we will be required to repay outstanding loans and cash collateralize letters of credit with the cash we are required to deposit daily in a collection account maintained with the agent under the Asset-based revolving credit facility. We may voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans at any time without premium or penalty other than customary breakage costs with respect to LIBOR loans. There is no scheduled amortization under the Asset-based revolving credit facility; the principal amount of the loans outstanding is due and payable in full on October 31, 2011.

All obligations under the Asset-based revolving credit facility are unconditionally guaranteed by all of our existing subsidiaries, except for Aaron Brothers Card Services, LLC, and are required to be guaranteed by certain of our future domestic wholly-owned subsidiaries.  All obligations under the Asset-based revolving credit facility, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of our assets and the assets of our subsidiaries, excluding Aaron Brothers Card Services, LLC (the “Subsidiary Guarantors”), including:

·a first-priority security interest in personal property consisting of inventory and related accounts, cash, deposit accounts, all payments received by us or the Subsidiary Guarantors from credit card clearinghouses and processors or otherwise in respect of all credit card charges and debit card charges for sales of inventory by us and the Subsidiary Guarantors, and certain related assets and proceeds of the foregoing;

·a second-priority pledge of all of the capital stock held by us (excluding the stock of Michaels of Canada, ULC) and our Subsidiary Guarantors (which pledge, in the case of the capital stock of any foreign subsidiary, is limited to 65% of the voting stock of such foreign subsidiary and 100% of the non-voting stock of such subsidiary); and

·a second-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of us and each Subsidiary Guarantor, including substantially all of our owned real property and equipment.

The Asset-based revolving credit facility contains a number of covenants that, among other things and subject to certain exceptions, restricts the Company’s ability and the ability of its subsidiaries to:

·incur additional indebtedness;

·pay dividends on the Company’s capital stock or redeem, repurchase or retire the Company’s capital stock or its other indebtedness;

·make investments, loans, advances and acquisitions;

·create restrictions on the payment of dividends or other amounts to the Company from its restricted subsidiaries;

·engage in transactions with affiliates of the Company;

·sell assets, including capital stock of the Company’s subsidiaries;

·consolidate or merge; and

·create liens.

The covenants limiting dividends and other restricted payments, investments, loans, advances and acquisitions, and prepayments or redemptions of indebtedness, each permit the restricted actions in an unlimited amount, subject to the satisfaction of certain payment conditions, principally that we must have at least $125 million of pro forma excess availability under the Asset-based revolving credit facility and that we must be in pro forma compliance with the fixed charge coverage ratio described in the next paragraph.

Although the Asset-based revolving credit facility does not require us to comply with any financial ratio maintenance covenants, if

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we have less than $75 million of excess availability under the Asset-based revolving credit facility at any time, we are not permitted to borrow any additional amounts unless our pro forma Consolidated Fixed Charge Coverage Ratio (as defined in the Asset-based revolving credit facility) is at least 1.1 to 1.0. The Asset-based revolving credit facility also contains certain customary affirmative covenants and events of default. Moreover, our senior secured asset-based revolving credit facility provides discretion to the agent bank acting on behalf of the lenders to impose additional availability reserves, which could materially impair the amount of borrowings that would otherwise be available to us. There can be no assurance that the agent bank will not impose such reserves or, were it to do so, that the resulting impact of this action would not materially and adversely impair our liquidity.

Senior secured term loan facility

On October 31, 2006, we executed a $2.4 billion senior secured term loan facility with Deutsche Bank A.G. New York Branch, and other lenders. The full amount was borrowed on October 31, 2006. We are required to make scheduled quarterly payments, each equal to 0.25% of the original principal amount of the term loans, for the first six years and three quarters, with the balance payable on October 31, 2013.

Borrowings under the Senior secured term loan facility bear interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the higher of (1) the prime rate of Deutsche Bank and (2) the federal funds effective rate plus 1/2 of 1% or (b) a LIBOR rate, subject to certain adjustments, in each case plus an applicable margin. At issuance date, the applicable margin was 2.00% with respect to base rate borrowings and 3.00% with respect to LIBOR borrowings, subject to downward adjustment based on the leverage and ratings thresholds set forth in the Senior secured term loan facility agreement. During the fourth quarter of fiscal 2006, we amended the Senior secured term loan facility such that the applicable margin with respect to the LIBOR borrowings was lowered from 3.00% to 2.75%.

On May 10, 2007, we amended the Senior secured term loan facility to reduce the applicable margin to 1.25% with respect to base rate borrowings and 2.25% with respect to LIBOR borrowings. The amendment also provides that if there is a repricing transaction that reduces the interest rate margins prior to May 10, 2008, then each lender will receive a fee equal to 1.0% of the principal amounts of loans that are repriced. Finally, the amendment eliminated the requirement that we maintain a specified consolidated secured debt ratio.

The Senior secured term loan facility requires us to prepay outstanding term loans with (a) 100% of the net proceeds of any debt issued by us or our subsidiaries (with exceptions for certain debt permitted to be incurred under the Senior secured term loan facility) and (b) commencing with the fiscal year ending February 2, 2008, 50% (which percentage will be reduced to 25% if our total leverage ratio is less than  6.00:1.00 and will be reduced to 0% if our total leverage ratio is less than 5.00:1.00) of our annual Excess Cash Flow (as defined in the Senior secured term loan facility). We must also offer to prepay outstanding term loans at 100% of the principal amount to be prepaid, plus accrued and unpaid interest, with the proceeds of certain asset sales or casualty events under certain circumstances. We may voluntarily prepay outstanding loans under the Senior secured term loan facility at any time without premium or penalty other than customary breakage costs with respect to LIBOR loans.

All obligations under the Senior secured term loan facility are unconditionally guaranteed by each direct and indirect wholly-owned subsidiary that guarantees the obligations of the Company under the Asset-based revolving credit facility.  All obligations under the Senior secured term loan facility, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of our assets and the assets of the Subsidiary Guarantors, including:

·a first-priority pledge of all of the capital stock held by us (excluding the stock of Michaels of Canada, ULC) and the Subsidiary Guarantors (which pledge, in the case of any foreign subsidiary, is limited to 65% of the voting stock of such foreign subsidiary and 100% of the non-voting stock of such subsidiary);

·a first-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of us and each Subsidiary Guarantor, including substantially all of our owned real property and equipment, but excluding, among other things, the collateral described in the following bullet point; and

·a second-priority security interest in personal property consisting of inventory and related accounts, cash, deposit accounts, all payments received by us or the Subsidiary Guarantors from credit card clearinghouses and processors or otherwise in respect of all credit card charges and debit card charges for sales of inventory by us and the Subsidiary Guarantors, and certain related assets and proceeds of the foregoing.

The Senior secured term loan facility contains a number of negative covenants that are substantially similar (but more restrictive in certain respects) to those governing the Senior Notes as well as certain other customary affirmative and negative covenants as well as events of default.

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The aggregate amounts of scheduled maturities of our debt for the next five years and thereafter are as follows:

Fiscal Year	Amount
	(In millions)
2009	$	173
2010	25
2011	24
2012	218
2013	2,202
Thereafter	1,424
Total debt payments		4,066
Less unrealized interest accretion on Subordinated Discount Notes		137
Total debt balance as of January 31, 2009	$	3,929

The weighted average interest rate of the current portion of our long-term debt as of January 31, 2009 was 2.3%.

The table below provides the carrying and fair values of our Senior and Subordinated term loan and notes. The fair value of these debt instruments was determined based on quoted market prices.

	Fair Value of Term Loan and Notes
	Carrying Value		Fair Value
	(In millions)
Senior Secured Term Loan	$	2,297	$	1,424
Senior Notes	750		341
Senior Subordinated Notes	400		124
Subordinated Discount Notes	332		47

Note 7.  Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities as of the respective year-end balance sheets are as follows:

	Deferred Tax Asset (Liability)
	January 31, 2009						February 2, 2008
	Current			Noncurrent			Current			Noncurrent
	(In millions)
Net operating loss, general business credit, foreign tax credit and alternative minimum tax credit carryforwards	$	—		$	21		$	—		$	16
Accrued expenses	16			1			17			2
Deferred rent	—			15			—			16
Other assets	17			8			10			7
State valuation allowance	—			(12		)	—			(9		)
Federal valuation allowance	—			(1		)	—			(2		)
Property and equipment	—			(15		)	—			(27		)
Translation adjustment	—			(3		)	1			(7		)
Workers compensation	18			—			17			—
Other deferred tax liabilities	(10		)	(2		)	(14		)	—
	$	41		$	12		$	31		$	(4	)
Net deferred tax assets				$	53					$	27

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The federal, state and international income tax provision is as follows:

	Fiscal Year
	2008			2007			2006
	(In millions)
Federal:
Current	$	11		$	(4	)	$	34
Deferred	(18		)	(7		)	9
Total federal income tax provision	(7		)	(11		)	43
State:
Current	9			8			13
Deferred	(8		)	(6		)	(2		)
Total state income tax provision	1			2			11
International:
Current	13			16			15
Deferred	(4		)	(2		)	2
Total international income tax provision	9			14			17
Total income tax provision	$	3		$	5		$	71

The reconciliation between the actual income tax provision and the income tax provision calculated by applying the federal statutory rate is as follows:

	Fiscal Year
	2008			2007			2006
	(In millions)
Income tax (benefit) provision at statutory rate	$	(1	)	$	(6	)	$	40
State income taxes, net of federal income tax effect	(3		)	(1		)	2
Non-deductible goodwill write-off	—			8			—
Non-deductible severance payments	2			2			—
Non-deductible merger related costs	—			—			25
Federal valuation allowance	(1		)	2			—
State valuation allowance	4			3			6
Other	2			(3		)	(2		)
Total income tax from continued operations	$	3		$	5		$	71

At January 31, 2009, we had state net operating loss carryforwards to reduce future taxable income of approximately $268 million expiring at various dates between fiscal 2009 and fiscal 2029. The valuation allowance related to state operating loss carryforwards was increased to $12 million in fiscal 2008 to reserve for state operating loss carryforwards, which we believe it is more likely than not that we will be unable to deduct these amounts.  Additionally, due to credits utilized in fiscal 2008, we eliminated our valuation allowance related to general business credits and reduced our valuation allowance related to foreign tax credits $1 million.

Uncertain Tax Positions

We operate in a number of tax jurisdictions and are subject to examination of our income tax returns by tax authorities in those jurisdictions who may challenge any item on these tax returns.  Because the tax matters challenged by tax authorities are typically complex, the ultimate outcome of these challenges is uncertain.

Through fiscal 2006, in accordance with prior accounting standards, we assessed the ultimate resolution of uncertain tax

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matters as they arose and established reserves for tax contingencies when we believed an unfavorable outcome was probable and the liability could be reasonably estimated.

Effective February 4, 2007, we adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes.  In accordance with FIN No. 48, we recognized a cumulative-effect adjustment of $1 million to the balance of Retained Earnings.  A reconciliation of unrecognized tax benefits from the end of fiscal 2007 through the end of fiscal 2008 is as follows:

	Fiscal Year
	2008
	(In millions)
Balance at February 2, 2008	$	14
Additions based on tax positions related to the current year	—
Additions for tax positions of prior years	1
Reductions for tax positions of prior years	(2		)
Settlements with taxing authorities	(1		)
Balance at January 31, 2009	$	12

Included in the balance of unrecognized tax benefits at January 31, 2009, is $13 million in unrecognized tax benefits, the recognition of which would have an effect on the effective tax rate.  The amount differs from the gross unrecognized tax benefits presented in the table due to the increase in U.S. federal income taxes which would occur upon recognition of penalties and interest from uncertain tax positions, offset by the state tax benefits included therein.

Our policy continues to be to classify all income tax related interest and penalties as income tax expense.  During the year ended January 31, 2009, we recognized $1 million in income tax interest and penalties.  As of January 31, 2009, we have an accrual of $4 million for potential payment of interest and penalties.

We identified our federal tax return, Canadian tax return, and state tax returns in California, Florida, Illinois, Michigan, New York, North Carolina, Pennsylvania, and Texas as “major” tax jurisdictions.  The periods subject to examination for our federal return are 2002 to present, 2004 to present for our Canadian return, and 2004 to present for all major state returns except for California, which has a period subject to examination from 1998 to present. We do not anticipate significant changes in unrecognized tax benefits during the coming fiscal year.

Note 8.  Share-Based Compensation

On February 15, 2007, our stockholders and Board of Directors approved the 2006 Equity Incentive Plan (“2006 Plan”), which provides for the grant of share-based awards exercisable for up to 14.2 million shares of Common Stock.  Generally, awards vest ratably over five years and expire eight years from the grant date.  We plan to issue new shares of our Common Stock to satisfy share issuance upon option exercises. Share-based compensation expense for fiscal 2008 and fiscal 2007 was approximately $8 million and $6 million, respectively.

On June 30, 2006, the then-Board of Directors approved a resolution that provided for a contingent cash settlement feature within the options granted under the various previous plans. The cash settlement feature was contingent upon consummation of the Merger. On the Merger date, all options outstanding as of the Merger date were exchanged for the right to receive the excess of $44.00 per share over the exercise price of the underlying option.  As a result, our share-based compensation expense in fiscal 2006 was approximately $134 million.

The fair value for options granted under SFAS No. 123(R) was estimated at the date of grant using the Black-Scholes-Merton option valuation model with the following assumptions:

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	Fiscal Year
Assumptions (1)	2008	2007	2006
Risk-free interest rates (2)	1.9% - 3.6%	3.4% - 5.0%	4.6% - 4.9%
Expected dividend yield	0.0%	0.0%	1.0%
Expected volatility rates of our Common Stock (3)	31.1% - 43.6%	30.1% - 38.2%	22.6% - 30.6%
Expected life of options (in years) (4)	5.5 - 7.5	5.5 - 7.5	2.5 - 3.0

(1)	Forfeitures were estimated based on historical experience and anticipated events.
(2)	Based on constant maturity interest rates for U.S. Treasury instruments with terms consistent with the expected lives of the awards.
(3)	We considered both the historical volatility as well as implied volatilities from the exchange-traded options on the common stock from a peer group of companies.
(4)	Expected lives were based on an analysis of historical exercise and post-vesting employment termination behavior.

Our fiscal 2008 stock option activity and other summary data are summarized in the following tables:

	Fiscal Year 2008 Activity
	Outstanding									Outstanding		Exercisable
	at Beginning						Forfeited/			at End of		at End of
	of Year		Granted		Exercised		Expired			Year		Year
	(In millions, except per share data)
Number of options	11		3		—		(4		)	10		1
Weighted average exercise price	$	26.25	$	26.25	$	—	$	26.25		$	26.25	$	15.00
										As of January 31, 2009
										Options		Options
										Outstanding		Exercisable
Aggregate intrinsic value										$	—	$	—
Weighted average remaining life in years										6.5		6.2

As of the beginning of fiscal 2008, there were 11 million nonvested options with a weighted average fair value of $3.82 per share.  At the end of fiscal 2008, there were 9 million nonvested options with a weighted average fair value of $3.95 per share.

	Fiscal Year
	2008		2007		2006
	(In millions, except per share data)
Weighted average fair value of options granted during the year (per share)	$	4.26	$	3.82	$	2.47
Total intrinsic value of options exercised during the year	$	—	$	—	$	214
Total fair value of options that vested during the year	$	6	$	—	$	78

As of January 31, 2009, compensation cost not yet recognized related to nonvested awards totaled $27 million and is expected to be recognized over a weighted average period of 3.5 years.

As of January 31, 2009, there are 120,800 shares of restricted stock outstanding.

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Note 9.  Derivative Instruments

We are exposed to fluctuations in exchange rates between the US and Canadian dollar, which is the functional currency of our Canadian subsidiary. During the second quarter of fiscal 2008, we executed foreign currency forward contracts to mitigate the effects of currency fluctuations, which we designated as a cash flow hedge. The objective of the forward contracts is to hedge intercompany payments for forecasted purchases of inventory by our Canadian subsidiary, which are denominated in US dollars. The term of this cash flow hedge extends through the first quarter of fiscal 2009.

To achieve our objective and to minimize the risk of ineffectiveness, the notional values represent a portion of our Canadian subsidiary’s forecasted intercompany purchases. Hedge ineffectiveness is recorded in Other (income) and expense, net in the Consolidated Statement of Operations, as required. For the year ended January 31, 2009, the ineffective portion of the hedge was immaterial.

For the portion of the hedge that is effective, the change in fair value of that hedge will initially be recorded in Accumulated other comprehensive income in the Consolidated Statement of (Deficit) Equity. As the underlying inventory is sold to our customers, amounts will be reclassified from Accumulated other comprehensive income to Cost of sales and occupancy expense in the Consolidated Statement of Operations. We also classify the cash flows from derivative instruments in prepaid and other in the Consolidated Statement of Cash Flows. The change in fair value of the hedge for the year ended January 31, 2009 was $2 million.

The table below provides the remaining quarterly notional values and the average CAD/USD exchange rate associated with the hedge (dollars in millions).

	Outstanding Notional Amount
Settlement Period	CAD Amount		USD Amount		Contract Rate
Quarter 1, 2009	$	12.2	$	12.2	1.001

Note 10.  Fair Value Measurements

As defined in SFAS No. 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  SFAS No. 157 establishes a three-level valuation hierarchy for fair value measurements. These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs create the following fair value hierarchy:

·Level 1 — Quoted prices for identical instruments in active markets;

·Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable; and

·Level 3 — Instruments whose significant inputs are unobservable.

The following table presents net financial assets (liabilities) accounted for at fair value on a recurring basis as of January 31, 2009 (in millions):

	Level 1		Level 2		Level 3		Total
Cash equivalents	$	3	$	—	$	—	$	3
Foreign Currency Derivative Instruments	—		2		—		2

Cash equivalents consist of highly liquid investments, with a maturity of 90 days or less at the date of purchase, including U.S. Treasury bills, various government obligations, and money market funds.

Derivatives in Level 2 are measured based on a variety of pricing factors, which include the market price of the derivative instrument available in the dealer-market, and have been corroborated with market data. See Note 9 for additional information on our derivative instruments.

Note 11.  Retirement Plans

We sponsor a 401(k) Savings Plan for our eligible employees and certain of our subsidiaries. Participation in the 401(k) Savings Plan is voluntary and available to any employee who is 21 years of age and has completed 500 hours of service in a six-month

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eligibility period. Participants may elect to contribute up to 15% of their considered compensation on a pre-tax basis and up to 10% on an after-tax basis. In accordance with the provisions of the 401(k) Savings Plan, we make a matching cash contribution to the account of each participant in an amount equal to 50% of the participant’s pre-tax contributions that do not exceed 6% of the participant’s considered compensation for the year. Matching contributions, and the actual earnings thereon, vest to the participants based on years of continuous service, with 100% vesting after three years. Our matching contribution expense, net of forfeitures, was $3 million for each of fiscal 2008, 2007 and 2006.

Note 12.  Commitments and Contingencies

Commitments

We operate stores and use distribution centers, office facilities, and equipment that are generally leased under non-cancelable operating leases, the majority of which provide for renewal options. Future minimum annual rental commitments for all non-cancelable operating leases as of January 31, 2009 are as follows (in millions):

	Operating Leases
For the Fiscal Year:
2009	$	325
2010	293
2011	251
2012	207
2013	165
Thereafter	373
Total minimum rental commitments	$	1,614

Rental expense applicable to non-cancelable operating leases was $312 million, $293 million, and $280 million, in fiscal 2008, 2007, and 2006, respectively.

As of January 31, 2009, we had commitments outstanding for purchase obligations related to merchandise inventories of approximately $40 million.

Employee Class Action Claims

Cotton Claim

On December 20, 2002, James Cotton, a former store manager of Michaels of Canada, ULC, our wholly-owned subsidiary, and Suzette Kennedy, a former assistant manager of Michaels of Canada, commenced a purported class proceeding against Michaels of Canada and Michaels Stores, Inc. on behalf of themselves and current and former employees employed in Canada. The Cotton claim was filed in the Ontario Superior Court of Justice and alleges that the defendants violated employment standards legislation in Ontario and other provinces and territories of Canada by failing to pay overtime compensation as required by that legislation. The Cotton claim also alleges that this conduct was in breach of the contracts of employment of those individuals. The Cotton claim seeks a declaration that the defendants have acted in breach of applicable legislation, payment to current and former employees for overtime, damages for breach of contract, punitive, aggravated and exemplary damages, interest, and costs. In May of 2005, the plaintiffs delivered material in support of their request that this action be certified as a class proceeding. Michaels filed and served its responding materials opposing class certification on January 31, 2006. The parties reached a settlement for an immaterial amount in February 2009.  Subsequently a motion to dismiss the case was filed and it is expected that the Court will issue an order dismissing the case prior to the end of the first quarter of fiscal 2009.

DeJoseph Claim

On December 29, 2006, John DeJoseph, a former Michaels store manager in Valencia, California, commenced a purported class action proceeding against Michaels Stores, Inc. on behalf of himself and current and former salaried store managers employed in California from May 10, 2002 to the present. The DeJoseph suit was filed in the Superior Court of California, County of Los Angeles.  The DeJoseph suit alleges that Michaels failed to pay overtime wages, provide meal periods, accurately record hours worked, provide itemized employee wage statements, and that Michaels unlawfully made deductions from employees’ earnings.  The DeJoseph suit additionally alleges that the foregoing conduct was in breach of California’s unfair competition law.  The plaintiff seeks injunctive relief, damages for unpaid wages, penalties, restitution, interest, and attorneys’ fees and costs.  In April 2008, the Court certified the class as to monetary relief for the overtime claim, but denied certification as to the wage statement and meal break claims plus the injunctive relief portion of the overtime claim.  In March 2009 the Court reconsidered and de-certified the class with respect to the overtime claims. The case will proceed with the three individual plaintiffs. We believe we have meritorious defenses and intend to defend the lawsuit vigorously. We are unable to estimate a range of loss, if any, in this case.

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Consumer Class Action Claims

Carson Claim

On August 15, 2008, Linda Carson, a consumer, filed a purported class action proceeding in Superior Court of California, County of San Diego.  Carson filed this action against Michaels Stores, Inc., on behalf of herself and all similarly-situated California consumers.  The Carson suit alleges that Michaels unlawfully requested and recorded personally identifiable information (i.e., her zip code) as part of a credit card transaction.  The plaintiff seeks statutory penalties, costs, interest, and attorneys’ fees.  We contested certification of this claim as a class action and filed a motion to dismiss the claim.  On March 9, 2009, the Court dismissed the case with prejudice.

Governmental Inquiries and Related Matters

Non-U.S. Trust Inquiry

In early 2005, the District Attorney’s office of the County of New York and the SEC opened inquiries concerning non-U.S. trusts that directly or indirectly held shares of Michaels Common Stock and Common Stock options. A federal grand jury requested information with respect to the same facts. We are cooperating in these inquiries and have provided information in response to the requests.

Certain of these trusts and corporate subsidiaries of the trusts acquired securities of Michaels in transactions directly or indirectly with Charles J. Wyly, Jr. and Sam Wyly, who were, respectively, Chairman and Vice Chairman of the Board of Directors prior to the consummation of the Merger, or with other Wyly family members. In addition, subsidiaries of certain of these trusts acquired securities directly from us in private placement transactions in 1996 and 1997 and upon the exercise of stock options transferred, directly or indirectly, to the trusts or their subsidiaries by Charles Wyly, Sam Wyly, or other Wyly family members.

We understand that Charles Wyly and Sam Wyly and/or certain of their family members are beneficiaries of irrevocable non-U.S. trusts. The 1996 and 1997 private placement sales by us of Michaels securities to subsidiaries of certain of these trusts were disclosed by us in filings with the SEC. The transfer by Charles Wyly and/or Sam Wyly (or by other Wyly family members or family-related entities) of Michaels securities to certain of these trusts and subsidiaries was also disclosed in filings with the SEC by us and/or by Charles Wyly and Sam Wyly. Based on information provided to us, our SEC filings prior to 2005 did not report securities owned by the non-U.S. trusts or their corporate subsidiaries as beneficially owned by Charles Wyly and Sam Wyly.

Charles Wyly and Sam Wyly filed an amended Schedule 13D with the SEC on April 8, 2005, stating that they may be deemed the beneficial owners of Michaels securities held directly or indirectly by the non-U.S. trusts.  In our 2005 and 2006 proxy statements, we included the securities held in the non-U.S. trusts or their separate subsidiaries, as reported by the Wylys, in the beneficial ownership table of our principal stockholders and management, with appropriate footnotes.

Stock Options Inquiry

On June 15, 2006, following Michaels’ announcement that its Audit Committee had initiated an internal review, referred to below, into the Company’s historical stock options practices, Michaels received a letter from the Division of Enforcement of the SEC requesting that the Company preserve all documents concerning its granting of stock options from 1990 through the present and stating that the SEC intended to request production of such documents in the future. In a letter dated November 15, 2006, the Division requested the documents. A June 16, 2006 grand jury subpoena issued by the U.S. District Court for the Southern District of New York requesting documents relating to the granting of stock options during the period 1996 to the present was withdrawn in connection with a July 27, 2006 grand jury subpoena issued by the U.S. District Court for the Northern District of Texas on behalf of the Fraud section of the Department of Justice requesting documents relating to the granting of stock options during the same period.  We are cooperating in these inquiries and have provided information in response to the requests.

The Company’s Audit Committee conducted an internal review into the Company’s historical stock options practices, including a review of the Company’s underlying option grant documentation and procedures and related accounting.  The Audit Committee’s

F-27

internal review was conducted with the assistance of independent legal counsel and outside accounting experts.  The Company voluntarily reported the commencement of this review to the SEC.

The Audit Committee review focused principally on the question of whether there may have been intentional wrongdoing in the Company’s historical stock options granting practices.  On August 25, 2006, the Audit Committee’s independent legal counsel presented to the Audit Committee its final report, which stated that the investigation did not support a conclusion that there was intentional misconduct.  Based on the independent counsel report, the Audit Committee concluded that the results of the investigation did not support a finding of intentional misconduct.

The Company also conducted a separate internal review of historical stock option practices and related accounting issues from 1990 through the Merger date.  In this review, the Company was advised, with respect to specific Delaware law issues, by independent Delaware counsel and, with respect to specific Texas law issues, by independent Texas counsel.  Management of the Company discussed its internal review and related judgments with the Company’s independent registered public accounting firm and the Board of Directors and Audit Committee.  Notwithstanding that the Audit Committee concluded that the results of the investigation did not support a finding of intentional misconduct, the Company identified accounting issues related to certain of the stock option grants prior to October 2001.  As a result, and as previously reported in our Annual Report on Form 10-K for fiscal year 2006, in fiscal 2007 we made adjustments to our beginning retained earnings balance for fiscal 2002 by recording additional non-cash compensation cost of approximately $27 million, net of income tax benefits of approximately $13 million.

General

We are a defendant from time to time in lawsuits incidental to our business. Based on currently available information, we believe that resolution of all known contingencies is uncertain. There can be no assurance that future costs of such litigation would not be material to our financial position, results of operations, or cash flows.

Note 13.  Concentration of Credit Risk

We periodically invest our excess cash and equivalents in money market funds and trusts, which are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other financial or government institution. We also deposit a portion of our cash and equivalents with numerous federally-insured financial institutions, the balances of which often exceed $250,000. The Federal Deposit Insurance Corporation insures each account up to a maximum of $250,000 of the aggregate account balance with each institution. We believe counterparty default risk is low as we only use financial institutions with investment grade ratings or funds and trusts that invest in securities with investment grade ratings and that possess the necessary liquidity to satisfy our redemption needs.

Note 14.  Segments and Geographic Information

We consider our Michaels and Aaron Brothers operations to be our operating segments for purposes of determining reportable segments based on the criteria of SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. We determined that our Michaels and Aaron Brothers operating segments have similar economic characteristics and meet the aggregation criteria set forth in paragraph 17 of SFAS No. 131. Therefore, we combine both operating segments into one reporting segment.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in Note 1.

Our chief operating decision makers evaluate historical operating performance and plan and forecast of future periods’ operating performance based on earnings before interest, income taxes, discontinued operations, goodwill impairment, depreciation and amortization (“EBITDA”). In addition, an element of base incentive compensation targets for certain management personnel are based on EBITDA. A reconciliation of EBITDA to (loss)/income before income taxes and discontinued operations is presented below.

F-28

	Fiscal Year
	2008			2007			2006
(Loss) income before income taxes and discontinued operations	$	(2	)	$	(17	)	$	115
Interest expense	302			378			105
Interest income	—			(1		)	(10		)
Depreciation and amortization	129			125			119
EBITDA	$	429		$	485		$	329

Our sales and assets by country are as follows:

	Net Sales		Total Assets
	(in millions)
Fiscal 2008:
United States	$	3,517	$	1,535
Canada	300		90
Consolidated total	$	3,817	$	1,625
Fiscal 2007:
United States	$	3,558	$	1,507
Canada	304		107
Consolidated total	$	3,862	$	1,614
Fiscal 2006:
United States	$	3,578	$	1,610
Canada	265		83
Consolidated total	$	3,843	$	1,693

We present assets based on their physical, geographic location. Certain assets located in the United States are also used to support our Canadian operations, but we do not allocate these assets to Canada.

Note 15.  Related Party Transactions

We pay annual management fees to the Sponsors in the amount of $12 million and an annual management fee to Highfields Capital Management LP in the amount of $1 million. We recognized $14 million, $13 million and $3 million of expense in fiscal 2008, 2007 and 2006, respectively, related to annual management fees.

As more fully described in Note 4, during fiscal 2006, we paid the Sponsors transaction fees totaling $60 million in connection with services provided by them related to the Merger. We recognized $24 million of the Sponsor transaction fees as an expense, capitalized $27 million of the fees as debt issuance costs, and classified $9 million as equity issuance costs.  We also reimbursed the Sponsors, or paid on their behalf, Merger-related fees of $15 million incurred by them.  Of the $15 million, we expensed $9 million and capitalized $6 million as debt issuance costs.

Bain Capital owns a majority ownership stake in an external vendor we utilize to print our circular advertisements.  Payments associated with this vendor during fiscal 2008, fiscal 2007 and fiscal 2006 were $44 million, $46 million and $44 million, respectively, and are included in selling, general and administrative expense on the Consolidated Statements of Operations

During the first quarter of fiscal 2007, The Blackstone Group acquired a majority ownership stake in an external vendor we utilize to count our store inventory. Payments associated with this vendor during fiscal 2008 and fiscal 2007 were $6 million and $5 million, respectively, and are included in selling, general and administrative expense on the Consolidated Statements of Operations.

During the third quarter of fiscal 2007, Bain Capital acquired an ownership stake in an external vendor we utilize for non-merchandise supplies.  Payments associated with this vendor during each of fiscal 2008 and fiscal 2007 were approximately $3 million, and are included in selling, general and administrative expense on the Consolidated Statements of Operations.

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During fiscal 2008, we began utilizing an external vendor for waste management services that is partially owned by The Blackstone Group. Payments associated with this vendor during fiscal 2008 were $3 million, and are included in selling, general and administrative expense on the Consolidated Statements of Operations.

During the first quarter of fiscal 2008, The Blackstone Group acquired an ownership stake in an external vendor we utilize for all of the candy-type items in our stores.  Payments associated with this vendor during fiscal 2008 were $18 million, and are recognized in cost of sales as the sales are incurred.

The Company periodically provides officers of Michaels Stores, Inc. and its subsidiaries the opportunity to purchase shares of our Common Stock. There were no shares sold to officers during fiscal 2008. During fiscal 2007, the Company sold 541,006 shares to officers. Also, during fiscal 2008 and fiscal 2007, we repurchased 111,334 shares and 93,333 shares, respectively, from officers who are no longer with the Company.

In connection with the consummation of the Merger, the Company entered into a Separation Agreement with each of Charles Wyly and Sam Wyly, executive officers and directors of the Company prior to the Merger.  Under the Separation Agreements, each of Charles Wyly and Sam Wyly received a lump sum payment of $3 million in exchange for his agreement to adhere to certain non-competition, non-solicitation and confidentiality restrictions. We amortized these Separation Agreements over two years.

Donald R. Miller, Jr., the son-in-law of Charles J. Wyly, Jr., was Vice President — Market Development of Michaels until his departure on November 1, 2006.  In fiscal 2006, we paid Mr. Miller $212,000 in salary.  Mr. Miller also earned a fiscal 2006 cash bonus of $80,153 and received $177,470 in other fiscal 2006 compensation, including premium payments for life and long-term disability insurance, Company contributions to the 401(k) plan, medical benefits, other perquisites and personal benefits and tax gross-up payments.  In addition, upon his resignation, Mr. Miller became entitled to severance benefits under a Change in Control Agreement dated April 26, 2006, and a bonus under a Change in Control Bonus Plan, the terms of each of which are described under “Item 11. Executive Compensation — Executive and Director Compensation — Potential Payments upon Termination or Change in Control — Rights and Potential Payments Upon a Change in Control.”  Under the Change in Control Agreement and the Change in Control Bonus Plan, Mr. Miller was paid the aggregate amount of $867,000 and became entitled to a continuation for two years of welfare and fringe benefits, at an estimated cost to the Company of $73,493.  Mr. Miller was also entitled to reimbursement for outplacement services of up to $50,000.

Note 16.  Condensed Consolidating Financial Information

All of the Company’s obligations under the Senior Notes, Senior Subordinated Notes, Subordinated Discount Notes, Senior secured term loan, and Asset-based revolving credit facility are guaranteed by the Parent and Guarantor subsidiaries. Currently, Aaron Brothers Card Services, LLC is a non-guarantor subsidiary that was organized on July 11, 2008. As of January 31, 2009, the financial statements of Aaron Brothers Card Services, LLC were immaterial.

The following condensed consolidating financial information represents the financial information of Michaels Stores, Inc. and its wholly-owned subsidiary guarantors, prepared on the equity basis of accounting.  The information is presented in accordance with the requirements of Rule 3-10 under the SEC’s Regulation S-X.  The financial information may not necessarily be indicative of results of operations, cash flows, or financial position had the subsidiary guarantors operated as independent entities.

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Supplemental Condensed Consolidating Statement of Operations

	Fiscal Year 2008
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Net sales	$	3,356		$	2,206		$	(1,745	)	$	3,817
Cost of sales and occupancy expense	2,342			1,834			(1,745		)	2,431
Gross profit	1,014			372			—			1,386
Selling, general, and administrative expense	934			126			—			1,060
Transaction expenses	—			—			—			—
Related party expenses	16			—			—			16
Store pre-opening costs	6			—			—			6
Operating income	58			246			—			304
Interest expense	302			—			—			302
Other (income) and expense, net	—			4			—			4
Intercompany charges (income)	76			(76		)	—			—
Equity in earnings of subsidiaries	318			—			(318		)	—
(Loss) income before income taxes and discontinued operations	(2		)	318			(318		)	(2		)
Provision for income taxes	3			123			(123		)	3
(Loss) income before discontinued operations	(5		)	195			(195		)	(5		)
Discontinued operations loss, net of income tax	—			—			—			—
Net (loss) income	$	(5	)	$	195		$	(195	)	$	(5	)

Supplemental Condensed Consolidating Statement of Operations

	Fiscal Year 2007
	Parent Company			Guarantor Subsidiaries				Eliminations			Consolidated
	(in millions)
Net sales	$	3,383		$		2,012		$	(1,533	)	$	3,862
Cost of sales and occupancy expense	2,274			1,642				(1,533		)	2,383
Gross profit	1,109			370				—			1,479
Selling, general, and administrative expense	918			133				—			1,051
Transaction expenses	29			—				—			29
Goodwill impairment	—			22				—			22
Related party expenses	17			—				—			17
Store pre-opening costs	5			1				—			6
Operating income	140			214				—			354
Interest expense	378			—				—			378
Other (income) and expense, net	(1		)	(6			)	—			(7		)
Intercompany charges (income)	79			(79			)	—			—
Equity in earnings of subsidiaries	299			—				(299		)	—
(Loss) income before income taxes and discontinued operations	(17		)	299				(299		)	(17		)
Provision for income taxes	5			120				(120		)	5
(Loss) income before discontinued operations	(22		)	179				(179		)	(22		)
Discontinued operations loss, net of income tax	(10		)	—				—			(10		)
Net (loss) income	$	(32	)	$	179			$	(179	)	$	(32	)

F-31

Supplemental Condensed Consolidating Statement of Operations

	Fiscal Year 2006
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Net sales	$	3,393		$	1,867		$	(1,417	)	$	3,843
Cost of sales and occupancy expense	2,281			1,500			(1,417		)	2,364
Gross profit	1,112			367			—			1,479
Selling, general, and administrative expense	904			119			—			1,023
Transaction expenses	205			—			—			205
Goodwill impairment	—			—			—			—
Related party expenses	38			—			—			38
Store pre-opening costs	4			1			—			5
Operating (loss) income	(39		)	247			—			208
Interest expense	105			—			—			105
Other (income) and expense, net	(12		)	—			—			(12		)
Intercompany charges (income)	83			(83		)	—			—
Equity in earnings of subsidiaries	330			—			(330		)	—
Income (loss) before income taxes and discontinued operations	115			330			(330		)	115
Provision (benefit) for income taxes	71			126			(126		)	71
Income (loss) before discontinued operations	44			204			(204		)	44
Discontinued operations loss, net of income tax	(3		)	—			—			(3		)
Net income (loss)	$	41		$	204		$	(204	)	$	41

F-32

Supplemental Condensed Consolidating Balance Sheet

	January 31, 2009
	Parent Company			Guarantor Subsidiaries		Eliminations			Consolidated
	(in millions)
ASSETS
Current assets:
Cash and equivalents	$	26		$	7	$	—		$	33
Merchandise inventories	627			273		—			900
Intercompany receivables	—			387		(387		)	—
Other	62			54		—			116
Total current assets	715			721		(387		)		1,049
Property and equipment, net	284			98		—			382
Goodwill, net	94			—		—			94
Investment in subsidiaries	488			—		(488		)	—
Other assets	80			20		—			100
Total assets	$	1,661		$	839	$	(875	)	$	1,625
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	15		$	215	$	—		$	230
Accrued liabilities and other	200			75		—			275
Current portion of long-term debt	173			—		—			173
Intercompany payable	387			—		(387		)	—
Other	(32		)	35		—			3
Total current liabilities	743			325		(387		)	681
Long-term debt	3,756			—		—			3,756
Other long-term liabilities	49			26		—			75
Total stockholders’ (deficit) equity	(2,887		)	488		(488		)	(2,887		)
Total liabilities and stockholders’ (deficit) equity	$	1,661		$	839	$	(875	)	$	1,625

F-33

Supplemental Condensed Consolidating Balance Sheet

	February 2, 2008
	Parent Company			Guarantor Subsidiaries		Eliminations			Consolidated
	(in millions)
ASSETS
Current assets:
Cash and equivalents	$	26		$	3	$	—		$	29
Merchandise inventories	622			223		—			845
Intercompany receivables	—			250		(250		)	—
Other	61			45		—			106
Total current assets	709			521		(250		)		980
Property and equipment, net	308			125		—			433
Goodwill, net	94			—		—			94
Investment in subsidiaries	325			—		(325		)	—
Other assets	91			16		—			107
Total assets	$	1,527		$	662	$	(575	)	$	1,614
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	29		$	192	$	—		$	221
Accrued liabilities and other	249			83		—			332
Current portion of long-term debt	122			—		—			122
Intercompany payable	250			—		(250		)	—
Other	(37		)	41		—			4
Total current liabilities	613			316		(250		)	679
Long-term debt	3,741			—		—			3,741
Other long-term liabilities	65			21		—			86
Total stockholders’ (deficit) equity	(2,892		)	325		(325		)	(2,892		)
Total liabilities and stockholders’ (deficit) equity	$	1,527		$	662	$	(575	)	$	1,614

F-34

Supplemental Condensed Consolidating Statement of Cash Flows

	Fiscal Year 2008
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Operating activities:
Net cash provided by operating activities	$	47		$	192		$	(180	)	$	59
Investing activities:
Cash paid for property and equipment	(77		)	(8		)	—			(85		)
Net cash used in investing activities	(77		)	(8		)	—			(85		)
Financing activities:
Net borrowings of long-term debt	27			—			—			27
Intercompany dividends	—			(180		)	180			—
Other financing activities	3			—			—			3
Net cash provided by (used in) financing activities	30			(180		)	180			30
Increase in cash and equivalents	—			4			—			4
Beginning cash and equivalents	26			3			—			29
Ending cash and cash equivalents	$	26		$	7		$	—		$	33

Supplemental Condensed Consolidating Statement of Cash Flows

	Fiscal Year 2007
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Operating activities:
Net cash provided by operating activities	$	236		$	244		$	(212	)	$	268
Investing activities:
Cash paid for property and equipment	(68		)	(32		)	—			(100		)
Net cash used in investing activities	(68		)	(32		)	—			(100		)
Financing activities:
Net repayments of long-term debt	(134		)	—			—			(134		)
Intercompany dividends	—			(212		)	212			—
Other financing activities	(35		)	—			—			(35		)
Net cash used in financing activities	(169		)	(212		)	212			(169		)
Decrease in cash and equivalents	(1		)	—			—			(1		)
Beginning cash and equivalents	27			3			—			30
Ending cash and equivalents	$	26		$	3		$	—		$	29

F-35

Supplemental Condensed Consolidating Statement of Cash Flows

	Fiscal Year 2006
	Parent Company			Guarantor Subsidiaries			Eliminations			Consolidated
	(in millions)
Operating Activities:
Net cash provided by operating activities	$	133		$	206		$	(182	)	$	157
Investing Activities:
Cash paid for property and equipment	(108		)	(35		)	—			(143		)
Net cash used in investing activities	(108		)	(35		)	—			(143		)
Financing Activities:
Net borrowing of long-term debt	3,825			—			—			3,825
Equity investment of the Sponsors	1,649			—			—			1,649
Payment for old Common Stock in the Merger	(5,806		)	—			—			(5,806		)
Cash dividends paid to stockholders	(58		)	—			—			(58		)
Intercompany dividends	—			(182		)	182			—
Repurchase of Old Common Stock	(66		)	—			—			(66		)
Other financing activities	50			(30		)	—			20
Net cash used in financing activities	(406		)	(212		)	182			(436		)
Decrease in cash and equivalents	(381		)	(41		)	—			(422		)
Beginning cash and equivalents	408			44			—			452
Ending cash and equivalents	$	27		$	3		$	—		$	30

Note 17.  Subsequent Event

During the first quarter of fiscal 2009, we purchased an interest rate cap to hedge the variability of cash flows associated with our interest payments on our Senior secured term loan that result from fluctuations in the three-month LIBOR rate. The cap limits our interest exposure on a notional value of $2.0 billion to the lesser of the three-month Libor rate or 7.0%. The term of the cap is from April 15, 2009 through April 15, 2015.

F-36

MICHAELS STORES, INC.

UNAUDITED SUPPLEMENTAL QUARTERLY FINANCIAL DATA

(in millions)

	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
Fiscal 2008 (1):
Net sales	$	847		$	796		$	906		$	1,268
Cost of sales and occupancy expense	521			518			584			808
Gross profit	326			278			322			460
Selling, general, and administrative expense	272			246			247			295
Operating income	48			27			68			161
(Loss) income before discontinued operations	(20		)	(30		)	(20		)	65
Net (loss) income	(20		)	(30		)	(20		)	65
Fiscal 2007 (2):
Net sales	$	839		$	788		$	934		$	1,301
Cost of sales and occupancy expense	513			498			591			781
Gross profit	326			290			343			520
Selling, general, and administrative expense (3)	254			242			262			293
Operating income	60			27			67			200
(Loss) income before discontinued operations	(22		)	(43		)	(13		)	56
Net (loss) income	(23		)	(44		)	(18		)	53

We report on the basis of a 52 or 53-week fiscal year, which ends on the Saturday closest to January 31. Our interim periods each contain 13 weeks, with the first quarter ending on a Saturday 13 weeks after the end of our previous fiscal year. For fiscal years that contain 53 weeks, our fourth quarter contains 14 weeks.

(1)    See Item 9B. Other Information for a discussion of certain modifications made to our previously reported fiscal 2008 year end results.

(2)    Amounts have been adjusted from amounts previously reported on our Quarterly Reports on Form 10-Q to reflect discontinued operations, as applicable, for each period.

(3)    Fiscal 2007 selling, general, and administrative expense amounts have been adjusted from amounts previously reported on our Quarterly Reports on Form 10-Q to include expenses associated with an external vendor, owned by The Blackstone Group, who provides inventory count services. These expenses were previously reported as Related Party Expenses.

F-37

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:  April 2, 2009	MICHAELS STORES, INC.
	By:	/s/ Elaine D. Crowley
		Elaine D. Crowley
		Executive Vice President - Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Brian C. Cornell	Chief Executive Officer	April 2, 2009
Brian C. Cornell	(Principal Executive Officer)
/s/ Elaine D. Crowley	Executive Vice President - Chief Financial Officer	April 2, 2009
Elaine D. Crowley	(Principal Financial Officer)
/s/ Richard S. Jablonski	Vice President – Finance and Controller	April 2, 2009
Richard S. Jablonski	(Principal Accounting Officer)
/s/ Josh Bekenstein	Director	April 2, 2009
Josh Bekenstein
/s/ Michael S. Chae	Director	April 2, 2009
Michael S. Chae
/s/ Gerry M. Murphy	Director	April 2, 2009
Gerry M. Murphy
/s/ Todd M. Cook	Director	April 2, 2009
Todd M. Cook
/s/ Lewis S. Klessel	Director	April 2, 2009
Lewis S. Klessel
/s/ Matthew S. Levin	Director	April 2, 2009
Matthew S. Levin
/s/ James A. Quella	Director	April 2, 2009
James A. Quella
/s/ Peter F. Wallace	Director	April 2, 2009
Peter F. Wallace

EXHIBIT INDEX

Exhibit Number	Description of Exhibit
2.1	Agreement and Plan of Merger, dated as of June 30, 2006, among Bain Paste Mergerco, Inc., Blackstone Paste Mergerco, Inc., Bain Paste Finco, LLC, Blackstone Paste Finco, LLC and Michaels Stores, Inc. (previously filed as Exhibit 2.1 to Form 8-K filed by Registrant on July 6, 2006, SEC File No. 001-09338).
2.2	First Amendment to Agreement and Plan of Merger, dated as of September 1, 2006, among Bain Paste Mergerco, Inc., Blackstone Paste Mergerco, Inc., Bain Paste Finco, LLC, Blackstone Paste Finco, LLC and Michaels Stores, Inc. (previously filed as Exhibit 2.1 to Form 8-K filed by Registrant on September 5, 2006, SEC File No. 001-09338).
3.1	Amended and Restated Certificate of Incorporation of Michaels Stores, Inc. (previously filed as Exhibit 3.1 to Form 10-K filed by Registrant on May 3, 2007, SEC File No. 001-09338).
3.2	Amended and Restated Bylaws of Michaels Stores, Inc. (previously filed as Exhibit 3.2 to Form 8-K filed by Registrant on November 6, 2006, SEC File No. 001-09338).
4.1	Senior Indenture, dated as of October 31, 2006, among Michaels Stores, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as trustee (previously filed as Exhibit 4.1 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).
4.2	Senior Subordinated Indenture, dated as of October 31, 2006, among Michaels Stores, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as trustee (previously filed as Exhibit 4.2 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).
4.3	Subordinated Discount Indenture, dated as of October 31, 2006, among Michaels Stores, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as trustee (previously filed as Exhibit 4.3 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).
4.4	Registration Rights Agreement, dated as of October 31, 2006, among Michaels Stores, Inc. and certain stockholders thereof (previously filed as Exhibit 4.7 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).
10.1	Michaels Stores, Inc. 2006 Equity Incentive Plan (previously filed as Exhibit 10.1 to Form 8-K filed by Registrant on February 21, 2007, SEC File No. 001-09338).*
10.2	Form of Stock Option Agreement under the Registrant’s 2006 Equity Incentive Plan (previously filed as Exhibit 10.2 to Form 8-K filed by Registrant on February 21, 2007, SEC File No. 001-09338).*
10.3	Form of Restricted Stock Award Agreement under the Michaels Stores, Inc. 2006 Equity Incentive Plan (previously filed as Exhibit 10.3 to Form 10-Q filed by the Registrant on June 6, 2008, SEC File No. 001-09338).*
10.4	Form of Change in Control Severance Agreement (previously filed as Exhibit 10.2 to Form 10-Q filed by Registrant on June 13, 2006, SEC File No. 001-09338).*
10.5	Form of Change in Control Retention Bonus Plan (previously filed as Exhibit 10.3 to Form 10-Q filed by Registrant on June 13, 2006, SEC File No. 001-09338).*
10.6	Fiscal Year 2008 Bonus Plan Summary for Executive Officers (previously filed as Exhibit 10.1 to Form 8-K filed by Registrant on April 9, 2008, SEC File No. 001-09338).*
10.7	Form of Fiscal Year 2008 Bonus Plan (previously filed as Exhibit 10.1 to Form 10-Q filed by Registrant on June 6, 2008, SEC File No. 001-09338).*
10.8	Employment Agreement, dated June 4, 2007, between Michaels Stores, Inc. and Brian C. Cornell (previously filed as Exhibit 10.2 to Form 10-Q filed by Registrant on June 11, 2007, SEC File No. 001-09338).*
10.9	Letter Agreement, dated May 19, 2008, between Michaels Stores, Inc. and Shelley G. Broader (previously filed as Exhibit 10.4 to Form 10-Q filed by Registrant on June 6, 2008, SEC File No. 001-09338).*
10.10	Letter Agreement dated July 17, 2008, between Michaels Stores, Inc. and Elaine D. Crowley (previously filed as

	Exhibit 99.2 to Form 8-K filed by Registrant on July 24, 2008, SEC File No. 001-09338).*
10.11	Restricted Stock Award Agreement, dated June 4, 2007, between Michaels Stores, Inc. and Brian C. Cornell (previously filed as Exhibit 10.4 to Form 10-Q filed by Registrant on June 11, 2007, SEC File No. 001-09338).*
10.12	Stock Option Agreement, dated June 4, 2007, between Michaels Stores, Inc. and Brian C. Cornell (previously filed as Exhibit 10.5 to Form 10-Q filed by Registrant on June 11, 2007, SEC File No. 001-09338).*
10.13	Stockholders Agreement, dated as of October 31, 2006, among Michaels Stores, Inc. and certain stockholders thereof (previously filed as Exhibit 10.1 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).
10.14	Amended and Restated Stockholders Agreement, dated as of February 16, 2007, among Michaels Stores, Inc. and certain stockholders thereof (previously filed as Exhibit 10.23 to Form 10-K filed by Registrant on May 3, 2007, SEC File No. 001-09338).
10.15	Management Agreement, dated as of October 31, 2006, among Michaels Stores, Inc., Bain Capital Partners, LLC and Blackstone Management Partners V LLC (previously filed as Exhibit 10.2 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).*
10.16	Management Agreement, dated as of October 31, 2006, between Michaels Stores, Inc. and Highfields Capital Management LP (previously filed as Exhibit 10.3 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).*
10.17	Michaels Stores, Inc. Amended Officer Severance Pay Plan (filed herewith).*
10.18	Separation and Release Agreement, dated April 9, 2008, between Michaels Stores, Inc. and Jeffrey N. Boyer (filed herewith).*
10.19	Separation and Release Agreement, dated May 27, 2008, between Michaels Stores, Inc. and Harvey S. Kanter (previously filed as Exhibit 10.5 to Form 10-Q filed by Registrant on June 6, 2008, SEC File No. 001-09338).*
10.20	Separation Agreement and Release, dated July 2, 2008, between Michaels Stores, Inc. and Thomas M. Bazzone (previously filed as Exhibit 10.5 to Form 8-K filed by Registrant on July 9, 2008, SEC File No. 001-09338).*
10.21	Separation Agreement, dated October 31, 2006, between Charles J. Wyly, Jr. and Michaels Stores, Inc. (previously filed as Exhibit 10.27 to Form 10-K filed by Registrant on May 3, 2007, SEC File No. 001-09338).*
10.22	Separation Agreement, dated October 31, 2006, between Sam Wyly and Michaels Stores, Inc. (previously filed as Exhibit 10.28 to Form 10-K filed by Registrant on May 3, 2007, SEC File No. 001-09338).*
10.23	Form of Director Indemnification Agreement between Michaels Stores, Inc. and certain directors thereof (previously filed as Exhibit 10.36 to Form 10-K filed by Registrant on March 30, 2006, SEC File No. 001-09338).
10.24	Form of Officer Indemnification Agreement between Michaels Stores, Inc. and certain officers thereof (previously filed as Exhibit 10.37 to Form 10-K filed by Registrant on March 30, 2006, SEC File No. 001-09338).
10.25	Credit Agreement, dated as of October 31, 2006, among Michaels Stores, Inc., as lead borrower, the facility guarantors named therein, Bank of America, N.A., as administrative agent and collateral agent, Deutsche Bank Securities Inc., as syndication agent, Credit Suisse, JPMorgan Chase Bank, N.A., Wells Fargo Retail Finance, LLC, as co-documentation agents, the lenders named therein, and Banc of America Securities LLC, Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc., as joint lead arrangers and joint bookrunners (previously filed as Exhibit 10.4 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).
10.26	Credit Agreement, dated as of October 31, 2006, among Michaels Stores, Inc., Deutsche Bank AG New York Branch, as administrative agent, the other lenders named therein, JPMorgan Chase Bank, N.A., as syndication agent, and Bank of America, N.A. and Credit Suisse, as co-documentation agents, and Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Banc of America Securities LLC as co-lead arrangers and joint bookrunners (previously filed as Exhibit 10.5 to Form 10-Q filed by Registrant on December 7, 2006, SEC File No. 001-09338).
10.27	First Amendment to Credit Agreement, dated as of January 19, 2007, to the Credit Agreement, dated as of October 31, 2006, among Michaels Stores, Inc., Deutsche Bank AG New York Branch, as administrative agent, the other lenders named therein, JPMorgan Chase Bank, N.A., as syndication agent, and Bank of America, N.A. and Credit Suisse, as

	co-documentation agents, and Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Banc of America Securities LLC as co-lead arrangers and joint bookrunners (previously filed as Exhibit 10.1 to Form 8-K filed by Registrant on January 25, 2007, SEC File No. 001-09338).
10.28	Second Amendment to Credit Agreement, dated as of May 10, 2007, to the Credit Agreement, dated as of October 31, 2006, among Michaels Stores, Inc., Deutsche Bank AG New York Branch, as administrative agent, the other lenders named therein, JPMorgan Chase Bank, N.A., as syndication agent, and Bank of America, N.A. and Credit Suisse, as co-documentation agents, and Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Banc of America Securities LLC as co-lead arrangers and joint bookrunners (previously filed as Exhibit 10.1 to Form 8-K filed by Registrant on May 11, 2007, SEC File No. 001-09338).
10.29	Master Services Agreement, dated as of January 16, 2009, by and between Michaels Stores, Inc. and Tata America International Corporation (filed herewith).
10.30	Michaels Stores, Inc. Employees 401(k) Plan, effective March 1, 2009 (filed herewith).*
21.1	Subsidiaries of Michaels Stores, Inc. (previously filed as Exhibit 21.1 to Form 10-K filed by Registrant on April 11, 2005, SEC File No. 001-09338).
23.1	Consent of Independent Registered Public Accounting Firm (filed herewith).
31.1	Certifications of Brian C. Cornell pursuant to §302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certifications of Elaine D. Crowley pursuant to §302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

*  Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K.

EX-10.17

Exhibit 10.17

MICHAELS STORES, INC.

OFFICER SEVERANCE PAY PLAN

Established April 17, 2008 and Amended as of July 28, 2008

I. PURPOSE

This Plan has been established by Michaels Stores, Inc. (the “Company”) to provide certain severance benefits, subject to the terms and conditions set forth, to designated officers in the event that his/her employment is permanently terminated as a result of a Qualifying Termination, as described below.  As a severance pay plan, this Plan is intended to comply with all applicable requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the regulations promulgated under ERISA for top hat employee welfare benefit plans and is to be interpreted in a manner consistent with those requirements.  This document contains the provisions of the Plan and the Summary Plan Description.  This Plan also is intended to comply with the applicable requirements of Section 409A of the Internal Revenue Code of 1986 as amended (“Section 409A”) and is to be interpreted and administered in a manner consistent with those requirements.

II. ELIGIBILITY TO PARTICIPATE

In order to be eligible to be a participant in this Plan (a ‘Participant’), an individual must be employed by the Company in a position with the title of Vice President (or equivalent, as approved by the Compensation Committee), Senior Vice President, Executive Vice President, or President.  No other individual will be considered a Participant.

III. QUALIFICATIONS FOR RECEIPT OF PLAN BENEFITS

In order to qualify for benefits under this Plan, a Participant must meet all of the following qualifications:  (A) must have a Qualifying Termination, as defined in Section IV below; (B) must not be eligible for severance pay or other termination benefits (other than incidental perquisites such as continued use of a Company vehicle or an air travel allowance) under any other severance pay plan or under any employment agreement or other agreement with the Company or any of its Affiliates (including without limitation a change-of-control or like agreement) at the time of the Qualifying Termination;  (C) must sign and return, following the Termination Date, a timely and effective separation agreement and release of claims in the form attached to this Plan and marked “Exhibit A” (the “Agreement and Release”); and (D) must comply with the post-employment obligations set forth in Section VII(B) of this Plan.

1

IV.QUALIFYING TERMINATION

A Participant’s termination of employment is a Qualifying Termination only if all of the following requirements are met and such termination is not enumerated in the list of exclusions in Section V:

A.The Participant is on the active payroll or is on an approved leave of absence with a right to reinstatement at the time employment terminates;

B.the Participant’s employment is terminated by the Company other than for “Cause” (as hereafter defined) and other than as a result of death or Disability;

C.the Participant is not offered other employment with (1) an Affiliate of the Company (as hereafter defined), (2) a successor of the Company (a “Successor”) or (3) a purchaser of some or all of the assets of the Company (a “Purchaser”) (a) in a position which the Participant is qualified to perform regardless of whether the Participant is subject to, among other things, a new job title, different reporting relationships or a modification of Participant’s duties and responsibilities (b) that, when compared with the Participant’s last position with the Company, provides a comparable base salary and bonus opportunity,; and (c) there is no change in Participant’s principal place of employment to a location more than 35 miles from the Participant’s principal place of employment immediately prior to the Qualifying Termination;

D.the Participant has not accepted employment, in any position, with an Affiliate, a Successor or a Purchaser at the time he or she otherwise qualifies for benefits under this Plan; and

E.the Participant continues employment until the termination date designated by the Company or such earlier date to which the Company agrees; and, during the period from the date the Participant receives notice of termination until the Termination Date, the Participant continues to perform to the reasonable satisfaction of the Company.

V. EXCLUSIONS

The following are examples of events which would not be a Qualifying Termination under this Plan. This is not an exclusive list.

A.The Participant resigns, retires or otherwise voluntarily leaves his/her employment with the Company; or

B.the Participant’s employment terminates as a result of death or Disability; or

C.the Participant’s employment is terminated by the Company for Cause; or

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D.the Participant is offered other employment with an Affiliate, Successor or a Purchaser in a position that he or she qualified to perform, with a comparable base salary and bonus opportunity and there is no change in Participant’s principal place of employment to a location more than 35 miles from the Participant’s principal place of employment immediately prior to the Qualifying Termination; or

E.the Participant accepts any employment with an Affiliate, a Successor or a Purchaser.

VI.BENEFITS UNDER THE PLAN

A.As the sole benefits under this Plan and subject to all Plan terms and conditions, a Participant will be entitled to the following:

(1)Severance Pay:

(a) A Participant in the position of Vice President (or equivalent, as approved by the Compensation Committee) at the time of a Qualifying Termination who has less than two years of service from his/her most recent date of hire by the Company will be eligible for six (6) months of severance pay and such a Participant with two or more years of service from his/her most recent date of hire by the Company will be eligible for twelve (12) months of severance pay.

(b)A Participant in the position of Senior Vice President, Executive Vice President or President at the time of a Qualifying Termination who has less than two years of service from his/her most recent date of hire by the Company will be eligible for twelve (12) months of severance pay and such a Participant with two or more years of service from his/her most recent date of hire by the Company will be eligible for eighteen (18) months of severance pay.

(c)  One month of severance pay is equal to one-twelfth of a Participant’s base salary at the annual rate in effect at the time termination occurs.

(d)Years of service means the total number of consecutive completed years of service with the Company.

(2)Pro-Rated Annual Bonus:

Provided that the Participant is participating in a Company executive annual bonus plan and has been assigned a target bonus under that plan for the fiscal year in which the Participant has a Qualified Termination hereunder, the Participant shall be entitled to a pro-rated annual bonus for that fiscal year determined by multiplying the Participant’s target bonus by a fraction, the numerator of which is the number of calendar days that the Participant was employed during the fiscal

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year, through the date of termination, and the denominator of which is 365.

(3)Premium Welfare Benefits:

During the period of severance pay, the Company shall continue the participation of the Participant and his/her spouse and dependants in the group medical, vision and dental plans of the Company made available to active employees of the Company at the level of benefits provided to active employees similarly situated to the Participant prior to the Termination Date, provided that the Participant is entitled to continue such participation under applicable law and plan terms.  During this period, the Company will contribute to the premium cost of Participant’s participation in the Company’s group medical, vision and dental plans, provided that the Participant pays the remainder of such premium cost, if any, and any required administrative fee, in a timely manner from month to month, and further provided, however, that if the Participant becomes reemployed with another employer-provided plan, the medical, vision and dental benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility.   Notwithstanding anything to the contrary contained herein, Participant shall provide the Company with notice of eligibility under another employer-provided health benefit plan within seven (7) calendar days of becoming eligible.  Nothing in this Section VI(A)(3) shall operate to reduce, or be construed as reducing, the Participant’s group health plan continuation rights under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), in any manner and, upon the end of the period of severance pay, the Participant, if participating in one or more of the Company’s medical, vision or dental plans and if otherwise eligible under COBRA, shall be entitled to elect COBRA continuation coverage at the Participant’s sole cost and expense for the full period applicable upon termination of the period of severance pay.

B.Benefits payable to a Participant under Section VI(A) shall be reduced by all taxes and other amounts that are required to be withheld under applicable law.  Severance pay under Section VI(A)(1) shall be payable in the form of salary continuation at the Company’s regular payroll periods and in accordance with its regular payroll practices, commencing on the next regular payday which is at least five (5) business days following the effective date of the Agreement and Release, but the first payment shall be retroactive to the day immediately following the date of termination of the Participant’s employment.  Any pro-rated annual bonus for which a Participant is eligible under Section VI(A)(2) shall be payable on the later of the date annual bonuses are payable to active participants in the bonus plan for the fiscal year in which Participant has a Qualified Termination or the next regular payday which is at least five (5) business days following the effective date of the Agreement and Release.

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C.Notwithstanding the foregoing, if at the time of the Participant’s separation from service, the Participant is a “specified employee,” as hereinafter defined, any and all amounts payable under this Section VI in connection with such separation from service that constitute deferred compensation subject to Section 409A, as determined by the Company in its sole discretion, and that would (but for this sentence) be payable within six months following such separation from service, shall instead be paid on the date that follows the date of such separation from service by six (6) months.  For purposes of the preceding sentence, “separation from service” shall be determined in a manner consistent with subsection (a)(2)(A)(i) of Section 409A and the term “specified employee” shall mean an individual determined by the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of Section 409A.

VII.CONDITIONS OF RECEIVING PLAN BENEFITS

A.The Agreement and Release.

(1)A Participant who has been informed that he/she will be subject to a Qualifying Termination will be provided by the Company an Agreement and Release in the form of attached to this Plan as Exhibit A.  In order to qualify for benefits under this Plan, the Participant must sign, date and return the Agreement and Release in a timely manner and it must become effective in accordance with its terms and this Plan.  The Agreement and Release must be signed and returned no earlier than the day immediately following the Termination Date and no later than the 21st calendar day following the Termination Date, except in the event that a Participant who is aged 40 or older has a Qualifying Termination that is part of a Termination Program, as provided in Section VII A(2), immediately below.

(2)In the event that a Participant who is aged 40 or older is subject to a Qualifying Termination in conjunction with one or more other Participants as a result of a reorganization or a reduction in force or other involuntary termination program (a “Termination Program”), the Company will provide the Participant a memorandum containing information regarding the job titles and ages of those selected, and those not selected, for the Termination Program in accordance with the federal Older Workers Benefit Protection Act (the “OWBPA Memorandum”).  Such a Participant will be entitled to consider the Agreement and Release for 45 calendar days following the later of the Participant’s Termination Date or the date the Participant receives the OWBPA Memorandum.  In order to qualify for benefits under this Plan, the Participant must sign and return the Agreement and Release after both the Participant’s Termination Date and the Participant’s receipt of the OWBPA Memorandum have occurred, but no later than the 45th calendar day following his/her Termination Date or the date s/he receives the OWBPA Memorandum, whichever occurs second.

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(3)A Participant who is aged 40 or older on his/her Termination Date, regardless of whether the Participant is entitled to a 21-calendar day consideration period under Section VII A(1) or a 45-calendar day consideration period under Section VII A(2), may revoke the Agreement and Release at any time during the seven calendar day period that immediately follows the date the Participant signs the Agreement and Release, provided that the Participant sends a written notice of revocation to the Senior Vice President, Human Resources during that seven calendar day period.  In the event the Participant revokes the Agreement and Release in writing in a timely manner, the Agreement and Release shall be void and of no force or effect and the Participant shall not be eligible to receive benefits of any kind under this Plan.  If the Participant does not revoke the Agreement and Release, it will take effect on the eighth calendar day following the date of the Participant’s signing.

(4)In the case of a Participant who is less than age 40 on his/her Termination Date, the Agreement and Release will take effect on the date the Participant signs and returns the Agreement and Release to the Company.

(5) Please Note:  The Agreement and Release contains legally binding obligations and the Company advises each Participant to consult an attorney before signing the Agreement and Release.

B.Post-Employment Restrictions.

(1)Introduction.  In order to qualify for receipt of benefits under this Plan, in addition to other qualifications set forth in this Plan, the Participant must comply fully with all of the obligations set forth in this Section VII(B) (the “Post-Employment Restrictions”) from and after the date the Participant is informed of the Company’s decision to terminate his/her employment in a Qualifying Termination.

(2)Restriction on Competition.  From the date the Participant is notified of the Company’s decision to terminate his/her employment until the expiration of twelve (12) months immediately following the Termination Date, the Participant shall not, directly or indirectly, alone or in association with others, anywhere in the Territory, own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, investor, principal, joint venturer, shareholder, partner, director, consultant, agent or otherwise with, or have any financial interest (through stock or other equity ownership, investment of capital, the lending of money or otherwise) in, any business, venture or activity that directly or indirectly competes, or is in planning, or has undertaken any preparation, to compete, with the Business of the Company or any of its Immediate Affiliates (a “Competitor”), except that nothing

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contained here shall prevent the Participant’s passive ownership of two percent (2%) or less of the equity securities of any Competitor that is a publicly-traded company.  For the purposes of this Agreement, the “Business of the Company and its Immediate Affiliates” or “Business” is that of arts and crafts specialty retailer providing materials, ideas and education for creative activities and the “Territory” is those states within the United States and those provinces of Canada in which the Company or any of its Immediate Affiliates is doing or actively planning to do business at any time during the twelve (12) months immediately preceding the date of the Participant’s Qualifying Termination.

(3)Restriction on Solicitation of Employees and Independent Contractors.  From the date the Participant is notified of the Company’s decision to terminate his/her employment until the expiration of twelve (12) months immediately following the Termination Date, the Participant shall not, and shall not assist any other Person to, (a) hire or solicit for hire any employee of the Company or any of its Immediate Affiliates or seek to persuade any employee of the Company or any of its Immediate Affiliates to discontinue employment or (b) solicit or encourage any independent contractor providing services to the Company or any of its Immediate Affiliates to terminate or diminish its relationship with them; provided, however, that these restrictions shall apply only with respect to employees of, and independent contractors providing services to, the Company or one of its Immediate Affiliates at any time during the twelve (12) months immediately preceding the Termination Date.

(4)Restriction on Solicitation of Distributors and Vendors.  From the date the Participant is notified of the Company’s decision to terminate his/her employment until the expiration of twelve (12) months immediately following the Termination Date, the Participant shall not directly or indirectly solicit or encourage any distributor or vendor to the Company or any of its Immediate Affiliates to terminate or breach any agreement which such distributor or vendor has with the Company or any of its Immediate Affiliates or to terminate or diminish its relationship with the Company or any of its Immediate Affiliates; provided, however, that these restrictions shall apply only with respect to those distributors and vendors who are doing business with the Company or any of its Immediate Affiliates at any time during the twelve (12) months immediately preceding the Termination Date.

VIII.TERMINATION OF PLAN BENEFITS

Notwithstanding anything to the contrary contained in this Plan, benefits for which a Participant has qualified and is receiving under this Plan shall terminate under the following circumstances:

A.If the Participant accepts employment with the Company or one of its Affiliates, a Successor or a Purchaser after

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qualifying for benefits under this Plan, all such benefits shall cease as of the date the Participant commences such employment.

B.All benefits under this Plan may be terminated by the Company in the event that it determines that the Participant has breached the Agreement and Release or has violated any obligation under Section VII hereof or otherwise breached any material provision of any written agreement with the Company or any of its Affiliates.

IX. GENERAL INFORMATION CONCERNING THE PLAN

A.The Company pays the full cost of benefits provided under this Plan from its general assets and the right of a Participant to receive any payment hereunder shall be an unsecured claim against the general assets of the Company.  The Plan at all times shall be entirely unfunded.

B.Notwithstanding anything to the contrary contained herein, benefits to which a Participant is otherwise entitled under this Plan shall be reduced by any other payments or benefits to which the Participant is entitled under applicable law as a result of termination of his/her employment, including without limitation any federal, state or local law with respect to plant closings, mass layoffs or the like, but exclusive of any unemployment benefits to which the Participant is entitled under applicable law.

C.Benefits under this Plan are not assignable or subject to alienation. Likewise, benefits are not subject to attachments by creditors or through legal process against the Company or any employee or any person claiming through an employee.

D.Notwithstanding anything to the contrary contained herein, any and all payments to be provided hereunder to or on behalf of any Participant are subject to reduction to the extent required by applicable statutes, regulations, rules and directives of federal, state and other governmental and regulatory bodies having jurisdiction over the Company.

E.This Plan does not constitute a contract of employment for a specific term or otherwise alter the at-will nature of the employment relationship between any employee and the Company or any of its Affiliates.

X.DEFINITIONS

Words or phrases, which are initially capitalized or within quotation marks shall have the meanings provided in this Section X and as provided elsewhere in this Plan. For purposes of this Plan, the following definition applies:

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A.An “Affiliate” means an individual, corporation and other entity directly or indirectly controlling, controlled by or under common control with the Company, where control may be by management authority, equity interest or otherwise.

B.“Cause” shall mean the following events or conditions, as determined by the Board of Directors of the Company in its reasonable judgment:  (i) the Participant’s refusal or failure to perform (other than by reason of disability), or material negligence in the performance of his or her duties and responsibilities to the Company or any of its Affiliates, or refusal or failure to follow or carry out any reasonable direction of the Board of Directors of the Company, and the continuance of such refusal, failure or negligence for a period of ten (10) calendar days after written notice delivered by the Company to the Participant that specifically identifies the manner in which the Participant has failed to perform his or her duties; (ii) the material breach by the Participant of any provision of any material agreement between the Participant and the Company or any of its Affiliates; (iii) fraud, embezzlement, theft or other dishonesty by the Participant with respect to the Company or any of its Affiliates; (iv) the conviction of, or a plea of guilty or nolo contendere by, the Participant to any felony or any other crime involving dishonesty or moral turpitude; (v) any other conduct that involves a breach of fiduciary duty to the Company on the part of the Participant; or (vi) Participant’s violation of a Company policy, rule or code of conduct that could expose the Company to civil or criminal liability or pose a risk of damaging the Company’s business or reputation.

C.“Disability” means a Participant’s mental or physical impairment that has prevented the Participant from performing substantially all of the duties and responsibilities of his/her position for at least 180 days in any 365 consecutive days, as a result of which employment is terminated by the Company.

D.“Immediate Affiliates” means those Affiliates which are one of the following: (i) a direct or indirect subsidiary of the Company, (ii) a direct or indirect parent of the Company or (iii) a direct or indirect subsidiary of such a parent.

E.“Person” means an individual, a corporation, a limited liability company, an association, a partnership, an estate, a trust and any other entity or organization, other than the Company or any of its Affiliates.

F.“Termination Date”  means the date on which the Participant’s employment with the Company terminates.

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XI. ADMINISTRATION, CLAIMS PROCEDURE AND GENERAL INFORMATION

A.The Company reserves the right to amend, modify and terminate this Plan at any time by a written instrument signed by the Board or its designee. There are no vested benefits under this Plan. Also, the Company, as the Plan administrator within the meaning of ERISA, reserves full discretion to administer the Plan in all of its details, subject to the requirements of law. Company shall have such discretionary powers as are necessary to discharge its duties. Any interpretation or determination that the Company makes regarding this Plan, including without limitation determinations of eligibility, participation and benefits, will be final and conclusive, in the absence of clear and convincing evidence that the Company acted arbitrarily and capriciously.

B.Anyone who believes he/she is being denied any rights under this Plan may file a claim in writing with the Company, as Plan administrator, addressed to the attention of the Senior Vice President, Human Resources. If the claim is denied, in whole or in part, the Plan administrator will notify the claimant in writing, giving the specific reasons for the decision, including specific reference to the pertinent Plan provisions and a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary. The written notice will also advise the claimant of his/her right to request a review of the claim and the steps that need to be taken if the claimant wishes to submit the claim for review. If the Plan administrator does not notify the claimant of its decision within 90 calendar days after it had received the claim (or within 180 calendar days, if special circumstances exist requiring additional time, and if the claimant had been given a written explanation for the extension within the initial 90-calendar day period), the claimant should consider the claim to have been denied. At this time the claimant may request a review of the denial of his/her claim.

C.A request for review must be made in writing by the claimant or his/her duly authorized representative to the Company, as Plan administrator, within 60 calendar days after receipt of notice of denial. As part of the claimant’s request, the claimant may submit written issues and comments to the Plan administrator, review pertinent documents, and request a hearing. The Plan administrator’s written decision will be made within 60 calendar days (or 120 calendar days if a hearing is held or if other special circumstances exist requiring more than 60 calendar days and written notice of the extension is provided to the claimant within the initial 60-calendar day period) after the claimant’s request has been received. Again, the decision will include specific reasons, including references to pertinent Plan provisions.

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[Signature page follows immediately.]

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IN WITNESS WHEREOF, Michaels Stores, Inc. has caused this Plan to be executed as of the date first above written.

MICHAELS STORES, INC.

By

Name:

Title:

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Exhibit A

AGREEMENT AND RELEASE

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Exhibit A

AGREEMENT AND RELEASE

* Standard Under 40 Severance Agreement

SEVERANCE AGREEMENT AND RELEASE OF CLAIMS

I,                                         , the undersigned, am entering into this Separation Agreement and Release of Claims (this “Agreement”) with Michaels Stores, Inc. (the “Company”) pursuant to the terms and conditions of the Michaels Stores, Inc. Officer Severance Pay Plan (the “Plan”).

WHEREAS, I was employed by the Company as                  and, in that position, was a Participant, as defined in the Plan; and

WHEREAS, the termination of my employment with the Company, which occurred on                       , 20       (the “Separation Date”), was a Qualifying Termination for purpose of the Plan; and

WHEREAS, my acceptance of this Agreement in a timely and effective manner and my meeting of my obligations under it are conditions to my eligibility to receive severance benefits under the Plan, to which I would not otherwise be entitled;

NOW, THEREFORE, in consideration of the foregoing premises and for the purpose of qualifying for severance benefits in accordance with the Plan, I agree with the Company as follows:

1.Definitions.  Capitalized terms used in this Agreement shall have the meaning set forth below or elsewhere in this Agreement.  Any capitalized term not defined in this Agreement shall have the meaning ascribed to it in the Plan.  Certain definitions from the Plan are reproduced below for the convenience of the parties.

(a)An “Affiliate” means an individual, corporation and other entity directly or indirectly controlling, controlled by or under common control with the Company, where control may be by management authority, equity interest or otherwise.

(b)“Confidential Information” means any and all information of the Company and its Affiliates that is not generally known by those Persons with whom they compete or do business, or with whom any of them plans to compete or do business and any and all information, publicly known in whole or in part or not, which, if disclosed by the Company or its Affiliates would assist in competition against them.  Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its Affiliates, (ii) the products and services of the Company and its Affiliates, (iii) the costs, sources of supply, financial performance and strategic plans of the Company and its Affiliates, (iv) the identity and special needs of the customers of the Company and its Affiliates and (v) the people

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and organizations with whom the Company and its Affiliates have business relationships and those relationships.  Confidential Information also includes any information that the Company or any of its Affiliates have received, or may receive hereafter, belonging to customers or others with any understanding, express or implied, that the information would not be disclosed.  Confidential Information does not include information that has entered the public domain other than through my disclosure in violation of my obligations to the Company or its Affiliates under this Agreement or otherwise or through a third party in violation of a duty of confidentiality owed to the Company or any of its Affiliates.

(c)“Immediate Affiliates” means those Affiliates which are one of the following: (i) a direct or direct subsidiary of the Company, (ii) a parent to the Company or (iii) a direct or indirect subsidiary of such a parent.

(d)“Person” means an individual, a corporation, a limited liability company, an association, a partnership, an estate, a trust and any other entity or organization, other than the Company or any of its Affiliates.

2.Severance Benefits under the Plan.   Subject to the terms and conditions of Section VI of the Plan, I will be eligible for (a) severance pay, (b) a pro-rated bonus for the year in which termination of my employment occurred, and (c) Company contributions during the Severance Pay Period to the premium cost of my participation and that of my eligible beneficiaries, if any, in the Company’s group health plan and certain other welfare plans in which I and my eligible beneficiaries may continue participation.   The period commencing on the Separation Date and continuing until the expiration of a number of months equal to the period of severance pay for which I may qualify under the Plan (as set forth in the immediately preceding sentence) is the “Severance Pay Period.”

3.Timing and Certain Conditions to Receipt of Severance Benefits:

(a)Commencement of Obligations under this Agreement.  It is expressly understood and agreed that my obligations under Section 7 and Section 8 of this Agreement shall commence on the earlier to occur of the Separation Date or the date I first receive this Agreement (the “Commencement Date”), although the Commencement Date shall be no earlier than the date I am first informed of the termination of my employment.  Without limiting the generality of the foregoing, I must comply with these obligations even before the effective date of this Agreement in order to be eligible to accept this Agreement and receive severance benefits under the Plan.   If I fail to comply in full with any of my obligations under Section 7 or Section 8 of this Agreement at any time from the Commencement Date through the effective date of this Agreement, the offer of this Agreement shall automatically be withdrawn.

(b)Obligations as a Condition of Receipt of Severance Benefits.  The obligation of the Company to make payments to me in accordance with this Agreement and the Plan is expressly conditioned on my continued full performance of my obligations under this Agreement, including without limitation under Section 7 and Section 8 hereof.

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4.Acknowledgement of Full Payment.

(a)I acknowledge that I have been paid in full any and all compensation due me from the Company or any of its Affiliates, whether for services provided or otherwise, through the Separation Date and that, exclusive of any severance benefits for which I qualify in accordance with the terms and conditions of the Plan, as set forth in Section 2 of this Agreement, nothing further is owed to me.  Without limiting the generality of the foregoing acknowledgement, I specifically acknowledge that I have received (i) all salary due through the Separation Date, (ii) pay in full for any vacation I had earned but not used through the Separation Date, (iii) reimbursement for any business expenses I had incurred through the Separation Date that are eligible for reimbursement under applicable Company policies, and (iv) payment of all bonus or other incentive compensation due me, exclusive only of any pro-rated bonus for which I may be eligible under the Plan for the year in which my employment with the Company terminated.

(b)I also represent and warrant that I am not entitled to any payments (in cash or equity) or any other benefits under any representation, agreement or understanding, whether oral or written, or any plan, program or arrangement of any kind, with the Company or any of its Affiliates as a result of the termination of my employment and I hereby waive irrevocably any such entitlement, should it exist.

5.Reduction of Severance Benefits for Certain Statutory Payments. I acknowledge that severance benefits to which I may otherwise be entitled under the Plan shall be reduced by any payments or benefits to which I may be entitled under applicable law as a result of termination of my employment, including without limitation any federal, state or local law with respect to plant closings, mass layoffs or group benefit plan continuation following termination or the like, but excluding any unemployment benefits to which I may be eligible under applicable law.

6.Status of Employee Benefits, Paid Time Off and Stock Options.  Except for any right I may have under COBRA to continue my participation and that of my qualified beneficiaries in the Company’s medical plan or any other Company plan to which COBRA is applicable (such as, by way of example only, a dental or vision plan, if made available by the Company), my participation in all Company employee benefit plans has ended as of the Separation Date, in accordance with the terms of those plans.  I also acknowledge that I will not continue to earn vacation or other paid time off after the Separation Date. My rights and obligations with respect to any equity granted to me by the Company or any of its Immediate Affiliates which had vested as of the Separation Date shall be governed by any applicable equity participation plans and any agreements and other requirements and limitations applicable to such equity or to Company employees who have been granted equity in connection with their employment.  All equity granted me by the Company which remained unvested as of the Separation Date shall have been cancelled and shall have terminated as of that date.

7.Ancillary Covenants.  The covenants set forth below are ancillary to this Agreement with the Company, which concerns the termination of my employment and my qualification for severance benefits under the Plan.  My acceptance of these covenants and my complying with my obligations under them are a condition to my eligibility to receive severance benefits under the

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Plan.

(a)Acknowledgement of the Company’s Interest and the Adequacy of the Consideration for the Covenants. I acknowledge the importance to the Company and its Immediate Affiliates of protecting their legitimate business interests, including without limitation the valuable Confidential Information (as defined in Section 1 above) and goodwill that they have developed or acquired at considerable expense.  I acknowledge that, in my employment with the Company, I have had access to Confidential Information that, if it were disclosed, would assist in competition against the Company and its Affiliates, including without limitation proprietary customer information, and that I also have generated goodwill for the Company and its Affiliates in the course of my employment.  I further acknowledge and I agree that the restrictions on my activities set forth below are necessary to protect the goodwill, Confidential Information and other legitimate interests of the Company and its Affiliates and that my acceptance of these restrictions is a condition of my receipt of severance benefits under the Plan, to which I would not otherwise be entitled, and such severance benefits are good and sufficient consideration to support my agreement to and compliance with these covenants.

(b)Covenants of Non-Competition and Non-Solicitation

(i)Agreement Not to Compete.   I agree that, during the twelve (12) months immediately following the Separation Date, I shall not, directly or indirectly, alone or in association with others, anywhere in the Territory, own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, investor, principal, joint venturer, shareholder, partner, director, consultant, agent or otherwise with, or have any financial interest (through stock or other equity ownership, investment of capital, the lending of money or otherwise) in, any business, venture or activity that directly or indirectly competes, or is in planning, or has undertaken any preparation, to compete, with the Business of the Company or any of its Immediate Affiliates (a “Competitor”), except that nothing contained here shall prevent my passive ownership of two percent (2%) or less of the equity securities of any Competitor that is a publicly-traded company.  For the purposes of this Agreement, the “Business of the Company and its Immediate Affiliates” or the “Business” is that of arts and crafts specialty retailer providing materials, ideas and education for creative activities and the “Territory” is comprised of those states within the United States and those provinces of Canada in which the Company or any of its Immediate Affiliates was doing or actively planning to do business at any time during the twelve (12) months immediately preceding the Separation Date.

(ii)Restriction on Solicitation of Employees and Independent Contractors.  I agree that, during the twelve (12) months immediately following the Separation Date, I shall not, and shall not assist any other Person to, (A) hire or solicit for hire any employee of the Company or any of its Immediate Affiliates or seek to persuade any employee of the Company or any of its Immediate Affiliates to discontinue employment or (B) solicit or encourage any independent contractor providing services to the Company or any of its Immediate Affiliates to terminate or diminish its relationship with

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them; provided, however, that these restrictions shall apply only with respect to employees of, and independent contractors providing services to, the Company or one of its Immediate Affiliates who were such on the Separation Date or at any time during the nine (9) months immediately preceding the Separation Date.

(iii)Restriction on Solicitation of Distributors and Vendors.  I agree that, during the twelve (12) months immediately following the Separation Date, I shall not directly or indirectly solicit or encourage any distributor or vendor to the Company or any of its Immediate Affiliates to terminate or diminish its relationship with the Company or any of its Immediate Affiliates; provided, however, that these restrictions shall apply only with respect to those distributors and vendors who are doing business with the Company or any of its Immediate Affiliates on the Separation Date or at any time during the twelve (12) months immediately preceding the Separation Date.

(c)Notification Requirement.  I agree that, until the first anniversary of the Separation Date, I will provide the Company notice in writing of any change in my address and of each new job or other business activity in which I plan to engage if it is related to the Business of the Company and its Immediate Affiliates.  I further agree to provide such notice at least fifteen (15) business days prior to beginning any such job or activity.  Such notice shall state the name and address of the Person to whom I propose to provide services and the nature of my position with that Person.  I agree to provide the Company with such other pertinent information concerning such new job or other business activity as the Company may reasonably request in order to determine my continued compliance with my obligations under this Agreement.  I further agree to notify any Person to whom I intend to provide services, as an employee, independent contractor or otherwise, of my obligations under this Agreement and hereby consent to notification by the Company or its agents to any such Persons about my obligations under this Agreement.

8.Other Obligations.

(a)Agreement Not to Use or Disclose Confidential Information.  I agree that I shall not at any time disclose to any Person or use any Confidential Information that I obtained incident to my service to, or any other association with, the Company or any of its Affiliates or any of their predecessors or successors, other than as required by applicable law or legal process (e.g., a subpoena or court order) after notice to the Company and a reasonable opportunity for the Company to seek protection of the Confidential Information prior to any such disclosure.

(b)Agreement of No Public Comment and Non-Disparagement.  I agree that I will not make any public statement or comment concerning the Company or any of its Affiliates, their direct or indirect investors, their management or their businesses and agree that this restriction applies whether communication is oral or in writing, whether made directly or indirectly, and includes without limitation communication to or through the media (print, electronic or otherwise).  I further agree that I will not disparage or criticize the Company or any of its Affiliates, their direct or indirect investors, management or businesses, not only through public statement or comment, but also to any of the employees of the Company or any of its Affiliates, or to any Person with

5

whom the Company or any of its Affiliates is doing, or is planning to do, business.   I agree to keep the terms of this Agreement confidential.  I further agree that I have not disclosed and will not disclose such terms to any third party other than my attorneys, accountants and spouse.  Notwithstanding the foregoing, I may reveal the terms of this Agreement if I am required to disclose them by a court order.

(c)Return of Company Property. I represent and warrant that I have returned to the Company any and all documents, materials and information (whether in hardcopy, on electronic media or otherwise) related to the business (present or otherwise) of the Company or any of its Affiliates and all other property of the Company or any of its Affiliates in my possession or control, including without limitation keys, access cards, credit cards, computer, telephone and other office equipment.  Further, I represent and warrant that I have not retained any copy of any document, material or information of the Company or any of its Affiliates (other than documentation provided expressly for my personal use and retention, such as, by way of example and not limitation, documentation concerning my participation in Company benefit plans).  I also agree that I will not, for any purpose, attempt to access or use any computer or computer network or system of the Company or any of its Affiliates after the Separation Date, unless expressly requested to do so by an authorized representative of the Company.  Further, I represent and warrant that I have disclosed to the Company all passwords necessary or desirable to enable the Company to access any information which I have password-protected on any of the computer equipment or computer network or system of the Company or any of its Affiliates.

(d)Employee Cooperation.  I agree that, during the Severance Pay Period, and without additional compensation, I will provide to the Company, promptly on its request, advice and consultation with respect to my former duties and responsibilities.  I also agree, during the Severance Pay Period and thereafter, to cooperate with the Company with respect to all matters arising during or related to my employment, including without limitation matters in connection with any governmental investigation, litigation or regulatory or other proceeding which may have arisen or which may arise following the signing of this Agreement.  I understand that the Company will make reasonable efforts not to materially interfere with the timing of any employment or other business obligations I may have.  While it is agreed that I will not be entitled to compensation for any such cooperation during the Severance Pay Period, the Company will reimburse my out-of-pocket expenses incurred in complying with the Company’s requests hereunder, provided such expenses are authorized by the Company in advance and the Company will pay me a reasonable hourly or per diem rate for any such cooperation requested by the Company after the Severance Pay Period ends, exclusive of any time spent in testifying as a fact witness in any legal proceeding.

9.Enforcement.  I acknowledge that I have carefully read and considered all the terms and conditions of this Agreement, including the restraints imposed on me pursuant to Sections 7 and 8 of this Agreement.  I agree that those restraints are necessary for the reasonable and proper protection of the Company and its Affiliates and that each and every one of the restraints is reasonable with respect to subject matter, length of time and geographic area.  I further acknowledge that, were I to breach any of the covenants contained in Section 7 or Section 8 of this Agreement, the damage to the Company would be irreparable.  Further, I freely acknowledge that the restrictions contained in Sections 7 and 8 will not, individually or in the aggregate, prevent me from earning a

6

livelihood while they are in effect.  I therefore agree that the Company, in addition to any other remedies available to it under this Agreement or at law, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by me of any of the obligations set forth in Section 7 or Section 8 of this Agreement, without having to post bond.  I further agree with the Company that, in the event that any provision of Section 7 or Section 8 of this Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.  I also agree that each of the Affiliates shall have the right to enforce all of my obligations to the Affiliate under this Agreement.

10.Release of Claims.  For and in consideration of the severance benefits to be made to me in connection with my separation from employment with the Company as set forth in the Plan and this Agreement, and as a condition of my receipt of those severance benefits, I, on my own behalf and on behalf of my heirs, beneficiaries, executors, administrators and representatives, and all others connected with or claiming through me, hereby release and forever discharge the Company and its Affiliates and all of the respective past, present and future shareholders, officers, directors, general and limited partners, members, managers, employees, agents, predecessors, successors and assigns of the foregoing, and all others connected with any of them, and any and all benefit plans maintained by the Company and its Affiliates and all present and former representatives, agents, trustees, fiduciaries and administrators of such plans, all of the foregoing, both individually and in their official capacities, from any and all liabilities, of any nature whatsoever, whether known or unknown, which I had in the past, now have or might now have, through the date on which I sign this Agreement, based on any federal, state or local law, regulation or other requirement, which may have arisen in connection with my employment with the Company or the cessation thereof.     I acknowledge that signing this Agreement does not limit or otherwise interfere with my right to file a charge or participate in an investigation or proceeding conducted by the Equal Employment Opportunity Commission (the “EEOC”) or other appropriate state agency.  I understand, however, that I am releasing the right to any monetary recovery or relief should the EEOC or any other agency pursue claims on my behalf.  Excluded from the scope of this release, however, are any rights I have to indemnification under the charter, by-laws or other governing documents of the Company or any of its Affiliates; any vested benefits I have under the Company’s qualified retirement plan; and any rights arising under this Agreement or the Plan following the effective date of this Agreement.

11.Entire Agreement, Amendments, Waivers and Governing Law.

(a)This Agreement constitutes the entire agreement between me and the Company, and supersedes all prior and contemporaneous agreements and understandings, written or oral, concerning my employment, its termination and all related matters, excluding only any agreements between me and the Company or any of its Affiliates concerning protection of confidential information, assignment of rights to inventions or other intellectual property, or covenants against competition or solicitation of employees, independent contractors, customers, vendors, distributors or others, any outstanding loans or other financial obligations

7

that I have to the Company or any of its Affiliates or under any benefit plan maintained by the Company or any of its Affiliates, my obligations under the Plan and my obligations, if any, with respect to the securities of the Company or any of its Immediate Affiliates, all of which shall remain in full force and effect in accordance with their terms.

(b)This Agreement may not be modified or amended and no breach shall be deemed to be waived unless in writing signed by me and an expressly authorized representative of the Company.  I understand and agree that the obligation of the Company to make payments to me under this Agreement or the Plan is expressly conditioned on my continued full performance of my obligations under this Agreement and the Plan.

(c)The captions and headings in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.

(d)This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without giving any effect to any choice or conflict of law provision or rule that would cause the application of the laws of any other jurisdiction.

12.Acceptance of this Agreement and Related Matters. I acknowledge that I may not sign this Agreement prior to the Separation Date.  I further acknowledge that I understand I may take up to twenty-one (21) days from the later of the Separation Date or the date of my receipt of this Agreement to consider this Agreement before signing it.  In signing this Agreement, I give the Company assurance that I have signed it voluntarily and with a full understanding of its terms; that I have had full and sufficient opportunity, before signing this Agreement, to consider its terms and to consult with any person of my choosing; and that, in signing this Agreement, I have not relied on any promises or representations, express or implied, that are not set forth expressly in this Agreement or the Plan.

[Signature page follows immediately.]

8

INTENDING TO BE LEGALLY BOUND, I have signed this Agreement under seal on the date indicated below.

Signature:

Name (Printed):

Date of signing:

ACCEPTED AND AGREED:

MICHAELS STORES, INC.

By:

Name (Printed)

Title:

Date of signing:

9

EX-10.18

Exhibit 10.18

SEPARATION AGREEMENT AND RELEASE

I.  Release.  For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned, with the intention of binding himself, his heirs, executors, administrators and assigns, does hereby release and forever discharge Michaels Stores, Inc., a Delaware corporation (the “Company”), and its present and former parent, officers, directors, executives, agents, employees, affiliated companies, subsidiaries, successors, predecessors and assigns (collectively, the “Released Parties”), from any and all claims, complaints, actions, causes of action, demands, rights, damages, debts, accounts, suits, expenses, attorneys’ fees and liabilities of whatever kind or nature in law, equity, or otherwise, whether now known or unknown (collectively, the “Claims”), which the undersigned now has, owns or holds, or has at any time heretofore had, owned or held against any Released Party, arising out of or in any way connected with the undersigned’s employment relationship with the Company, its subsidiaries, predecessors or affiliated entities, or the termination thereof, under any Federal, state or local statute, rule, or regulation, or principle of common, tort or contract law, including but not limited to, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §§ 2000e et seq., the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§ 621 et seq., the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12101, et seq., and any other equivalent or similar Federal, state, or local statute; provided, however, that nothing herein shall release the Company of its obligations under that certain Change in Control Severance Agreement (the “Change in Control Severance Agreement”) in which the undersigned participates and pursuant to which this Separation Agreement and Release is being executed and delivered.  The undersigned understands that, as a result of executing this Separation Agreement and Release, he will not have the right to assert that the Company or any other Released Party unlawfully terminated his employment or violated any of his rights in connection with his employment or otherwise.

The undersigned affirms that he has not filed, caused to be filed, or presently is a party to any Claim against any Released Party in any forum or form and that he knows of no facts which may lead to any Claim being filed against any Released Party in any forum by the undersigned or by any agency or group.  Except for his final paycheck, the undersigned further affirms that he has been paid and/or has received all leave (paid or unpaid), compensation, wages, bonuses, commissions, and/or benefits to which he may be entitled and that no other leave (paid or unpaid), compensation, wages, bonuses, commissions and/or benefits are due to him from any Released Party, except as specifically provided in this Separation Agreement and Release.  The undersigned furthermore affirms that he has no known workplace injuries or occupational diseases and has been provided and/or has not been denied any leave requested under the FMLA.  If any court assumes jurisdiction of any such Claim against any Released Party on behalf of the undersigned, the undersigned will request such court to withdraw the matter.

The undersigned further declares and represents that he has carefully read and fully understands the terms of this Separation Agreement and Release; that he has been advised and had the opportunity to seek the advice and assistance of counsel with regard to this Separation Agreement and Release; that he may take up to and including twenty-one (21) calendar days from receipt of this Separation Agreement and Release to consider whether to sign it; that he may revoke this Separation Agreement and Release within seven (7) calendar days after signing it by delivering to the Company written notification of revocation; and that he knowingly and

voluntarily, of his own free will, without any duress, being fully informed and after due deliberate action, accepts the terms of and signs the same as his own free act.

II.  Resignation and Severance Compensation. The termination of the undersigned is effective April 4, 2008 (“Termination Date”).  Accordingly, the undersigned hereby irrevocably and unconditionally resigns from any officer position he holds within Michaels or any of its subsidiaries or divisions effective on the Termination Date.  It is stipulated and agreed that the undersigned’s resignation from the Company is for “Good Reason” (as that term is defined in Section 1(t) of the Severance Agreement), and that the undersigned is not obligated to comply with the notice provisions set forth in Section 1(t) of the Change in Control Severance Agreement. It is further stipulated and agreed that the Company shall pay, provide and/or grant the undersigned all compensation and benefits set forth under Section 6(b) of the Change in Control Severance Agreement.

III.  Severance Pay.  Pursuant to Section 6(b)(i) of the Change in Control Severance Agreement, the Company shall pay a lump-sum payment in the gross amount of Three Million, Two Hundred Sixty Seven Thousand, One Hundred Eighty-Nine Dollars and 74/100 ($3,267,189.74), subject to all applicable or customary tax withholding requirements.

IV.  Prorated Annual Bonus. Pursuant to Section 6(b)(ii) of the Change in Control Severance Agreement, the Company shall pay a lump-sum payment in the gross amount of Seventy Six Thousand, One Hundred Seventy-Three Dollars and 00/100 ($76,173.00), subject to all applicable or customary tax withholding requirements.

V. Continued Welfare and Fringe Benefits.  The undersigned’s welfare and fringe benefits will continue in accordance with Section 6(b)(iii) of the Change in Control Severance Agreement.  The undersigned agrees that he will notify the Company within seven calendar days of becoming eligible under another employer’s medical and/or welfare benefits plan.  The Company will make a lump-sum payment in the amount of One Thousand Five Hundred Thirty-Two Dollars and 16/100 ($1,532.16) which is the equivalent of certain welfare benefits that are unavailable to the undersigned after the Termination Date.  Further, the Company will make an additional lump sum payment in the amount of Three Thousand Five Hundred Dollars and 00/100 ($3,500.00) (in addition to transferring title of the Company-leased vehicle explained in Section XII of this Agreement) which is equal to the remaining value owed to the undersigned pursuant to the Compensation Policy Regarding Company Cars, adopted on August 1, 2007.

VI.  Savings and Retirement Plan Benefits.  Pursuant to Section 6(b)(v) of the Change in Control Severance Agreement, the Company will pay a lump-sum payment in the gross amount of One Hundred Thousand, Three Hundred Dollars and 88/100 ($100,300.88), subject to all applicable or customary tax withholding requirements.

VII.  Outplacement Services.  Pursuant to Section 6(b)(vi) of the Change in Control Severance Agreement, the Company agrees to reimburse him, or directly pay expenses, for outplacement services up to $50,000; provided he commences such services no later than six months following the Release Effective Date and stops using these services within one year after the Termination Date.

2

VIII.  Protected Rights.  The Company and the undersigned agree that nothing in this Separation Agreement and Release is intended to or shall be construed to affect, limit or otherwise interfere with any non-waivable right of the undersigned under any Federal, state or local law, including the right to file a charge or participate in an investigation or proceeding conducted by the Equal Employment Opportunity Commission (“EEOC”) or to exercise any other right that cannot be waived under applicable law.  The undersigned is releasing, however, his right to any monetary recovery or relief should the EEOC or any other agency pursue Claims on his behalf.  Further, should the EEOC or any other agency obtain monetary relief on his behalf, the undersigned assigns to the Company all rights to such relief.

IX.  Nonsolicitation/Non-Interference with Business Relationships.  The undersigned further agrees that for one-year after the Termination Date, he will not, directly or indirectly, (i) solicit, recruit or hire any person who is at such time, or who at any time during the six-month period prior to such solicitation or hiring had been, an employee of, or exclusive consultant then under contract with, the Company, its subsidiaries, affiliates or divisions without the Company’s prior written consent; (ii) solicit or encourage any employee of the Company or its subsidiaries, affiliates and divisions to leave the employment of the Company or its subsidiaries; (iii) intentionally interfere with the relationship of the Company or any of its subsidiaries with any employee of, or exclusive consultant then under contract with, the Company or any such subsidiary; or (iv) intentionally interfere with, disrupt or attempt to disrupt any past, present or prospective relationship, contractual or otherwise, between the Company or any of its subsidiaries, on the one hand, and any of their respective customers or suppliers, on the other hand.

X.  Equitable Remedies.  The undersigned acknowledges that a violation by the undersigned of any of the covenants contained in Section IX would cause irreparable damage to the Company and its subsidiaries in an amount that would be material but not readily ascertainable, and that any remedy at law (including the payment of damages) would be inadequate.  Accordingly, the undersigned agrees that, notwithstanding any provision of this Separation Agreement and Release to the contrary, the Company shall be entitled (without the necessity of showing economic loss or other actual damage) to injunctive relief (including temporary restraining orders, preliminary injunctions and/or permanent injunctions) in any court of competent jurisdiction for any actual or threatened breach of any of the covenants set forth in Section IX in addition to any other legal or equitable remedies it may have.

XI.  Third-Party Litigation.  The undersigned agrees to be available to the Company, its affiliates and their attorneys on a reasonable basis in connection with any pending or threatened claims, charges or litigation in which the Company or any of its affiliates is now or may become involved, or any other claims or demands made against or upon the Company or any of its affiliates, regardless of whether or not the undersigned is a named defendant in any particular case.

XII.  Return of Property.  Unless expressly stated otherwise herein, the undersigned shall return to the Company on or before the Termination Date, all property of the Company in the undersigned’s possession or subject to the undersigned’s control, including without limitation any keys, credit cards, and files, including all copies.  The undersigned shall not alter any of the Company’s records or computer files in any way after the Termination Date.  The Company is allowing the undersigned to keep his cellular phone and

3

laptop computer, except that all company files on such computer must be returned to the Company on or before the Termination Date.  Further, and in accordance with the Compensation Policy Regarding Company Cars, the Company will purchase the vehicle currently leased by the undersigned for his use and transfer title to him.

XIII.  Confidential Information.  The undersigned agrees to hold confidential, and not to disclose to any person, firm, corporation, partnership or agency, any trade secret or Confidential Information (as defined below) gained in the course of the undersigned’s employment with the Company concerning the Company, its subsidiaries, affiliates, divisions, or employees except if such disclosure is required by law or legal process. “Confidential Information” shall include, without limitation, information concerning financial affairs, business plans or strategies, product pricing information, operating policies and procedures, vendor information and proprietary statistics or reports.  The undersigned agrees not to remove any Confidential Information from the Company, not to request that others do so on the undersigned’s behalf, and to return any Confidential Information currently in the undersigned’s possession or control to the Company.

XIV.  Stock Options.  In accordance with the Company’s 2006 Equity Incentive Plan, upon the Termination Date, all unvested stock options granted to the undersigned by the Company will be forfeited without further action on the part of any party.

XV.  Severability.  If any term or provision of this Separation Agreement and Release is invalid, illegal or incapable of being enforced by any applicable law or public policy, all other conditions and provisions of this Separation Agreement and Release shall nonetheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated by this Separation Agreement and Release is not affected in any manner materially adverse to any party.

[Remaining portion intentionally left black]

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XVI.  GOVERNING LAW.  THIS SEPARATION AGREEMENT AND RELEASE SHALL BE DEEMED TO BE MADE IN THE STATE OF TEXAS, AND THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT IN ALL RESPECTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW.

Effective on the eighth calendar day following the date set forth below.

MICHAELS STORES, INC.,
By
	/s/ Shawn Hearn
	Name: Shawn Hearn
	Title: Senior Vice President - HR
EMPLOYEE,
	/s/ Jeffrey N. Boyer
	Jeffrey N. Boyer
	Date Signed:	4/9/08

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ACKNOWLEDGMENTS

STATE OF TEXAS	)
	)
COUNTY OF DALLAS	)

BEFORE ME, the undersigned authority, on this day personally appeared SHAWN HEARN, Senior Vice President – Human Resources of MICHAELS STORES, INC. a Delaware corporation, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated and as the act and deed of said corporation.

GIVEN MY HAND AND SEAL this 10th day of April, 2008.

	/s/ Deborah L. Wade
	Notary Public in and for the
	State of Texas
[NOTARY SEAL]
	Deborah L. Wade
	Notary’s Printed Name and
	Commission Expiration

6

STATE OF CALIFORNIA	)
	)ss
COUNTY OF CONDRA COSTA	)

On April 9th, 2008, before me, Lisa A. Hulse, Notary Public, personally appeared Jeffrey N. Boyer, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

	/s/ Lisa A. Hulse
	(Signature of Notary Public)
(Seal)
[NOTARY SEAL]

7

EX-10.29

Exhibit 10.29

EXECUTION COPY

MASTER SERVICES AGREEMENT

BY AND BETWEEN

MICHAELS STORES, INC

AND

TATA AMERICA INTERNATIONAL CORPORATION

JANUARY, 16,  2009

TABLE OF CONTENTS

			Page
1.	Definitions and Interpretation		1
	1.1	Definitions	1
	1.2	Interpretation	1
	1.3	Order of Precedence	2
2.	Term		2
	2.1	Initial Agreement Term	2
	2.2	Renewal and Extension	2
3.	Parent Liability and Responsibility		3
4.	Services		3
	4.1	Scope of Services	3
	4.2	Provision of Services	3
	4.3	Savings Clause	5
	4.4	Technology Evolution	5
	4.5	Governmental Approvals	5
	4.6	Compliance with Laws	6
	4.7	Changes in Law	6
	4.8	Standards and Policies	7
5.	Transition; Acquisitions And Divestitures; Cooperation		7
	5.1	Transition Services	7
	5.2	Transition Milestones	8
	5.3	Transformation	8
	5.4	New Entities and Divestitures	9
	5.5	Cooperation with Third Parties	9
6.	New Services		10
	6.1	New Services	10
	6.2	Fees for New Services	10
	6.3	Terms for New Services	11
7.	Michaels Responsibilities		11
	7.1	Michaels Account Manager	11
	7.2	Michaels Resources	11
	7.3	Use of Michaels Facilities	12

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8.	Equipment and Third Party Contracts		12
	8.1	Existing Equipment	12
	8.2	Technology Acquisitions	13
	8.3	Managed Agreements	14
	8.4	Managed Agreement Invoices	14
	8.5	Assigned Agreements	15
	8.6	Assigned Agreement Invoices	15
	8.7	Performance Under Third Party Contracts	15
9.	Service Levels and Reports		15
	9.1	Service Levels	15
	9.2	Knowledge Sharing	16
	9.3	Reports	16
	9.4	Relief Events	16
10.	Customer Satisfaction and Benchmarking		17
	10.1	Customer Satisfaction Surveys	17
	10.2	Disputes	17
	10.3	Benchmarking Process	17
	10.4	Benchmarking Overview	17
	10.5	Benchmark Results Review and Adjustments	18
	10.6	Benchmarking Disputes	19
11.	Service Locations		19
	11.1	Service Locations	19
	11.2	New Service Locations	19
	11.3	Safety and Security Procedures	20
12.	Supplier Staff		20
	12.1	Supplier Account Manager	20
	12.2	Key Supplier Personnel	20
	12.3	Supplier Staff	21
	12.4	Turnover of Supplier Staff	21
	12.5	Conduct of Supplier Personnel	22
	12.6	Assignment to Competitors	22
	12.7	Subcontractors	22
	12.8	No Termination of Employment	23
	12.9	Non-Solicitation	23
	12.10	Co-Employment	23
	12.11	Transitioned Employees	24

ii

13.	Governance and Change Control		24
	13.1	Governance	24
	13.2	Policies and Procedures Manual	24
	13.3	Change Management Process	24
	13.4	No Liability for Changes Not Approved	25
14.	Proprietary Rights		25
	14.1	Ownership of Background Technology and Derivative Works	25
	14.2	Michaels Software	25
	14.3	Supplier Software	25
	14.4	Commissioned Materials	26
	14.5	Michaels-Owned Materials	26
	14.6	Further Assurances	26
	14.7	Supplier IP	27
	14.8	Residual Knowledge	27
	14.9	Framework Initiative Work Products	28
15.	Data		28
	15.1	Ownership and Use of Michaels Data	28
	15.2	Correction and Reconstruction	28
	15.3	Provision of Data	29
	15.4	Data Privacy	29
	15.5	Data Security	29
	15.6	Protection of Michaels Data	30
16.	Consents		30
17.	Continued Provision of Services		30
	17.1	Disaster Recovery Plan	30
	17.2	Force Majeure	31
	17.3	Alternate Source	31
	17.4	Allocation of Resources	32
18.	Payments		32
	18.1	Fees	32
	18.2	Invoices	32
	18.3	Timeliness of Invoices	32
	18.4	Payment	32
	18.5	Fee Disputes	32
	18.6	Due Diligence	33
	18.7	No Other Charges	33
	18.8	No Payment for Unperformed Services	33

iii

	18.9	Most Favored Customer	33
	18.10	Certain Commitments By Parties	33
19.	Taxes		33
	19.1	Taxes	33
	19.2	Relocation of Services	34
	19.3	Other Taxes	34
	19.4	Segregation of Fees	34
20.	Audits		35
	20.1	Services	35
	20.2	Fee Records	35
	20.3	SAS 70 Reports;	35
	20.4	Certain Audits	37
	20.5	Record Retention	38
	20.6	Facilities	39
	20.7	General Audit Procedures	39
	20.8	Supplier Audits	40
21.	Confidentiality		40
	21.1	General Obligations	40
	21.2	Unauthorized Acts	41
	21.3	Injunctive Relief	41
	21.4	Return of Confidential Information	41
22.	Representations and Warranties		42
	22.1	By Michaels	42
	22.2	By Supplier	42
	22.3	DISCLAIMER	43
23.	Additional Covenants		43
	23.1	By Michaels	43
	23.2	By Supplier	43
24.	Dispute Resolution		45
	24.1	Resolution Procedures	45
	24.2	Exclusions	46
	24.3	Continuity of Services	46
25.	Termination		46
	25.1	Termination for Convenience	46

iv

	25.2	Termination for Change in Control of Michaels	46
	25.3	Termination for Change in Control of Supplier	46
	25.4	Termination for Cause	46
	25.5	Termination in Case of Insolvency	47
	25.6	Service Level Failures	47
	25.7	Effect of Termination	48
26.	Termination Fees		48
	26.1	Termination Fees	48
	26.2	No Other Termination Fees	48
27.	Termination Assistance and Exit Rights		48
	27.1	Termination Assistance	48
	27.2	Payment	48
	27.3	Exit Rights	49
28.	Indemnities		50
	28.1	Indemnity by Michaels	50
	28.2	Indemnity by Supplier	52
	28.3	Obligation to Replace	53
	28.4	Indemnification Procedures	54
29.	Damages		54
	29.1	Consequential Damages	54
	29.2	Direct Damages	54
	29.3	Exclusions	55
30.	Insurance		55
	30.1	Documentation	55
	30.2	Types and Amounts	56
	30.3	Policy Requirements	57
	30.4	Risk of Loss	57
31.	Miscellaneous Provisions		57
	31.1	Assignment	57
	31.2	Notices	57
	31.3	Counterparts	58
	31.4	Relationship	58
	31.5	Severability	58
	31.6	Waivers	58
	31.7	Timing and Cumulative Remedies	58
	31.8	Entire Agreement	58

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31.9	Amendments	58
31.10	Survival	58
31.11	Third Party Beneficiaries	58
31.12	Governing Law and Venue	59
31.13	Covenant of Further Assurances	59
31.14	Export	59
31.15	Conflict of Interest	59
31.16	Publicity	59

TABLE OF EXHIBITS

Exhibit 1	Definitions
Exhibit 2	Statements of Work
Exhibit 3	Service Level Management
Exhibit 4	Pricing
Exhibit 5	Governance and Change Management Process
Exhibit 6	Service Locations
Exhibit 7	Michaels Policies
Exhibit 8	Key Supplier Personnel
Exhibit 9	Third-Party Contracts
Exhibit 10	Reports
Exhibit 11	Michaels Agent NDA
Exhibit 12	Competitors
Exhibit 13	Disaster Recovery Plan
Exhibit 14	Transition Plan
Exhibit 15	Human Resources
Exhibit 16	Current and Planned Projects
Exhibit 17	Source Code Escrow
Exhibit 18	Customer Satisfaction Surveys
Exhibit 19	Approved Benchmarkers
Exhibit 20	TCSL Joint and Several Liability Commitment
Exhibit 21	Additional Services

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MASTER SERVICES AGREEMENT

THIS MASTER SERVICES AGREEMENT (this “Agreement”), dated as of the Effective Date, is between Michaels Stores, Inc, a Delaware corporation (“Michaels”) acting on its own behalf and on behalf of its subsidiaries, and Tata America International Corporation, operating as TCS America, a New York corporation (“Supplier”).

RECITALS

WHEREAS, Supplier desires to provide to Michaels, and Michaels desires to obtain from Supplier, the information technology services and related services and the business process services and related services described in this Agreement on the terms and conditions set forth in this Agreement;

WHEREAS, Michaels and Supplier have engaged in extensive discussions and negotiations that have culminated in the formation of the relationship described in this Agreement.

NOW, THEREFORE, for and in consideration of the agreements set forth below, Michaels and Supplier agree as follows:

1.            DEFINITIONS AND INTERPRETATION

1.1          Definitions.  The terms used in this Agreement with initial capital letters that are not defined herein have the meanings set forth in Exhibit 1.

1.2          Interpretation.

(a)           The Exhibits, as amended from time to time, attached to this Agreement are hereby incorporated into and deemed part of this Agreement.  All references to “Agreement” herein include the Exhibits to this Agreement.  All references to “Exhibits” herein include the attachments and appendices to such Exhibits.

(b)           Any reference to an “Article,” “Section,” or “Exhibit” shall be to such Article, Section or Exhibit of this Agreement, unless otherwise expressly provided.

(c)           The headings preceding the text of Articles and Sections and the headings to Exhibits, the table of contents, and other portions of this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

(d)           The use of the terms “including,” “include” or “includes” shall in all cases mean “including without limitation,” “include without limitation” or “includes without limitation,” respectively.

(e)           Except as specifically set forth in this Agreement:  (i) consents and approvals to be given by a Party under this Agreement shall not be unreasonably withheld or delayed; (ii) each Party shall make only reasonable requests under this

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Agreement; and (iii) all notices, requests, consents, approvals, agreements, authorizations, acknowledgements, waivers and other communications required or permitted under this Agreement must be made in writing and by a representative who, in the circumstances, can be reasonably expected to carry the necessary authority in order to be binding.

(f)            The Parties acknowledge and agree that they have negotiated the terms and conditions of this Agreement and that any provision contained herein with respect to which an issue of interpretation or construction arises shall not be construed to the detriment of the drafter on the basis that such Party or its professional advisor was the drafter, but shall be construed according to the intent of the Parties as evidenced by the entire Agreement.

1.3          Order of Precedence.  Except as otherwise expressly set forth in the body of this Agreement or in an Exhibit, in the event of a conflict, ambiguity or inconsistency between the provisions in the body of this Agreement, any Exhibit, any attachment or any document incorporated by reference, then such conflict, ambiguity or inconsistency shall be resolved by giving precedence to the document higher in the following order of priority:

(a)           first, the provisions in the body of this Agreement;

(b)           second, the provisions in the Exhibit;

(c)           third, the provisions in any attachment or appendices to the Exhibit; and

(d)           fourth, any other documents incorporated by reference.

2.            TERM

2.1          Initial Agreement Term.  The initial term of this Agreement shall commence on the Effective Date and continue until 23:59 (Pacific Time) on the Initial Agreement Expiration Date unless the Agreement is extended pursuant to Section 2.2 in which case, the last day of the final Extension Period, or such earlier date upon which this Agreement is terminated in accordance with its terms (the “Initial Agreement Term”).

2.2          Renewal and Extension.  At least 12 months prior to the Initial Agreement Expiration Date, Supplier shall provide to Michaels the terms, conditions and pricing that Supplier proposes would apply to any renewal term of this Agreement.  If Michaels desires to renew this Agreement, but the Parties are unable to agree on the terms, conditions and pricing for a renewal term 120 days before the Initial Agreement Expiration Date, Michaels may elect to extend the Agreement Term by written notice of extension provided to Supplier no later than 60 days before the Initial Agreement Expiration Date, for a period of up to 12 months from the Initial Agreement Expiration Date, to be determined in Michaels’ sole discretion and set forth in such extension notice (“First Extension Period”).   The terms and conditions of this Agreement as in effect as of the Initial Agreement Expiration Date shall continue to be in force during the First Extension Period, including the pricing and rates as set forth in Exhibit 4 for the First Extension Period.  If the Parties are unable to reach agreement on the terms, conditions and pricing applicable to the renewal of this Agreement 60 days before the end of the First Extension Period, Michaels may elect to:  (a) allow this Agreement to expire at the end of such First Extension Period; or (b) further extend the Agreement Term by written notice provided to Supplier no later than 60 days

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prior to the End of the First Extension Period for an additional Extension Period of 12 months (“Second Extension Period”) on the then applicable terms, conditions including the pricing and rates applicable to such additional Extension Period as set forth in Exhibit 4. For clarity, if Michaels does not elect to exercise its option to extend for the Second Extension Period by providing the required notice in a timely manner, the Agreement shall expire at the end of the Second Extension Period.

3.PARENT LIABILITY AND RESPONSIBILITY.

As a condition precedent to the effectiveness of this Agreement, Supplier’s parent, Tata Consultancy Services Ltd (an Indian corporation), shall provide a joint and several liability letter for full performance of Supplier’s obligations under this Agreement in the form substantially as attached hereto as Exhibit 20.

4.            SERVICES

4.1          Scope of Services.  The term “Services” means:

(a)           the services, functions, and responsibilities described in this Agreement; as amended from time to time during the Term, including the Base Services and the Consulting Services;

(b)           the services, functions and responsibilities with respect to the services, functions and responsibilities described in Sections 4.1(a) and 4.1(c) that were routinely performed in the 12 month-period prior to the Effective Date by the Affected Employees and the Affected Contractors which services, functions or responsibilities were transitioned as a result of this Agreement, even if such service, functions or responsibility is not specifically described in this Agreement; and

(c)           any services, functions or responsibilities required for the proper performance and delivery of the Services or that are inherent or necessary for the proper performance of the Services, whether or not expressly identified or described in this Agreement.

as each of these services, functions or responsibilities may evolve during the Term and as they may be supplemented, enhanced, modified or replaced (e.g., to keep pace with technological advancements and improvements in the methods of delivering these services, functions or responsibilities) pursuant to the terms of this Agreement and including any supplement, enhancement, modification or replacement that arises from the exercise of Michaels’ rights under this Agreement.

4.2          Provision of Services.

(a)           Commencement Dates; Transition Services.  The obligations of the Parties under this Agreement shall commence on the Effective Date.  Beginning on the date specified in the applicable Transition Plan, Supplier shall provide the Transition Services as specified in that Transition Plan.  Beginning on the Commencement Date, Supplier shall provide all of the Services as specified in the relevant Statement of Work.

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(b)           Increase or Decrease in Services.  Subject to the provisions of Exhibit 4, with respect to any Base Charges in an applicable Statement of Work, Supplier shall increase or decrease the amount of the Services provided hereunder according to Michaels’ demand for the Services.  Increases in the volume of Base Services shall not be considered New Services.  Any Change shall be agreed upon by the Parties in accordance with the Change Management Process as set forth in Exhibit 5 or the applicable Statement of Work.

(c)           Non-Exclusivity.  Except as set forth in Section 18.10 and Exhibit 4 (“Certain Commitment of Parties”), this Agreement is non-exclusive and without any minimum commitment by Michaels as to volume, scope or value.  Nothing herein shall be construed as a requirements contract, or be interpreted to prevent Michaels from obtaining from third parties, or providing to itself, any of the Services described in this Agreement (whether Services, New Services, or otherwise) or services similar thereto.

(d)           Authorized Users and Affiliates.  Supplier shall provide the Services in accordance with this Agreement to Michaels and, as directed by Michaels, to Michaels’ Affiliates and Authorized Users.  With respect to Supplier’s obligations and license grants contained in this Agreement, the term “Michaels” shall include Michaels, its Affiliates and Authorized Users.  Michaels shall add Authorized Users or Michaels’ Affiliates at its sole discretion, but Michaels shall not be obligated to obtain the Services from Supplier in respect of any of the Authorized Users or Michaels’ Affiliates.  Michaels retains the financial responsibility for the Services provided under this Agreement to any Michaels’ Affiliates and Authorized Users and to cause each Michaels’ Affiliates and Authorized Users receiving the Services or benefits of license grants under this Agreement to comply with all obligations of Michaels as they apply to such Services and licenses.

(e)           Projects; Ongoing Projects.  Supplier shall perform the Projects as directed by Michaels from time to time during the Term.  A list of projects that are ongoing or approved by Michaels as of the Effective Date, and that Supplier shall assume responsibility for as of the Effective Date, is set forth on Exhibit 16 (“Current and Planned Projects”).  The Current and Planned Projects are all within the scope of the Services and shall be provided by using a combination of the Base Charges, flex pool and Michaels resources.  All Current and Planned Projects shall be:  (i) completed in accordance with Michaels’ project management and development practices in place as of the Effective Date as set forth in Exhibit 16 (as may be amended from time to time in accordance with the Change Management Process as applicable); (ii) completed by the date or dates established in the schedule for the relevant Current and Planned Project; and (iii) subject to milestones, if any, established in the schedule for the relevant Current and Planned Project.  Any Change for any of the Current and Planned Projects shall be agreed upon by the Parties in accordance with the Change Management Process.

(f)            Resources.  Except as expressly provided otherwise in this Agreement or an agreed Statement of Work, Supplier shall provide all facilities, assets, and resources (including personnel, Equipment, and Software) necessary to provide the Services and otherwise meet its obligations under this Agreement or an agreed Statement of Work.  Supplier shall provide to Michaels, at no cost, two lean resources onsite and one lean resource offshore who will be dedicated for driving business process efficiency.

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4.3          Savings Clause.  Michaels recognizes that Supplier’s performance of the Services may be dependent on Michaels ‘s (including Michaels Agents) performance of certain related tasks.  All such tasks are set forth in this Agreement and/or the Statement of Work applicable to such Services (“Retained Responsibilities”).  Michaels shall not be responsible for, and Supplier’s performance shall be deemed not to be dependent upon, the performance of any other related tasks under this Agreement.  Supplier will be excused from the failure to perform an obligation hereunder or the failure to achieve a Milestone or Service Level, to the extent that such failure is directly caused by Michaels’ failure to perform a Retained Responsibility; provided that:

(a)           Supplier promptly provides Michaels with advance notice in writing identifying in detail the Retained Responsibility in question and the failure by Michaels for which Michaels is responsible to perform and the relevant Supplier obligation or Service Level that is at risk; and

(b)           Supplier continues to use commercially reasonable efforts to perform its obligation notwithstanding Michaels’ non-performance of the Retained Responsibility; and

(c)           Supplier provides a root cause analysis report in accordance with the procedure established in the Policies and Procedures Manual for review and approval by Michaels. In the event of disagreement the matter shall be resolved according to the dispute resolution procedure as specified in Section 24 of this Agreement.

4.4          Technology Evolution.  Supplier shall perform the Services using generally accepted technological methods of service delivery for services similar to the Services, including advancements and improvements to such methods that occur during the Term, and shall, with Michaels’ prior approval and without additional charge to Michaels, maintain a level of technology (including the Systems that are the responsibility of Supplier) used to provide the Services that is at least current with the level of technology:  (a) that Supplier uses in providing services to its other customers; and (b) generally accepted in the industry and compatible with commercial applications generally adopted in Michaels’ industries during the Term.  Supplier shall meet with Michaels periodically, at least once during every 120-day period or as otherwise requested by Michaels, to inform Michaels of any new information technology Supplier is developing or information technology trends and directions of which Supplier is aware that could reasonably be expected to have an effect on Michaels’ business operations.  Michaels acknowledges that Supplier’s compliance with the technology evolution requirements set forth in this Section 4.4 may require Michaels to upgrade or replace Michaels System at Michaels’ cost and expenses at Michael’s sole discretion. In the event Michael’s, at its sole discretion, decides not to invest in such upgrade or replacement in the technology, Supplier will be relieved of its obligation with respect to new technology only to the extent that Michaels failure to invest in the required upgrade or replace Michaels Systems prevents Supplier from implementing the new technology.

4.5          Governmental Approvals.  Michaels shall, at its cost and expense, obtain and maintain all Governmental Approvals that Michaels is required by Law to obtain, maintain, or provide, for engaging Supplier for the Services as contemplated in this Agreement and to receive and use the Services, other than Supplier Governmental Approvals (collectively, “Michaels

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Governmental Approvals”).  Supplier shall, at its cost and expense, obtain and maintain all Governmental Approvals that Supplier is required by Law to obtain, maintain, or provide, for performing and delivering the Services as contemplated in this Agreement, other than Michaels Governmental Approvals, (collectively, “Supplier Governmental Approvals”).  With respect to any Michaels Governmental Approvals that Michaels may be required by Law to obtain, maintain or provide in a country in which Supplier has a Supplier Service Location (excluding such Michaels Government Approvals that Michaels is required to obtain, maintain or provide in the United States of America) Supplier is responsible to notify Michaels of any such requirement and assist and assume administrative and operational responsibility for obtaining such Governmental Approvals, it being agreed that Michaels will retain financial responsibility for the cost and expenses of such Michaels Governmental Approvals. Upon request by either Party, the other Party shall provide to the requesting Party reasonable cooperation and assistance in obtaining Governmental Approvals hereunder.

4.6          Compliance with Laws.  Michaels shall be responsible for all Laws applicable to Michaels and its business (i.e., Michaels would be liable to a Government Authority in the case of non-compliance with the Law) that affect the provision or receipt of the Services, other than Supplier Laws (“Michaels Laws”).  Supplier shall be responsible for all Laws applicable to Supplier and Supplier’s business (i.e., Supplier would be liable to a Governmental Authority in the case of non-compliance with the Law) that affect the performance or delivery of the Services, (“Supplier Laws”).  Notwithstanding the foregoing, the Parties acknowledge that a Law may be both a Supplier Law and a Michaels Law and, in such case, each Party’s obligations under this Agreement with respect to such Law shall continue to apply, except that the costs necessary to implement changes to the Services necessary to comply with changes in such Law shall be allocated equitably between the Parties.   With respect to any Michaels Laws that apply to Michaels in a country in which Supplier has a Supplier Service Location (excluding such Michaels Laws applicable to Michaels and its business in the United States of America) as a result of the consummation of the transactions contemplated by this Agreement (i.e., any Michaels Laws that would not have applied to Michaels but for the transactions contemplated by this Agreement), Supplier is responsible to notify Michaels of any such Laws and assist Michaels in all reasonable manner for Michaels to be in compliance with such Laws, it being agreed that Michaels will retain financial responsibility if any arising from such compliance.

4.7          Changes in Law.

(a)           Changes in Supplier Laws and Michaels Laws.  Michaels shall monitor and promptly identify and notify Supplier of all changes in Michaels Laws.  Supplier shall monitor and promptly identify and notify Michaels of all changes in Supplier Laws.

(b)           Effect of Changes in Laws.

(i)            Identification of Impact.  Supplier and Michaels shall work together to identify the effect of changes in Laws on the provision or receipt of the Services.

(ii)           Michaels Laws.  With respect to changes in Michaels Laws, the Parties shall discuss modifications to the Services, if any, necessary to comply with such changes.  Supplier shall promptly thereafter propose any adjustment to the applicable Fees associated with such modifications; provided that any such adjustment shall be based solely

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upon Supplier’s incremental costs associated with the implementation of such modifications.  Upon Michaels’ consent, Supplier shall implement such modifications to the Services in a timely manner.

(iii)    Supplier Laws.  With respect to changes in Supplier Laws, Supplier shall implement in a timely manner, at its own cost and expense, any changes in the Services required to comply with such changes; provided, that if such changes have a material effect on the provision or receipt of the Services, Supplier shall obtain Michaels’ consent before implementing such changes.

(iv)     Reduction in Services.  Notwithstanding any Michaels consent obtained under Sections 4.7(b)(ii) and 4.7(b)(iii), if any change in Law, change in the Services required to conform to any change in Law, or failure of Supplier to obtain any Supplier Governmental Approval, results in a reduction in the Services; in the level or quality of the Services; or in a substantial increase in the Fees, then Michaels may elect either to:  (A) negotiate and implement an equitable reduction to the applicable Fees (in the case of a reduction in the Services or in the level or quality of the Services); or (B) terminate the affected portion of the Services as of the date specified by Michaels in its notice of termination without payment of any Termination Fees.

4.8          Standards and Policies.  Without limiting Supplier’s other obligations under this Agreement, in performing the Services the Supplier shall comply with:  (a) Michaels’ information management, technical architecture, change and problem management, and product standards including those specified in Exhibit 7; (b) the policies and procedures contained in the Policies and Procedures Manual; (c) all Michaels Polices and any policies and procedures applicable at individual Michaels Service Locations, including all such policies related to professional conduct, safety, health, access to information systems, and access to physical locations; and (d) all other Michaels policies, procedures, standards or guidelines applicable to the provision or receipt of the Services.  Michaels shall provide Supplier the details of Michaels policies, procedures, standards or guidelines in effect as of the Effective Date of which Supplier’s compliance is required (by hard copies or allowing access to electronic repositories) and notify Supplier of any changes to any such Michaels policies, procedures, standards or guidelines (including the addition of new policies, procedures, standards or guidelines).

5.TRANSITION; ACQUISITIONS AND DIVESTITURES; COOPERATION

5.1          Transition Services.  For each Statement of Work where Supplier is taking over services, functions or responsibilities previously performed by Michaels (a “Transition”), the Parties shall develop and agree upon a detailed transition plan that shall conform with the high-level transition plan set forth in Exhibit 14 and contain the detailed information specified therein (“Transition Plan”) which shall be an Appendix to such Statement of Work.  The Transition Plan shall include a schedule for the transition of the Services (the “Transition Schedule”) and the specific tasks and resources required of Michaels.  Supplier shall perform all services, functions, and responsibilities necessary to accomplish the transition of Services set forth in this Agreement, to Supplier (the “Transition Services”).  Supplier shall perform the Transition Services in accordance with the Transition Plan and without causing material disruptions to Michaels’ business operations.  Supplier and Michaels shall each designate an individual who

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shall be responsible for managing and implementing the Transition Services on behalf of respective Party that he/she represents (the “Transition Managers”), as well as individuals for each of Michaels’ facilities and functions affected by the transition (“Individual Transition Managers”) who shall be responsible for managing and implementing the Transition Services specific to such facilities and functions.  Unless otherwise expressly specified in the Transition Plan, there should be no charges for the Transition Services other than the Transition Charges.    Until the completion of the applicable Transition Services, the Supplier Transition Manager and each Individual Transition Manager shall review with the Michaels Transition Manager and each Individual Transition manager of Michaels along with Michaels Account Manager the status of the Transition Services as requested by the Michaels Account Manager.

5.2          Transition Milestones.  The Transition Plan includes a list of milestones relating to Supplier’s obligations under the Transition Plan.  If Supplier fails to achieve any milestone designated as a Critical Transition Milestone the completion date specified for such Critical Transition Milestone in the Transition Plan (subject to a grace period of no more than two weeks) Michaels shall not be required to pay any portion of any Transition Charge associated with such Critical Transition Milestone unless and until Supplier’s completion of the milestone is approved by Michaels.  If Supplier fails to achieve any Transition Milestone for which a Transition Credit is due by the date specified for such Critical Transition Milestone in the Transition Plan and such delay exceeds the grace period of two weeks, then Supplier shall apply the Transition Credit against the Fees.  If Supplier fails to achieve any Critical Transition Milestone by the completion date specified for such milestone in the Transition Plan, Michaels may, subject to allowing a grace period of two weeks, elect to terminate the applicable Statement of Work as of the date specified by Michaels in its notice of termination without payment of any Termination Fee.  Michaels agrees that Supplier shall not be responsible or liable for any delay or failure in achieving a Transition Milestone, such delay or failure shall not be a breach entitling Michaels to terminate the applicable Statement of Work if and only to the extent that Section 4.3 or Section 9.4 applies to such delay or failure.  Where any delay of more than 4 weeks to a Critical Transition Milestone arises directly as a result of a delay or failure of Michaels (including any Michaels Agents) to perform a tasks upon which the Supplier’s provision of the Transition Services is dependent, as such tasks are specifically identified in the Transition Plan, Michaels shall pay, any incremental increase in the cost of Transition that arises as a result of any such delay; provided that Supplier documents that incremental increase and takes such steps as are necessary to mitigate the amount of that incremental increase.  Supplier shall, at the time of any such delay to a Critical Transition Milestone, provide Michaels with specific notice of such delay that describes to Michaels the Critical Transition Milestone impacted and the expected nature and extent of the incremental cost to be charged by Supplier to Michaels as a result of the delay to the Critical Transition Milestone.

5.3          Transformation. Supplier shall perform all services, functions, and responsibilities necessary to accomplish the transformation of Michaels’ information technology operations and capabilities, and Michael’s other business operations and capabilities set forth in this Agreement, in accordance with the applicable Statement of Work (the “Transformation Services”).  The Transformation Services shall form part of the Services and shall be subject to the Service Levels agreed in the applicable Statement of Work and be subject to the provisions of Section 4.3 and Section 9.4.  Unless otherwise expressly specified in the Statement of Work, there should be no charges for the Transformation Services other than the fees, if any, set forth in the applicable Statement of

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Work.

5.4          New Entities and Divestitures

(a)           New Entities.  With respect to Michaels’ acquisition of other entities, or Michaels’ inclusion of additional Affiliates or Authorized Users (collectively, “New Entities”), Supplier shall, as requested by Michaels, provide support services as necessary to incorporate the New Entities’ information technology systems into the Systems, including those services specified in the Statements of Work and any required planning and design services, and shall upon Michaels’ request, provide the Services, whether all or a portion specified by Michaels, to the New Entities in accordance with this Agreement. Michaels retains the financial responsibility for the Services so provided and to cause each New Entities to comply with all obligations of Michaels as they apply to such Services.  Suppliers’  charges as a result of the provision of the Services to a New Entity shall be in accordance with this Agreement.  Supplier may also charge additional one-time Fees for the completion of any services, functions, and responsibilities necessary for the incorporation of the New Entities’ information technology systems into the Systems where such Fees have been agreed upon by Michaels and Supplier prior to Supplier commencing the provision of any such services, functions or responsibilities.  To the extent any acquisition by Michaels results in additional Services or any New Services for the Supplier under this Agreement, any due diligence activity performed by Supplier on behalf of Michaels shall be at no cost to Michaels.  For clarity, if Michaels requires or requests any other services, activity or responsibility in addition to due diligence, Supplier shall be entitled to bill Michaels for such additional effort unless Michaels permits Supplier to utilize the existing resources and personnel already charged to Michaels.

(b)           Divestitures.  If Michaels divests itself of a business unit or entity, or removes an Affiliate or Authorized Users from the scope of this Agreement (collectively, “Divested Entities”), Supplier shall continue to provide, at Michaels’ request, the Services to the Divested Entity for up to 24 months from the effective date of such divestiture or removal, as the case may be, under the then-current terms, conditions and pricing of this Agreement.  Supplier shall provide support services to Michaels, the Divested Entity, and, as applicable, the acquiring entity as may be necessary to transfer the Divested Entities’ information technology systems to a third party or enable such entity to provide information technology services to itself, including those services specified in the Statements of Work.  Michaels retains the financial responsibility for the Services so provided and to cause each Divested Entities to comply with all obligations of Michaels as they apply to such Services; provided that if a Divested Entity enters into a separate written agreement with Supplier for the ongoing provision of such Services, Michaels shall have no obligation with respect to such entity’s performance of its obligations or payment of fees associated with such Services after such entity is divested or removed by Michaels.

5.5          Cooperation with Third Parties.  Michaels currently engages, or may from time to time in the future, hire subcontractors, consultants, or other third parties (“Michaels Third Party Contractors”) to perform services or provide products to Michaels.  Supplier shall cooperate with and work in good faith with any Michaels Third Party Contractors.

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6.NEW SERVICES

6.1          New Services.  Michaels may from time to time during the Term and the Termination Assistance Period request that Supplier perform a New Service.  Within 10 days after receipt of such a request from Michaels (or such other time as Michaels and Supplier may agree depending on the nature and scope of the New Service), Supplier shall provide Michaels with a written proposal for such New Service (a “New Service Proposal”) which proposal shall be in the form of a new Statement of Work and include at minimum:

(a)           a description of the services, functions and responsibilities Supplier anticipates performing in connection with such New Service;

(b)           a schedule for commencing and completing such New Service;

(c)           Supplier’s fees for such New Service, including a detailed breakdown of such fees;

(d)           when appropriate, a description of any new Software or Equipment to be provided by Michaels or Supplier in connection with such New Service;

(e)           when appropriate, the Software and Equipment and run-time requirements necessary to develop and operate any new Software;

(f)            when appropriate, a description of the human resources necessary to provide the New Service;

(g)           a description of proposed service levels and associated measurement and monitoring tools for the New Service;

(h)           when appropriate, a list of any existing Software or Equipment included in or to be used in connection with such New Service;

(i)            when appropriate, acceptance test criteria and procedures for any new Software or any products, packages or services; and

(j)            such other information as reasonably necessary or otherwise reasonably requested by Michaels.

Supplier shall not begin performing any New Service until Michaels and Supplier have agreed upon the terms for such New Service and the Michaels Account Manager has provided Supplier with written authorization to commence the New Services by executing acceptance of the New Service Proposal, a Statement of Work or other written authorization to commence work.  Any New Service performed by Supplier without such advance agreement to terms and authorization shall be deemed part of the Services without incremental charge.

6.2          Fees for New Services.  Supplier’s charges and fees specified in any New Service Proposal shall be, to the extent possible, determined in a manner consistent with the applicable pricing formulas and methodologies (including agreed upon rate cards) utilized in establishing the Fees and shall be no more than the charges and fees for such services that Supplier provides to its

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customers that are acquiring services of a similar type in similar volumes.  The charges and fees for any such New Service shall take into account resources and expenses of Supplier for then-existing Services that would no longer be required if the New Service were performed by Supplier.  For clarity, the charges and fees for any New Services shall be subject to those pricing mechanisms agreed to by Supplier in Exhibit 4.

6.3          Terms for New Services.  Any New Services authorized by Michaels in accordance with this Article 6 shall become part of the Services and shall be subject to the terms and conditions of this Agreement unless and only to the extent the Parties agree otherwise.

7.MICHAELS RESPONSIBILITIES.

7.1          Michaels Account Manager.  Michaels shall appoint an individual (the “Michaels Account Manager”) who from the Effective Date of this Agreement shall serve as the primary Michaels representative under this Agreement.  The Michaels Account Manager shall:  (a) have overall responsibility for managing and coordinating the performance of Michaels’ obligations under this Agreement; and (b) be authorized to act for and on behalf of Michaels with respect to all matters relating to this Agreement.  Notwithstanding the foregoing, the Michaels Account Manager may, upon notice to Supplier, delegate such of his or her responsibilities to other Michaels Agents, as the Michaels Account Manager deems appropriate.  Michaels may replace the Michaels Account Manager upon notice to Supplier.

7.2          Michaels Resources.

(a)           Michaels Facilities.  For Supplier Staff assigned to perform Services at a Michaels Service Location as agreed under an applicable Statement of Work or as otherwise approved by Michaels, beginning on the date a Supplier Staff commences Services and continuing only as long as such Supplier Staff requires the same for the performance of the Services, Michaels shall provide to Supplier, at no charge to Supplier and subject to this Article 7, the reasonably appropriate use of infrastructure and facilities where agreed to as necessary based on role including, space designated by Michaels in the applicable Michaels Service Locations, furnishings for Supplier’s use in performing the Services and office equipment and facilities (such as required office supplies, printing, telephone, fax and e-mail facilities, office space, parking, and access to available cafeteria if any) and access to desktop computers at Michaels Service Locations that are required to provide Supplier Staff with access to the Michaels Systems and performing the Services (“Michaels Facilities”).

(b)           Systems.  Michaels shall grant Supplier access to any Michaels Systems, solely for the purpose of Supplier performing the Services, and Supplier’s access shall be limited to those specific Systems as reasonably necessary for Supplier to perform the Services including Systems identified in this Agreement and/or applicable Statement of Work and the time periods and personnel designated by Supplier and agreed to by Michaels and Supplier.  Supplier’s access shall be subject to the Michaels Policies, and such business control and information protection policies, standards, and guidelines as may be made available to Supplier by Michaels from time to time.  Any other use by Supplier of any other Michaels assets or property or systems is prohibited.

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7.3          Use of Michaels Facilities.  Supplier shall use the Michaels Facilities for the sole and exclusive purpose of providing the Services; and comply with the obligations set forth below in this Section 7.3.  Use of Michaels Facilities by Supplier does not constitute a leasehold interest in favor of Supplier or any Supplier Agents.  Supplier shall comply with the following obligations:

(a)           Supplier and Supplier Agents shall comply with the requirements related to Michaels Facilities contained in this Agreement.

(b)           Supplier and Supplier Agents shall use the Michaels Facilities in an efficient manner.  To the extent that Supplier or Supplier Agents operate in such areas in a manner that unnecessarily increases facility costs incurred by Michaels, Michaels reserves the right to require Supplier to pay for such increased costs.

(c)           Supplier and Supplier Agents shall keep the Michaels Facilities in good order, not commit or permit waste or damage to such facilities, not use such facilities for any unlawful purpose or act.

(d)           Supplier and Supplier Agents shall comply with all of the Michaels Policies and all of Michaels’ standard and site-specific policies and procedures in effect from time to time at the Michaels Service Locations, including procedures for the physical security of the Michaels Service Locations.

(e)           Supplier and Supplier Agents shall permit Michaels and Michaels Agents to freely enter the Michaels Facilities at any time and without notice to perform facilities-related services, conduct audits in accordance with Article 20, and as otherwise as requested by Michaels.

(f)            Supplier and Supplier Agents shall not make any improvements or changes involving structural, mechanical or electrical alterations to the Michaels Service Locations without Michaels’ written approval.  Any such improvements or changes shall become the property of Michaels or its lessors.

(g)           When the Michaels Facilities are no longer required for performance of the Services, Supplier shall return such areas to Michaels in substantially the same condition as when Supplier began using such locations, subject to ordinary wear and tear.

8.EQUIPMENT AND THIRD PARTY CONTRACTS

8.1          Existing Equipment

(a)           Michaels retains financial responsibility for all Equipment required in connection with the Services at any Michaels Service Location.  In addition, Michaels also retains financial responsibility for any special Equipment for Services or New Services introduced after the Effective Date for performance at any Supplier Service Location, provided that the requirement and necessity of each item of such special Equipment Parties shall specifically be agreed within the applicable Statement of Work.  With respect to Equipment that is owned or leased by Michaels, including Equipment purchased for Michaels by Supplier pursuant to

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Section 8.2(b) (collectively, “Michaels Equipment”), Michaels grants to Supplier during the Term the right to access and use the Michaels Equipment solely to the extent necessary to perform the Services.

(b)           Supplier acknowledges that it has no legal or equitable claim to the Michaels Equipment and agrees not to contest ownership of such Equipment.

(c)           Throughout the Term, and thereafter for the purposes of Termination Assistance Services, Supplier shall keep any Michaels Equipment that is removed from Michaels premises or is stored along with Supplier Equipment separate from the property of Supplier and of third parties, and shall properly identify such Equipment as Michaels’ property.

(d)           Supplier shall not purport to pledge, or in any way charge by way of security, permit any lien to be placed on, or otherwise encumber or permit the encumbrance in any way, any of the Michaels Equipment which shall at all times remain Michaels’ or the applicable third party lessor’s property and shall irrevocably waive any rights which may arise under Law to take a lien over the Michaels Equipment for any sums due to Supplier pursuant to this Agreement.

8.2          Technology Acquisitions

(a)           Each Party is financially responsible for any refresh, replacement and maintenance of Equipment and Software that it is required to provide under this Agreement and/or an applicable Statement of Work.  Supplier and Michaels each shall acquire at its costs and expense any Equipment and Software required to fulfill its technology refresh obligations specified in the applicable Statement of Work.

(b)           If Michaels requests that Supplier obtain on Michaels’ behalf any Equipment or Software (collectively, “New Equipment”) Supplier shall:  (i) identify the terms on which Supplier could purchase such New Equipment, which terms shall include:  (A) the third party invoice price for such New Equipment (adjusted for any rebates, volume or other discounts, and other similar reductions in the price of such New Equipment (collectively, “Discounts”) whether provided at the time of purchase or thereafter)(“Invoice Price”); (B) Supplier’s proposed markup (which shall in no event exceed a percentage to be mutually agreed by the parties )(“Markup”); and (C) any freight charges and taxes associated with the purchase (“Charges”); and (D) a proposal for financing arrangement pursuant to which Michaels could pay Supplier the purchase price of the New Equipment over a specified period of time, including any associated financing fees (“Financing Fees”); and (ii) upon Michaels’ request, acquire the New Equipment on Michaels’ behalf on terms approved by Michaels.  Supplier will leverage any discounts or other favorable purchasing arrangements it may enjoy through its relationships with third parties to obtain favorable pricing for Michaels.  If the Invoice Price is subject to any Discounts that are not expressly specified on the invoice (e.g., discounts that will be realized by Supplier based on its volume of purchases of goods or services other than or in addition to the New Equipment specified on the invoice), Supplier shall provide Michaels with a description of how such Discount is applied generally to Supplier purchases and how such Discount has been applied specifically to Michaels’ purchase price for the applicable New Equipment.  Michaels shall not be required to pay any charges,

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fees or expenses for New Equipment other than the Invoice Price, the Markup, the Charges, and the Financing Fees (if any).

(c)           Supplier shall, upon Michaels’ request, and as directed by Michaels:  (i) purchase the New Equipment on behalf of Michaels; (ii) lease, or arrange for a third party to lease such New Equipment to Michaels; or (iii) license, or arrange for a third party to license such New Equipment to Michaels.  Michaels shall pay to Supplier, the third party supplier, third-party lessor or third-party licensor, as applicable, the purchase, lease or license fees, price (as described in Section 7.2(b) as applicable, for the New Equipment.

(d)           Except as otherwise agreed by the Parties or as otherwise provided in this Agreement:  (i) all rights in and title to any New Equipment purchased by Supplier on behalf of Michaels and paid for by Michaels shall belong to Michaels; and (ii) all New Equipment shall be new.  Supplier shall ensure that all third-party warranties with respect to New Equipment shall run to and be for the express benefit of Michaels.

8.3          Managed Agreements.  Supplier shall administer the Managed Agreements and related invoices as specified in this Section 8.3 and Section 8.4 on behalf of Michaels and shall perform its obligations and responsibilities in accordance with, and otherwise comply with, all terms of the Managed Agreements applicable to Supplier’s provision of the Services and Supplier’s use of the goods and services provided under the Managed Agreements (collectively “Applicable Terms”).  Supplier shall provide Michaels with reasonable notice of any renewal, termination or cancellation dates and fees with respect to the Managed Agreements.  Supplier shall not renew, modify, terminate or cancel, or request or grant any consents or waivers under, any Managed Agreements without the consent of the Michaels Account Manager.  Any fees or charges or other liability or obligation imposed upon Michaels in connection with:  (a) any renewal, modification, termination, or cancellation of, or consent or waiver under, the Managed Agreements, obtained or given without Michaels’ consent as required under the foregoing sentence; or (b) Supplier’s failure to comply with the Applicable Terms, shall be paid or discharged, as applicable, by Supplier.

8.4          Managed Agreement Invoices.  Michaels shall notify Third Party Contractors of Supplier’s appointment for managing the Managed Agreements and require them to submit the Managed Agreement Invoices to Supplier at Supplier’s designated address.  Supplier shall:  (a) receive all Managed Agreement Invoices; (b) review and correct any errors in any such Managed Agreement Invoices in a timely manner; and (c) submit such Managed Agreement Invoices to Michaels within a commercially reasonable period of time after Supplier’s receipt thereof.  Michaels shall pay the Managed Agreement Invoices received and approved by Supplier.  Michaels shall only be responsible for payment of the Managed Agreement Invoices and shall not be responsible to Supplier for any management or administration fees of Supplier in connection with the Managed Agreement Invoices.  Michaels shall not be responsible for any late fees with respect to the Managed Agreement Invoices if Supplier failed to submit the applicable Managed Agreement Invoices to Michaels for payment within 7 business days after receipt of the Managed Agreement Invoice where the nature of the invoice does not require any error correction.  Where the nature of the invoice is such that Supplier requires additional time to process the Managed Agreement Invoice,  Supplier shall provide Michaels with advance written notice of the need for such additional time.  If Supplier fails to submit a Managed Agreement Invoice to Michaels for payment in accordance

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with the preceding sentence, Supplier shall be responsible for any discount not received with respect to such Managed Agreement Invoice.  If Supplier fails to submit any Managed Agreement Invoice to Michaels for payment more than 60 days after Supplier’s receipt of such invoice and has not notified Michaels of any specific error or problem that is causing the delay, Supplier shall be responsible for payment of the entire amount of the invoice, including any late fees and other associated charges.

8.5          Assigned Agreements.  Exhibit 9 sets forth the list of Assigned Agreements assigned by Michaels to Supplier as of the Effective Date.  Michaels shall execute reasonable documentation requested by Supplier to give effect to the assignment of Assigned Agreements.  No other Michaels Third Party Contracts shall be considered as an Assigned Agreement unless and until Supplier and Michael mutually agree on the assignment and execute an appropriate assignment agreement for the applicable Michaels Third Party Contract.  The effective date of assignment shall be as set forth in such assignment agreement (“Assignment Date”).  With respect to each Assigned Agreement, Michaels retains the responsibility and liability for obligations, performances and liabilities relating to the period prior to the Assignment Date.  Supplier shall assume. all post assignment obligations and post-assignment liability for each Assigned Agreement on and from the Assignment Date of the Assigned Agreement.  Supplier shall agree to be bound by the terms of such Assigned Agreement from and after the Assignment Date.  Any modification, termination or cancellation fees or charges imposed upon Michaels in connection with any modification, termination or cancellation of, or consent or waiver under, an Assigned Agreement made by Supplier after the Assignment Date shall be paid by Supplier.  Michael’s shall reimburse Supplier for all damages, claims, costs and expenses asserted against Supplier with respect to any claims that relate to the period prior to the Assignment Date, except to the extent that such claim arises as a result of the acts or omissions of Supplier.  If Michaels has prepaid any amounts under any Assigned Agreement which apply to obligations to be performed after the Assignment Date, Supplier shall reimburse or credit Michaels (at Michaels’ discretion) for such amounts on the first invoice provided by Supplier to Michaels after such amounts have been identified unless the Parties have agreed to different stipulations in the relevant assignment agreement.

8.6          Assigned Agreement Invoices.  Supplier shall, pay the invoices submitted by third parties in connection with each Assigned Agreement that relate to the period after the Assignment Date and shall be responsible for any late fees with respect to such third party invoices.

8.7          Performance Under Third Party Contracts.  Supplier shall promptly notify Michaels of any breach of, or misuse or fraud in connection with any Third Party Contracts of which Supplier becomes aware and shall cooperate with Michaels to prevent or stay any such breach, misuse or fraud.

9.SERVICE LEVELS AND REPORTS.

9.1          Service Levels.  Exhibit 3 sets forth the Service Level Methodology and the provisions for managing the Service Levels agreed in a Statement of Work.  Beginning on the first day following the end of the Transition Services with respect to a

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Statement of Work (or such other date as specified in applicable Statement of Work), Supplier shall be responsible for and shall perform the Services in accordance with the Service Levels described in the applicable Statement of Work and in accordance with the requirements of the Service Level Methodology.  Supplier shall perform all Services that do not have defined Service Levels in a manner and at levels that equal or exceed the level of service being provided internally by Michaels or through a third party prior to the Effective Date, including with respect to accuracy, quality, completeness, timeliness, and responsiveness.

9.2          Knowledge Sharing.  At least once in every 90-day period, and upon Michaels’ request, Supplier shall meet with representatives of Michaels in order to:  (a) explain how the Systems work and are operated; (b) explain how the Services are provided; and (c) provide such training and documentation that Michaels may require for Michaels to understand and operate the Systems and provide the Services after the expiration or termination of this Agreement.

9.3          Reports.  Supplier shall provide to Michaels, in a form and format acceptable to Michaels, the reports set forth in Exhibit 10, any other reports identified in this Agreement, and any other reports Michaels requests from time to time.  The delivery schedule of the reports shall be as specified in Exhibit 10, and where no such schedule is specified, as required by Michaels.

9.4          Relief Events.

(a)           Supplier shall be relieved of failures to comply with the Service Levels (or in the case of Transition Services, the Transition Milestones) and no other liability shall accrue, where the Savings provisions set forth in Section 4.3 or the Force Majeure provisions set forth in Section 17.2 applies, or to the extent and only to the extent that such failure arises as a direct results of:

(i) Execution of the Business Continuity Plan, the execution of which is in support of a Michaels declared disaster, to the extent that the implementation of the Business Continuity Plan prevents Supplier from accessing the Systems or personnel necessary to provide the Services in accordance with the Service Levels; provided that Supplier shall not obtain such relief if the Parties agree in the Business Continuity Plan that Supplier is to continue providing the Services in accordance with the Service Levels;

(ii)  Service or Supplier Staff reductions or reprioritizations requested by Michaels and agreed to by the Parties in accordance with the Change Management Process; provided that Supplier has previously notified Michaels as part of such Change Management Process that the implementation of such Services or Supplier Staff reductions would result in such failure to meet the Service Level; or

(iii) Where the Parties agree prior to any activities and/or outages that the Service Levels shall not apply; provided that Supplier notifies Michaels in advance of the likely impact of such activities or outages on the Service Levels.

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(b)           To obtain relief from any Service Level in the case of the events described in Section 9.4(a), Supplier must, in each instance:

(i)            provide specific notification to Michaels that describes to Michaels the specific Service Level impacted and the expected nature and extent of the reduction or other effect on the applicable Service Level;

(ii)           have used all reasonable efforts to perform the affected Service or resolve the problem in accordance with the applicable Service Levels despite such events; and

(iii)         re-commence the performance of the affected Service in accordance with the Service Levels, immediately upon resolution or cessation of the event giving rise to the relief.

10.CUSTOMER SATISFACTION AND BENCHMARKING.

10.1        Customer Satisfaction Surveys.  Within 60 days after the Effective Date, Supplier shall submit to Michaels, for Michaels’ approval, the content of the customer satisfaction surveys and the process for conducting such customer satisfaction surveys.  Supplier shall complete within 30 days after the effective date of an applicable Statement of Work an initial baseline customer satisfaction survey using the content and process approved by Michaels.  Additional customer satisfaction surveys will be performed six months (or other time agreed by the Parties) in accordance with Exhibit 18 by Supplier.  Supplier agrees that increased measured customer satisfaction shall be a key component in Supplier’s program for performance incentive for the compensation of the Key Supplier Personnel.  Supplier shall be responsible for all costs associated with conducting customer satisfaction surveys by Supplier.

10.2        Disputes.  In the event that Michaels disputes the results of a customer satisfaction survey, Michaels may, at its expense, engage a third party unaffiliated with Michaels and that is not a Supplier Competitor to conduct another customer satisfaction survey in accordance with Section 10.1, and the results of such survey shall be binding on the Parties.  For clarity, disputes under this Section 10.2 do not include issues related to Supplier’s failure to perform customer satisfaction surveys in accordance with the procedures set forth in Section 10.1.  In such event Supplier shall re-perform the applicable survey in a manner that conforms to Section 10.1.

10.3        Benchmarking Process.  At any time after the first anniversary of the Effective Date, Michaels may in its sole discretion, instruct the Benchmarker to conduct the Benchmarking Process at any time and with regard to any Statement of Work or combination of Statements of Work.

10.4        Benchmarking Overview.  The Parties, in conjunction with the Benchmarker, shall determine the Benchmarking Process within 30 days after Michaels’ request.  As part of the Benchmarking Process, the Benchmarker shall compare the applicable fees to the fees of offerings of a like mix of volumes and types of services offered by Tier One Offshore Service Providers (including Supplier) to customers who are similarly situated to Michaels (“Comparable Deals”).  The Benchmarker shall select a representative sample of Comparable Deals from no less than 4 and no more than 6 Comparable Deals.  The Benchmarker shall normalize the fees

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of Comparable Deals utilizing factors suggested by the Parties and approved by the Benchmarker as part of the determination of the Benchmarking Process, which factors may include, the scope and volume of the services, the service locations, the term of the agreement, transition cost, service levels,  the service delivery model and the commitments described in Section 18.10.  The Benchmarking Process shall be conducted by a Benchmarker chosen by Michaels from the list of Benchmarkers specified on Exhibit 19, and Michaels shall pay the fees charged by the Benchmarker to conduct the Benchmarking Process.  If the Benchmarkers are no longer providing the services required to conduct the Benchmarking Process or are otherwise unavailable at the time Michaels elects to conduct the Benchmarking Process, the Parties shall promptly designate a replacement Benchmarker.  If the Parties do not agree within 15 days on a replacement Benchmarker, Michaels shall designate the Benchmarker in its sole discretion, provided that such Benchmarker shall not be a Supplier Competitor.  Supplier shall at its expense cooperate with and assist the Benchmarker and any other third parties involved in the Benchmarking Process, including providing data relating to the provision of the Services, as requested by Michaels or the Benchmarker.  For clarity, Supplier shall not be required to provide (a) data that reveals its cost to provide the Services in connection with the Benchmarking Process except in the case of Pass-Through Expenses or (b) data or information protected by confidentiality obligations to other customers of Supplier.

10.5        Benchmark Results Review and Adjustments.

(a)           Michaels and Supplier shall review the Benchmark Results during the Benchmark Review Period.  If either Party has reason to believe that the Benchmarker’s report contains material errors (each, a “Claimed Error”), such Party shall notify the Benchmarker during the Benchmark Review Period of such Claimed Error and shall provide any documentation and information necessary to support the Claimed Error and shall copy the other Party on all such correspondence.  The Benchmarker shall review any Claimed Error and meet with the Parties for a time period determined by the Benchmarker to resolve the Claimed Error and make corresponding adjustments to the Benchmarker’s findings, if any, prior to issuing the final benchmarking report (“Benchmarking Report”).  If either Party determines that any Claimed Error is not likely to be resolved through additional consultation with the Benchmarker, at such Party’s request, the Claimed Error will be resolved through the alternative dispute resolution process described in Section 10.6 and the resolution of the Claimed Error as set forth in the final report of CPR shall be incorporated into the Benchmarking Report and shall be binding on the Parties.

(b)           If any Fees paid by Michaels to Supplier with respect to a Statement of Work that is subject to the Benchmarking Process are more than 10% higher than the pricing contained in the Benchmark Results for such Statement of Work, Supplier shall then reduce the Fees in a manner that Supplier’s Fees are no more higher than by 10% of the Benchmark Results.  If any Service Levels are lower than the applicable service levels contained in the Benchmark Results for such Statement of Work, Supplier shall either increase the Service Levels to match the applicable service levels contained in the Benchmark Results for such Statement of Work, or reduce its Fees proportionately to adjust for the difference between the Service Levels and the applicable service levels contained in the Benchmark Results for such Statement of Work.  In no event will Supplier increase the Fees as a result of any benchmarking.

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10.6        Benchmarking Disputes.  If the Parties fail to agree on a replacement Benchmarker in accordance with Section 10.4, or fail to agree to the Benchmarking Process within 30 days after Michaels notifies Supplier that it intends to initiate the Benchmarking Process, or if either Party disputes the Benchmark Results, the Parties shall immediately escalate the disputed issues (“Issues”) via the dispute resolution process set forth in Article 24; provided that if any unresolved Issues remain after each Party has considered the Issues in accordance with Section 24.1(c), then either Party may submit such Issues to the International Institute for Conflict Prevention & Resolution (www.cpradr.org, “CPR”) and such Issues shall be finally resolved by arbitration in accordance with the CPR Rules for Non-Administered Arbitration by three independent and impartial arbitrators, of whom each Party shall designate one in accordance with the ‘screened’ appointment procedure provided in CPR Rule 5.4.  The Parties shall use all reasonable efforts to resolve the Issues within 30 days after their submission to arbitration under this Section 10.6 and the decision of the arbitrators with respect to such Issues shall be binding on the Parties.  The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. §§1 et seq. and judgment upon the decision rendered by the arbitrator may be entered by any court having jurisdiction thereof.  The place of arbitration shall be Dallas, Texas.  If a Party fails to participate in the dispute resolution procedures described in Article 24, the other Party can commence arbitration prior to the expiration of the time periods set forth in Article 24.

11.SERVICE LOCATIONS.

11.1        Service Locations.  The Services shall be provided to Michaels solely from:  (a) the Michaels Service Locations; (b) Supplier Service Locations; and (c) any other location for which Supplier has received Michaels’ approval, to be given in Michaels’ sole discretion but acting in good faith.  Exhibit 6, which contains the list of Service Locations, will designate which Services may be provided from each Service Location.  Supplier and Supplier Agents may not provide or market services to a third party or to itself from a Michaels Service Location without Michaels’ consent, to be given in Michaels’ sole discretion.

11.2        New Service Locations.  If Supplier requests Michaels’ approval to provide Services from a location other than a location described in Section 11.1, Supplier shall provide to Michaels a written relocation proposal that sets forth a description of the proposed new location, the reasons for the proposed relocation, how the relocation will be beneficial to Michaels in terms of performance and other relevant measures, as well as any other information requested by Michaels.  Supplier shall specify in the relocation proposal the amount of Supplier’s cost reductions, if any, resulting from the relocation that Supplier will pass-through to Michaels in the form of reduced Fees.  Michaels may, in its sole discretion but acting in good faith, approve or reject any proposal submitted by Supplier pursuant to this Section 11.2.  Any incremental costs incurred by Michaels as a result of a relocation requested by Supplier to any location other than the locations described in Section 11.1 shall be paid by Supplier or reimbursed to Michaels by Supplier unless otherwise agreed by the Parties.  If for reasons other than Supplier’s breach, Michaels requires Supplier to relocate from an existing Michaels Service Location to another Service Location, Michaels shall pay Supplier any reasonable costs of that relocation and any incremental costs to Services resulting from such relocation, in each case as agreed by the Parties in advance.  If for reasons other than Supplier’s breach, Michaels requires Supplier to relocate from an existing Supplier Service Location to another Service Location, such relocation shall be addressed through the Change Management Process.

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11.3        Safety and Security Procedures.  Supplier shall maintain and enforce at all Supplier Service Locations safety and security procedures that are at least equal to the most stringent of the following:  (a) industry standards for locations similar to the applicable Service Locations; (b) the procedures in effect at locations of other Supplier customers receiving services similar to the Services; (c) those procedures in effect at a Michaels Service Location, including applicable procedures that implement Michaels Policies and the safety and security procedures set forth in Exhibit 7; and (d) any higher standard required by Law.  Michaels continues to retain responsibility for maintaining and enforcing at all Michaels Service Locations safety and security procedures consistent with the standards prescribed in this Section 11.3.

12.SUPPLIER STAFF

12.1        Supplier Account Manager.  Supplier shall appoint an individual (the “Supplier Account Manager”) who from the Effective Date of this Agreement shall serve, on a full-time basis, as the primary Supplier representative under this Agreement.  Supplier’s appointment of any Supplier Account Manager shall be subject to Michaels’ prior approval.  The Supplier Account Manager shall:  (a) have overall responsibility for managing and coordinating the performance of Supplier’s obligations under this Agreement; and (b) be a single point of contact for and on behalf of Supplier with respect to all matters relating to this Agreement.

12.2        Key Supplier Personnel.  With respect to the Key Supplier Personnel, the Parties agree as follows:

(a)           All Key Supplier Personnel shall be dedicated to the Michaels account on a full-time basis unless otherwise specified on Exhibit 8.

(b)           Before assigning an individual to a Key Supplier Personnel position, whether as an initial assignment or as replacement, Supplier shall:  (i) notify Michaels of the proposed assignment; (ii) introduce the individual to appropriate representatives of Michaels; (iii) provide Michaels with a resume and any information regarding the individual that may be reasonably requested by Michaels; and (iv) obtain Michaels’ written approval for such assignment.

(c)           Supplier shall not replace or reassign:  (i) the Supplier Account Manager for 36 months from the date such individual begins his or her tenure in that position; (ii) the Supplier Transition Manager until 30 days after the completion of all Transition Services; or (iii) any other Key Supplier Personnel for:  (A) 24 months from the date such individual begins his or her tenure in that position, where such date occurs within Contract Year 1 or Contract Year 2; or (B) 18 months from the date such individual begins his or her tenure in that position, where such date occurs in Contract Year 3 or at anytime thereafter, (and, without limiting the foregoing 24 month-obligation or 18 month-obligation (as the case requires), if any of the Key Supplier Personnel has duties in connection with a particular discrete Project, until the completion of such Project), unless, in each case, Michaels consents in its sole discretion to such replacement or reassignment, or such individual:  (W) voluntarily resigns from Supplier; (X) is terminated by Supplier (including being dismissed by Supplier for misconduct); (Y) fails to perform his or her duties and responsibilities pursuant to this Agreement; or (Z) is unable to work due to disability.

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(d)           If Michaels determines that any Key Supplier Personnel should not continue in his or her position, Michaels may in its sole discretion based on reasonable business judgment and upon notice to Supplier require the immediate removal of such Key Supplier Personnel from the Supplier Staff.

(e)           Supplier shall maintain backup procedures and conduct replacement procedures for Key Supplier Personnel as necessary to assure an orderly succession for Key Supplier Personnel removed from the account for any reason.  Upon Michaels’ request, Supplier shall make such procedures available to Michaels.

(f)            Supplier shall make the Key Supplier Personnel available for meetings with Michaels personnel in accordance with Exhibit 5 and otherwise upon Michaels’ request.

12.3        Supplier Staff.

(a)           Training and Skills; Removal; Confidentiality.  Supplier shall appoint to the Supplier Staff only individuals with suitable training and skills to perform the Services.  Supplier shall provide upon Michaels’ request a list of all Supplier personnel dedicated full-time to the Supplier Staff assigned to perform Services at a Michaels Service Location and their respective job titles.  Supplier shall notify Michaels as soon as possible after dismissing or reassigning any member of the Supplier Staff whose work location is at a Michaels Service Location.  Michaels may in its sole discretion from time to time in its reasonable business judgment require Supplier to remove any member of the Supplier Staff assigned to perform Services at a Michaels Service Location from working on the Michaels account, and Supplier shall complete such removal within 24 hours and replace such individual as soon as practicable at no cost to Michaels.  If Michaels requires the removal of any Supplier Staff assigned to perform at a Supplier Service Location, Michaels shall provide Supplier with reasonable details of the reasons for removal.  In such cases, Supplier will promptly investigate and propose a resolution for Michaels and if Michael does not agree to the resolution, based on its business judgment, Supplier shall remove and replace such Staff as soon as possible.   Supplier shall ensure that each member of the Supplier Staff who performs work under this Agreement is informed of Supplier’s confidentiality obligations under this Agreement and agrees in writing to and does comply with such obligations.

(b)           Background Checks.  Supplier certifies that it has conducted a background check and drug screen that is at least as comprehensive as Michaels’ standard background check and drug screen policy set forth in Exhibit 7 with respect to each member of the Supplier Staff that will work at a Michaels Service Location for 5 days or more in accordance with the Michaels background screening requirements for non-employees set forth in Exhibit 7 prior to such individual’s assignment to work at an Michaels Service Location.

12.4        Turnover of Supplier Staff.  Michaels and Supplier agree that it is in their best interests, in order to maintain consistency within the Supplier Staff, to reduce to the extent possible the number of staff assigned to the Michaels account who leave the Michaels account during any Contract Year (i.e., the number of the Supplier Staff that provide Services in a Contract Year that are no longer part of the Supplier Staff at the end of such year excluding removals at the request of Michaels and relieving upon completion of a project for which an individual was assigned) (“Turnover”).  Accordingly, Supplier shall use all reasonable efforts to

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keep the Turnover to a level acceptable to Michaels.  Upon Michaels’ request, or if the Turnover exceeds (a) in the case of the information technology services, 20% per Contract Year (except as otherwise set forth in a Statement of Work); and (b) in the case of the business process services, 25% per Contract Year (except as otherwise set forth in a Statement of Work), Supplier shall as soon as reasonably practicable:

(a)           provide to Michaels sufficient data to establish the annual Turnover by Contract Year including, in particular, the Turnover Rate among Key Supplier Personnel;

(b)           meet with Michaels to discuss the impact of the level of the Turnover; and

(c)           submit to Michaels a proposal for reducing the Turnover, which, upon approval by Michaels, shall form part of this Agreement.

12.5        Conduct of Supplier Personnel.

(a)           While at the Michaels Service Locations, Supplier and Supplier Agents shall:  (i) comply with the requests, rules and regulations of Michaels regarding safety and health, personal and professional conduct (including adhering to the Michaels Policies and general Michaels safety practices or procedures) generally applicable to such Michaels Service Locations; and (ii) otherwise conduct themselves in a businesslike manner.

(b)           If Michaels notifies Supplier that a particular member of the Supplier Staff is not conducting himself or herself in accordance with Section 12.5(a), Supplier shall promptly investigate the matter and take appropriate action which may include:  (i) removing the applicable person from the Supplier Staff and providing Michaels with prompt notice of such removal and replacing the applicable person with a similarly qualified individual; or (ii) taking other appropriate disciplinary action to prevent a recurrence.  In the event of multiple violations of Section 12.5(a) by a particular member of the Supplier Staff, Supplier shall promptly remove the individual from the Supplier Staff.

12.6        Assignment to Competitors.    Supplier shall not assign any Key Supplier Personnel to the account of any Michaels Competitor without Michaels’ prior consent:  (a) while such Key Supplier Personnel is assigned to the Michaels account; and (b) for a period of 12 months following the date that such Key Supplier Personnel ceases providing Services.

12.7        Subcontractors.

(a)           Michaels acknowledges and agrees that certain Supplier Service Locations utilized to provide the Service hereunder are owned and operated by Supplier’s corporate parent Tata Consultancy Services Ltd (“TCSL”).  Supplier is permitted to utilize personnel and resources of TCSL and Supplier’s other Affiliates as Supplier Agents and the use of TCSL and Supplier’s other Affiliates as Supplier Agents shall not be construed as subcontracting by Supplier requiring further approval of Michaels.  Supplier shall directly render all Services exclusively through its employees and Supplier Agents under its control who are authorized in accordance with this Agreement.  Prior to subcontracting any of the Services, Supplier shall notify Michaels of the proposed subcontract and shall obtain Michaels’ approval of such subcontract, which approval may be given in Michaels’ sole discretion.  Prior

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to making any material modification to any subcontract relating to the Services including material changes to the volume or type of services provided under such subcontract, Supplier shall notify Michaels of the proposed modification and shall obtain Michaels’ approval thereof.

(b)           Subcontracting the provision of any portion of the Services in accordance with this Agreement shall not relieve Supplier of any of its obligations under this Agreement.  Supplier shall be responsible for the work and activities of each of the Supplier Agents, including such agent’s compliance with the terms of this Agreement (including but not limited to confidentiality obligations).  Supplier shall be responsible for all payments to Supplier Agent in connection with the provision of Services.

(c)           Michaels may in its sole discretion from time to time in its reasonable business judgment require Supplier to replace any Supplier Agent (other than TCSL and Supplier’s other Affiliates) and Supplier shall complete such replacement as soon as practicable and at no cost to Michaels.  In the event that, Michaels believes in its reasonable business judgment that any individual who is a Supplier Agent is a threat to the health, safety or security of any of Michaels’, an Affiliate’s or a third party’s personnel, data or property, or threatens to be, or is in breach of the terms of this Agreement or any Michaels policy or procedure which was previously provided to Supplier, then Supplier shall have the obligation to remove that Supplier Agent from the provision of the Services immediately and, without limiting the foregoing, Michaels shall have the right to restrict such Supplier Agent’s access to any Michaels Service Location or System in its sole discretion.

12.8        No Termination of Employment.  For clarity, and without limiting Michaels’ rights under this Article 12 to require the removal of individuals from the Supplier Staff, Michaels will not have the right under this Article 12 to require Supplier, or any Supplier Agent, to terminate any individual’s employment relationship with Supplier or any Supplier Agent.

12.9        Non-Solicitation.  During the Term and Termination Assistance Period and for 1 year thereafter:  (a) Michaels shall not solicit the employment of any employee of Supplier or any Supplier Agent whether as an employee or contractor of Michaels without the prior consent of Supplier; and (b) Supplier and Supplier Agents shall not solicit the employment of any employee of Michaels or Michaels Agents whether as an employee or contractor of Supplier without the prior written consent of Michaels.  It shall not be a violation of this Section 12.9 for a Party to advertise for personnel in generally available media and to hire the other Parties personnel that contact that Party as a consequence of such advertising for so long as such advertisement is not specifically targeted to such personnel of the other Party.  The restrictions set forth in this Section 12.9 shall not apply to the hiring by Supplier of any Transitioned Employees.

12.10      Co- Employment.  No officer, director or employee of Supplier, Supplier Agent or Affiliate retained by Supplier to provide services to Michaels pursuant to this Agreement, including any Transitioned Employee, shall be deemed to be an employee, agent, or contractor of Michaels.  Except for the Transitioned Employees who become Supplier or its Affiliate’s employees upon acceptance by them of an offer of employment made by Supplier pursuant to Exhibit 15, no officer, director, employee or contractor of Michaels, Michaels’ Agent or Affiliate (including any Affected Employees or Affected Contractors) shall be deemed to be an

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employee or agent of Supplier.  Nothing in this Agreement shall operate or be construed to limit either Party’s  responsibility for the acts or omission of its officer’s, directors or employees, agents or Affiliates, nor shall this Agreement be construed to create a joint employment relationship or otherwise impose liability on either Party  as an employer with respect to the employees or agents of the other Party.

12.11Transitioned Employees.  The hiring and employment of Transitioned Employees by Supplier shall be effected in accordance with the terms and conditions set forth in Exhibit 15.  Except as may be agreed by the Parties in accordance with Exhibit 15, Supplier shall not be obligated to make offer of employment to any Affected Employees or Affected Contractors.

13.GOVERNANCE AND CHANGE CONTROL

13.1Governance.  Supplier shall implement a governance structure and governance procedures as specified in Exhibit 5.  All governance meetings will be hosted at a time and location acceptable to Michaels.  Michaels and Supplier may replace or reassign its governance committee members upon notice to the other Party, provided that Supplier shall not replace or reassign its governance committee members unless Michaels consents to such replacement or reassignment.  Before assigning an individual to a governance committee, Supplier shall notify Michaels of the proposed assignment, introduce the individual to appropriate Michaels personnel, provide Michaels with any information regarding the individual that may be reasonably requested by Michaels, and obtain Michaels’ approval for such assignment.

13.2Policies and Procedures Manual.  Supplier shall develop and provide the Policies and Procedures Manual, including the Change Management Process therein, to Michaels for Michaels’ review and approval in accordance with the requirements and delivery schedule specified in the Transition Plan.  Thereafter Supplier shall update the Policies and  Procedures Manual as necessary and shall provide such updated manual to Michaels for its approval.

13.3Change Management Process.  The Change Management Process shall provide, at a minimum, that:

(a)No Change shall be implemented without Michaels’ approval, except as may be necessary on a temporary basis to maintain the continuity of the Services.

(b)With respect to all Changes, Supplier shall:  (i) other than those Changes made on a temporary basis to maintain the continuity of the Services, schedule changes so as not to unreasonably interrupt Michaels’ business operations; (ii) prepare and deliver to Michaels each month a rolling schedule for ongoing and planned Changes for the next 90-day period; and (iii) monitor the status of Changes against the applicable schedule.

(c)With respect to any Change made on a temporary basis to maintain the continuity of the Services, Supplier shall document and provide to Michaels notification of the change no later than the next business day after the Change is made.

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13.4No Liability for Changes Not Approved.  Michaels shall have no liability for any activities of Supplier, including the provision of Systems or Services, that are undertaken pursuant to a Change unless such Change has been approved by Michaels in accordance with the Change Management Process.

14.PROPRIETARY RIGHTS.

14.1Ownership of Background Technology and Derivative Works.  Each Party shall have and retain exclusive ownership of its Background Technology, including any Intellectual Property Rights therein.  Michaels shall have and retain exclusive ownership of all Michaels Derivative Works, Michaels Software, Commissioned Materials, and Work Product, in each case including any Intellectual Property Rights therein.  Supplier shall have and retain exclusive ownership of all of Supplier Software and Supplier Derivative Works, including any Intellectual Property Rights therein.  All rights not expressly granted in this Article 14 with respect to the software, works and materials described in this Section 14.1 are reserved to the owner thereof.

14.2Michaels Software.  Other than the standard Third Party Software licensed by Supplier and used in the performance of Services, Michaels retains the ownership and financial responsibility for procuring and providing to Supplier any Third Party Software as necessary in connection with the performance of Services, as mutually agreed by the parties, acting reasonably.  Any exception to the forgoing shall be agreed to by the Parties within Exhibit 4 or applicable Statement of Work.  Michaels hereby grants to Supplier, during the Term and Termination Assistance Period, a worldwide, fully-paid, royalty-free, non-exclusive, non-transferable, license to Use the Michaels Proprietary Software and, subject to the terms of the applicable third party agreements (including the confidentiality and use restrictions therein), the Michaels Third Party Software; in each case solely as necessary to provide the Services.  Supplier may permit, subject to the terms of the applicable third party agreements (including the confidentiality and use restrictions therein), Supplier Agents to Use the Michaels Software solely to provide those Services that such Supplier Agents are responsible for providing.

14.3Supplier Software.

(a)Supplier shall provide Michaels with access to Supplier Software during the Term and Termination Assistance Period to the extent such access is reasonably necessary for Michaels to receive or use the Services, including the Supplier commitments under Section 18.10.  Prior to using any Supplier Software to provide the Services, Supplier shall:  (i) provide Michaels with reasonable details (including any cost upon termination) of  such Software to for Michaels’ review and approval; (ii) with respect to Supplier Third Party Software, use all reasonable efforts to obtain from the applicable vendor the right to assign to Michaels or Successor at no cost the applicable software license agreement; (iii) obtain the Supplier Consents; and (iv) if Supplier is unable to obtain such right, prior to using such Software, notify Michaels of the approximate cost of obtaining such right or obtaining a separate license to such Software.  Upon Michaels’ request, Supplier shall provide Michaels with a list of all Supplier Software being used to provide the Services to Michaels as of the date of such request.

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(b)Supplier hereby grants to Michaels during the Term and Termination Assistance Period a worldwide, fully paid , royalty-free, non-exclusive, non-transferable license to use the Supplier Software if and to the extent necessary in connection with the receipt and use of the Services, and to permit Authorized Users to access and use the Supplier Software if and to the extent necessary in connection with receipt of Services as contemplated in this Agreement.

14.4Commissioned Materials.  Supplier shall provide to Michaels all Commissioned Materials promptly after the completion thereof, including the complete source code and object code of the Software therein.  Michaels hereby grants to Supplier during the Term and Termination Assistance Period a worldwide, fully-paid, royalty-free, non-exclusive, non-transferable, license to Use the Commissioned Materials solely to provide the Services.  Supplier may permit Supplier Agents to Use the Commissioned Materials solely to provide those Services that such Supplier Agents are responsible for providing.

14.5Michaels-Owned Materials.  Supplier hereby does, and shall cause all Supplier Agents to, irrevocably and unconditionally assign to Michaels upon creation without further consideration all right, title, and interest in any Michaels Derivative Works, Commissioned Materials, and Work Product (collectively, “Michaels-Owned Materials”), and all Intellectual Property Rights therein.  If any Intellectual Property Rights, including artists’ rights and moral rights, in Michaels-Owned Materials, cannot (as a matter of law) be assigned by Supplier or Supplier Agents to Michaels as provided above, then:  (a) Supplier unconditionally and irrevocably does, and shall cause all Supplier Agents to, waive the enforcement of such rights and all claims and causes of action of any kind against Michaels with respect to such rights; and (b) to the extent that Supplier or Supplier Agents cannot (as a matter of law) make such waiver, Supplier unconditionally grants, and shall cause all Supplier Agents to grant, to Michaels an exclusive (without reservation), perpetual, irrevocable, worldwide, fully-paid, royalty-free, transferable license, with the right to sublicense through multiple levels of sublicensees, under any and all such rights:  (i) to reproduce, create derivative works of, distribute, publicly perform, publicly display, and digitally perform, and otherwise use and exploit the Michaels-Owned Materials in any medium or format, whether now known or hereafter discovered; (ii) to use, make, have made, sell, offer to sell, import, and otherwise exploit any product or service based on, embodying, incorporating, or derived from such Michaels Owned Material or any derivative works thereof; and (iii) to exercise any and all other present or future rights not yet known in the Michaels-Owned Materials.    Supplier shall not include any Supplier Background Technology in any Michaels-Owned Materials unless Supplier grants to Michaels a perpetual, irrevocable license to exercise all Intellectual Property Rights in such Background Technology, provided that Michaels may not separate any Supplier Background Technology from the applicable Michaels Owned Materials for use or commercial exploitation of such Supplier Background Technology other than in connection with the Michaels Owned Material in which such Supplier Background Technology is incorporated.  Supplier hereby assigns, and shall cause all Supplier Agents to assign, to Michaels any and all claims, past, present, or future, of any nature whatsoever, Supplier or Supplier Agents may have for infringement, misappropriation, or violation of any Intellectual Property Right assigned to Michaels pursuant to this Agreement.

14.6Further Assurances.  Supplier shall, and shall cause all Supplier employees, Supplier Agents and employees and contractors of Supplier Agents (in each case, whether former or current) to:  (a) cooperate with and assist Michaels and its designees, both during and after the Term, in perfecting, maintaining, and enforcing Michaels’ or its designees’ rights in all right, title, and

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interest in any Michaels-Owned Materials, including all Intellectual Property Rights thereto; and (b) execute and deliver to Michaels any documents or take any other actions as may reasonably be necessary, or as Michaels may reasonably request, to perfect, maintain, protect, or enforce Michaels’ or its designees’ rights in such materials or otherwise carry out the purpose of this Article 14.

14.7Supplier IP.  Notwithstanding anything to the contrary contained in this Agreement, Michaels acknowledges and agrees that nothing contained in this Agreement shall be construed to effect a transfer or conveyance by Supplier to Michaels and Supplier is not transferring the ownership or title to or granting any exclusive license for, any of Supplier Background Technology, Supplier Software or any other Supplier pre-existing Intellectual Property material or Derivative Works thereof (collectively, “Supplier IP”).  The assignment and waiver provisions set forth in this Agreement shall not apply to Supplier IP and nothing in this Agreement shall be construed as preventing Supplier to continue to own and use Supplier IP in any manner.  Supplier agrees not to include any Supplier Software or any other Supplier pre-existing Intellectual Property material or Derivative Works thereof in any Michaels Owned Material without obtaining prior written approval of Michaels.  To the extent practicable, Supplier will make good faith efforts to identify and obtain prior approval of Michaels for incorporating Supplier Background Technology in any Michaels Owned Material.  To the extent that any Supplier IP is incorporated in any Michaels Owned Material,  Supplier hereby grants, and shall cause all Supplier Agents to grant, to Michaels a non-exclusive, perpetual, irrevocable, worldwide, fully-paid, royalty-free, transferable license, with the right to sublicense through multiple levels of sublicensees, under any and all such rights in the Supplier IP as incorporated in Michaels Owned Material and solely in connection with the Use of such Michaels Owned Material :  (i) to reproduce, create derivative works of, distribute, publicly perform, publicly display, and digitally perform, and otherwise use and exploit the Michaels-Owned Materials in any medium or format, whether now known or hereafter discovered; (ii) to use, make, have made, sell, offer to sell, import, and otherwise exploit any product or service based on, embodying, incorporating, or derived from such Michaels Owned Material or any Derivative works thereof; and (iii) to exercise any and all other present or future rights not yet known in the Michaels-Owned Materials.  The license granted herein does not authorize Michaels to separate any incorporated Supplier IP from the applicable Michaels Owned Material for use or commercial exploitation of such Supplier IP other than in connection with the Michaels Owned Material.

14.8Residual Knowledge

Subject to patents owned by either Party, nothing contained in this Agreement shall restrict a Party from the use of any general knowledge, experience and know-how, as well as any knowledge retained in unaided human memories including discoveries, methods, inventions, works, processes, ideas, concepts, tools and techniques learnt or developed by Supplier in performing the Services hereunder (collectively, “Residual Knowledge”), provided that in doing so such party does not breach its obligations under Article 21 or infringe the Intellectual Property Rights of the other Party or third parties who have licensed or provided materials to the other Party.

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14.9Framework Initiative Work Products

Notwithstanding anything to the contrary contained in this Agreement, project work products relating to Framework Initiative as defined in Exhibit 4, and platform based solutions developed as a result of Framework Initiative  (collectively, “Framework Initiative Work Product”) shall be exclusively owned by Supplier and subject to the license granted to Michaels in this Section 14.9, the right title and interest in the Intellectual Property in all Framework Initiative Work Product shall be exclusively owned by Supplier.  Supplier hereby grants to Michaels a non-exclusive, perpetual, irrevocable, worldwide, fully-paid, royalty-free, transferable license to Use, reproduce, create Derivative Works, to make, have made any product or service based on, embodying, incorporating, or derived from such Framework Initiative Work Product solely for the benefit and use of Michaels and its Affiliates and Authorized Users.  The license granted herein does not permit Michaels to sell or sublicense the Framework Initiative Work Product to unaffiliated third parties. Supplier agrees to provide Michaels with both object and source code version of any Framework Initiative Work Product as part of Michaels license granted hereunder.

15.DATA

15.1Ownership and Use of Michaels Data.  All Michaels Data shall remain the property of Michaels.  Absent Michaels’ approval, to be given or withheld in Michaels’ sole discretion, Michaels Data shall not be:  (a) used by Supplier or Supplier Agents other than as required to provide the Services; (b) disclosed, sold, assigned, leased or otherwise provided to third parties by Supplier or Supplier Agents; or (c) commercially exploited in any form (including any derivative, individualized, anonymized, or aggregated form) by or on behalf of Supplier or Supplier Agents.  To the extent that data developed or produced by Supplier as part of the Services becomes Michaels Data Supplier hereby irrevocably assigns, transfers and conveys all of its right, title and interest (if any) in and to Michaels Data.

15.2Correction and Reconstruction.

(a)Supplier shall, at its cost and expense, promptly correct any errors or inaccuracies in the reports and other deliverables provided to Michaels under this Agreement and such corrections shall be reported in reports at a frequency and in a form and format reasonably acceptable to Michaels.

(b)Supplier shall, at its cost and expense:  (i) develop and maintain procedures for the reconstruction of lost Michaels Data; and (ii) promptly notify Michaels of any errors in, or destruction, loss, or alteration of, any Michaels Data caused by Supplier or Supplier Agents and remediate such errors, destruction, loss or alteration.  Corrections shall be reported to Michaels in reports at a frequency and in a form and format reasonably acceptable to Michaels.

(c)For Services charged to Michaels on a time and material rate basis, any billable resources attributable to Supplier’s efforts to correct errors in or reconstruct lost Michaels Data, which error or loss is described in Sections 15.2(a) or 15.2(b), shall be reflected as a credit to Michaels on the applicable invoice.  At Michaels’ request and expense, Supplier shall promptly assist

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Michaels to correct any errors in, or destruction, loss, or alteration of, Michaels Data caused by Michaels.

15.3Provision of Data.  Upon request by Michaels for any reason and at any time during the Term and Termination Assistance Period, Supplier shall:  (a) promptly provide to Michaels, in the format and on the media reasonably requested by Michaels, all or any part of Michaels Data; and (b) erase or destroy all or any part of Michaels Data in Supplier’s possession, in each case to the extent so requested by Michaels.  If any additional efforts or resources are required to comply with such requests Parties shall follow the Change Control Procedure.  Any archival tapes containing Michaels Data shall be used by Supplier and Supplier Agents solely for disaster recovery and business continuity purposes.  Supplier shall not withhold any Michaels Data as a means of resolving any dispute.

15.4Data Privacy.  Supplier shall comply with all applicable Laws regarding the processing, storage, handling, collection, and transmission of Michaels Data, including information therein that relates to, or is about, an identified or identifiable person, including all applicable state and federal laws and the Safe Harbor Principles outlined in the Safe Harbor Agreement between the U.S. Commerce Department and the European Commission and similar international agreements.

15.5Data Security.  Supplier shall establish and maintain technical and organizational security measures, and other safeguards against the destruction, loss, alteration, unavailability and unauthorized access to Michaels Data in the possession of or under the control of Supplier and during the electronic transmission, storage, and shipping thereof that comply with the Michaels Policies and all Michaels data security policies, standards, requirements and specifications and that are at least equal to the highest of the following:  (a) industry standards for locations similar to the applicable Service Location; (b) security management, including ISO 27001 (Information technology — Security techniques — Information security management systems — Requirements), ISO 27002 (Information technology - Security techniques - Code of practice for information security management) and payment card industry (“PCI”) standards applicable to the Services; (c) those data security policies in effect as of the Effective Date at each Michaels Service Location and Supplier Service Location; (d) the data security procedures set forth in Exhibit 7; and (e) any higher standard required by Law.  In the event Supplier or Supplier Agents discovers or is notified of a breach or potential breach of security relating to Michaels Data, Supplier shall immediately notify the Michaels Account Manager of such breach or potential breach (including providing the Michaels Account Manager with an initial security risk assessment form), investigate such breach or potential breach and, in the case of an actual breach remediate the effects of the breach.  In the event of a breach attributable to an act or omission of Supplier, as part of such remediation, Supplier shall:  (x) pay all expense of Michaels’ compliance with any of Michaels’ notification obligations, including Michaels’ compliance with Laws relating to the notification of individuals and entities whose information may have been disclosed in connection with the breach as well as any costs of credit monitoring services for affected individuals; (y) provide Michaels with a root cause analysis of the breach; and (z) provide Michaels with assurance satisfactory to Michaels that such breach shall not recur.  Michaels may establish backup security for Michaels Data and maintain backup and files for such data.  If any security breach requires Michaels to make a disclosure to any third party, Michaels shall be solely responsible for making that disclosure and Supplier and Supplier Agents shall cooperate with Michaels in formulating the disclosure.  Supplier and Supplier

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Agents shall not make any disclosure regarding a security breach without Michaels’ prior consent, which may be withheld at Michaels’ sole discretion, unless such disclosure is required by Law.

15.6Protection of Michaels Data.  Supplier shall develop and, subject to Michaels’ prior approval, implement policies to:  (a) segregate all Michaels Data from that of any other Supplier client; (b) screen Supplier Agents having access to Michaels Data in accordance with Section 12.3(b); and (c) restrict access to Michaels Data so that Supplier’s employees or Supplier Agents providing services to any business that is competitive with Michaels do not have access to Michaels Confidential Information.

16.CONSENTS.  Michaels shall be responsible for obtaining and maintaining all Consents at its own cost.  Supplier shall, at Michaels request:  (i) provide such assistance as is reasonably requested by Michaels with respect to the Consents; and (ii) comply with any terms and conditions of Consents as notified by Michaels to Supplier.  Supplier shall be responsible for obtaining and maintaining all Supplier Consents.  If Supplier is unable to acquire a Supplier Consent despite using all commercially reasonable best efforts to do so, Supplier shall implement, at its cost and expense, and subject to Michaels’ prior approval, alternative methods as necessary to provide the Services in accordance with this Agreement without such Supplier Consent.  If after commercially reasonable best efforts, a required Consent is not available, Michaels and Supplier shall discuss in good faith any alternative method that can be implemented through Change management Process to continue the affected Services without such Consent and if such alternative method is found not feasible, to remove the affected Services from the scope of Supplier Services.

17.CONTINUED PROVISION OF SERVICES

17.1Disaster Recovery Plan.  Supplier shall develop Disaster Recovery Plans for each Statement of Work and provide such Plans for Michaels’ review and approval prior to the Effective Date.  Upon Michaels review and Supplier’s receipt of Michaels comments, Supplier shall finalize and submit the final Disaster Recovery Plan for final approval of Michaels.  Michaels and Supplier agree to diligently work towards finalizing and agreeing upon the final Disaster Recovery Plan prior to the Commencement Date for the Statements of Work in Exhibit 2.  Supplier shall implement each such plan within 30 days after Michaels’ approval thereof.  With respect to any new Statement of Work, the applicable Disaster Recovery plan for such Statement of Work shall be included in the Statement of Work. Supplier shall be responsible for all disaster recovery activities relating to the Services at the Supplier Service Locations as of the Commencement Date, provided that during the period prior to the implementation of a Disaster Recovery Plan at a given Supplier Service Location for the Services in accordance with this Section 17.1, Supplier’s disaster recovery obligations with respect to such location and such Services shall be to use its best efforts to provide disaster recovery services at such location in the event of a disaster.  Supplier shall:  (i) update and test (and re-test as necessary) the operability of the Disaster Recovery Plan in accordance with Exhibit 13; and (ii) certify to Michaels at least twice during every 12-month period that each such Disaster Recovery Plan is fully operational.  Supplier shall immediately notify Michaels of any disaster and implement the Disaster Recovery Plan upon the occurrence of a disaster.  Without limiting Supplier’s other obligations under this Agreement, if Supplier does not begin implementing the agreed Disaster Recovery Plan to reinstate the Services within 24 hours (or such other period provided in the

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approved Disaster Recovery Plan) after the occurrence of a disaster affecting a Service, Michaels may obtain substitute services from an alternate supplier in accordance with Section 17.3.  In the event of a disaster, Supplier shall not increase the Fees or charge Michaels usage or other variable fees.  In the event of uncertainty or a dispute regarding whether an event constitutes a disaster under the Disaster Recovery Plan, Michaels shall be entitled to determine in its reasonable discretion whether such event constitutes a disaster and such determination shall be binding on Supplier.  Supplier shall cooperate and provide reasonable assistance to Michaels in as requested by Michaels, with respect to the implementation of any of Michaels’ disaster recovery plans at a Michaels Service Location.

17.2Force Majeure.  If and to the extent that a Party’s performance of any of its obligations pursuant to this Agreement is prevented, hindered or delayed by fire, flood, earthquake, elements of nature or acts of God, acts of war, terrorism, riots, civil disorders, rebellions or revolutions, or a similar cause beyond the reasonable control of such Party (but specifically excluding labor and union-related activities with respect to each Party or its Agents’ workforces, failures of a Party’s  Agents, and inability to obtain supplies) (each, a “Force Majeure Event”), and such non-performance, hindrance or delay could not have been prevented by reasonable precautions undertaken by the Party claiming a Force Majeure Event, then such Party shall be excused for such non-performance, hindrance or delay of those obligations affected by the Force Majeure Event for as long as such Force Majeure Event continues and such Party continues to use all reasonable efforts to recommence performance whenever and to whatever extent possible without delay, including through the use of alternate sources, workaround plans and other means.  The Party whose performance is prevented, hindered or delayed by a Force Majeure Event shall immediately notify the other Party of the occurrence of the Force Majeure Event and describe in reasonable detail the nature of the Force Majeure Event.  The occurrence of a Force Majeure Event does not excuse, limit or otherwise affect Supplier’s or Michaels (as applicable) obligation to provide either normal recovery procedures or any other disaster recovery services described in Section 17.1 unless the implementation of normal disaster recovery or agreed disaster recovery plan itself is prevented by the same or different Force Majeure Event.  The Supplier shall not have the right to any additional payments from Michaels as a result of its efforts to provide Services during a Force Majeure Event affecting a Service Location except to the extent provided in the agreed Disaster Recovery Plan.  A Force Majeure Event affecting Michaels shall not excuse Michaels from paying the applicable Fees during such period (except the extent such Force Majeure Event directly affects the systems used by such Michaels to remit payments).

17.3Alternate Source.  If the performance of all or a portion of the Services is prevented, hindered or delayed for more than 24 hours in the case of critical Services, or more than 3 calendar days in the case of all other Services, Supplier may, within 3 calendar days, propose and with approval from Michaels, procure and provide affected Services from an alternate source, failing which, Michaels may procure the affected Services from an alternate source and Supplier shall reimburse Michaels for a period not to exceed 60 days from the date that Michaels commences receiving the Services from the alternate source or the termination of the affected Services, whichever is earlier, the additional costs and expenses (the difference between the actual costs and expenses and the costs and expenses that would have been payable to Supplier for such Services under the Agreement) incurred by Michaels in procuring such Services.  If the performance of all or a portion of the Services is prevented, hindered or delayed for more than 7

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calendar days, Michaels, at its sole discretion, may:  (i) terminate any portion of the Agreement affected by the nonperformance, hindrance or delay; or (ii) terminate the entire Agreement, in each case as of the date specified by Michaels in a notice to Supplier and without payment of any Termination Fee.

17.4Allocation of Resources.  Whenever a Force Majeure Event or a disaster causes Supplier to allocate limited resources between or among Supplier’s customers, Supplier shall not provide to any other customers of Supplier priority over Michaels.  Supplier shall not redeploy or reassign any Key Supplier Personnel to another account in the event of a Force Majeure Event.

18.PAYMENTS

18.1Fees.  In consideration of Supplier providing the Services, Michaels shall pay to Supplier the Fees, Charges and Pass-Through Expenses as expressly specified in this Agreement or Exhibit 4 and/or Pricing Exhibit to the applicable Statements of Work.  Except as expressly set forth in this Agreement or Exhibit 4 and/or the Pricing Exhibit to the applicable Statements of Work, there shall be no charges, fees or expenses payable by Michaels in respect of Supplier’s performance of its obligations pursuant to this Agreement.

18.2Invoices.  For each month after the Commencement Date, Supplier shall invoice Michaels for:  (a) the Base Charges applicable to the Base Services provided during such month.  and any additional Fees payable under an applicable Statement of Work; (b) the Charges applicable to the Consulting Services provided during such month; and (c) any Pass-Through Expenses payable during the month.  Supplier’s monthly invoices shall:  (x) be provided within 10 days after the last day of the month; (y) be in a form and format requested by Michaels; and (z) contain detailed information regarding the Fees and Pass-Through Expenses as is requested by Michaels, including information necessary to determine the accuracy of the Fees and Pass-Through Expenses in each such invoice.

18.3Timeliness of Invoices.  Supplier shall invoice all Fees within 90 days after the month in which the Services were rendered or the expense incurred.  If Supplier fails to invoice such Fees within 90 days Michaels may decline to pay unless Michaels is responsible for the delay.

18.4Payment.  Subject to Section 18.5, Invoices submitted by Supplier pursuant to this Section 18 for such month, shall be due and payable to Supplier within forty-five (45) days after the date Michaels receives Supplier’s invoice.  If any invoice is not paid on the due date for payment, Interest shall accrue and be payable on the amount of such invoice from the original due date to the date paid.

18.5Fee Disputes.  Michaels may withhold invoiced amounts or a portion thereof that Michaels disputes in good faith.  Michaels shall pay undisputed portion of the invoice when due and notify Supplier on or before the date of payment of reasons for all such disputes.  The Parties shall promptly and expeditiously seek to resolve such disputes and upon resolution of the applicable dispute, Michaels shall pay Supplier the sum of money as resolved.

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18.6Due Diligence.  Supplier hereby acknowledges and agrees that Michaels has delivered or made available to Supplier all information and documents Supplier has deemed necessary for Supplier to commit to its obligations under this Agreement in accordance with its terms.  Supplier shall not be relieved of any of its obligations under this Agreement, or alter, increase or add any fees or charges related to this Agreement, as a result of its failure to review the foregoing information and documents or any documents referred to therein or its failure to request any information or documents from Michaels; except to the extent that such failure of Supplier results from non-obvious material inaccuracies in the information and documents made available by Michaels.

18.7No Other Charges.  Except as otherwise expressly set forth in this Agreement, all costs and expenses relating to Supplier’s performance of the Services (including all costs and expenses related to the acquisition, maintenance and enhancement of Software and Equipment, travel and lodging, document reproduction and shipping, computers and office equipment used by Supplier Staff, and all telephone charges) are included in the Base Charges and Charges and shall not be charged to or reimbursed by Michaels.  Except as expressly provided in Exhibit 4, there shall be no periodic adjustments to the Fees during the Term (e.g., cost-of-living increases or inflation indexes).

18.8No Payment for Unperformed Services.  If Supplier fails to provide the Services in accordance with this Agreement, the Fees shall be adjusted in a manner such that Michaels is not responsible for the payment of any Fees for Services that Supplier fails to provide, except as expressly set forth in this Agreement or Exhibit 4 and/or the Pricing Exhibit to an applicable Statement of Work.

18.9Most Favored Customer.  Supplier agrees that Michaels shall be treated as a most favored customer of Supplier and to this end Supplier shall provide to Michaels the same or better pricing, service availability, service quality, and agreement terms as Supplier provides to its customers that purchase comparable services in comparable quantities.  Comparability shall be measured by the financial responsibilities and commitments, volume, nature of services and other pertinent comparatives.  Upon Michaels’ request, Supplier shall certify to Michaels in writing that Supplier is not in violation of this Section 18.9.  If Supplier is unable to provide such certification because of a transaction entered into between Supplier and a Supplier customer that contradicts this Section 18.9, Supplier shall offer to Michaels a reduction in the Fees, increases in service performance, and any Michaels-favorable change to the terms of this Agreement that would be required to permit Supplier to give such certification.

18.10Certain Commitments By Parties.  Supplier and Michaels agrees to the commitments of each Parties set forth on Exhibit 4.

19.TAXES

19.1Taxes.  Supplier is responsible for and shall pay any sales, use, gross receipts, excise, import, export, value-added, withholding, personal property or other taxes that are:  (a) based upon or measured by Supplier’s cost in acquiring, using or providing Equipment, Software, materials, supplies, facilities, or services used by Supplier or Supplier Agents in performing or furnishing the Services, including all personal property and sales or use taxes on Supplier Equipment and Supplier Software but excluding any such

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taxes on Equipment purchased by Supplier on behalf of Michaels pursuant to Section 8.2 and/or any facility, Equipment, Software or other material provided or required to be provided by Michaels to Supplier (collectively, “Supplier Consumption Taxes”), however levied or assessed.  Each Party shall cooperate with the other in minimizing any applicable Taxes.

The Fees and Charges payable to Supplier by Michaels for Services are exclusive of any service, sales, use, value added or similar taxes assessed on the provision or use of the Services or on Supplier’s Charges to Michaels under this Agreement (collectively, “Service Taxes”), however levied or assessed.

Michaels shall be responsible for and pay (a) any and all taxes imposed by any taxing authority based on Michaels income (b) franchise taxes applicable to Michaels and (c) any Services Taxes excluding India Services Taxes.

Supplier is responsible for and pay (a) all Supplier Consumption Taxes, (b) any and all taxes imposed by any taxing authority based on Supplier’s income (c) franchise taxes applicable to Supplier, and (d) any and all Service Taxes imposed on either Party by any taxing authority in India (“India Service Taxes”).

Notwithstanding the forgoing, if and to the extent that India Service Taxes become applicable as a result of Michaels starting its business operations in India at any time (other than the outsourcing of Services contemplated in this Agreement), Michaels will be responsible to pay or reimburse Supplier of any such India Service Taxes.

Each Party shall cooperate with the other in minimizing any applicable taxes.

19.2Relocation of Services.  Any incremental Taxes, Service Taxes or India Service Taxes assessed on the provision of the Services for a particular site resulting from Supplier’s relocating or rerouting the delivery of Services for Supplier’s convenience to, from or through a location other than the Service Location identified in this Agreement shall be paid by Supplier.  Any incremental Taxes assessed on the provision of the Services for a particular site resulting from Supplier’s relocating or rerouting the delivery of Services as required by Michaels for its convenience shall be the responsibility of Michaels.

19.3Other Taxes.  Michaels and Supplier shall each bear sole responsibility for all taxes, assessments and other real property-related levies on its respective owned or leased real property.

19.4Segregation of Fees.  Supplier shall segregate the Fees into the following separate payment streams as follows:  (a) those for taxable Services; (b) those for nontaxable Services; (c)  those that relate to a capital expenditure versus an expense; (d) those for which a sales, use or other similar tax has already been paid; and (e) those for which Supplier functions merely as a paying agent for Michaels in receiving goods, supplies or services (including leasing and licensing arrangements) that otherwise are nontaxable or have previously been subject to tax.  In addition, Michaels and Supplier shall cooperate to more accurately determine a Party’s tax liability and to minimize such liability, to the extent legally permissible.  Each Party shall provide and make available to the other Party any resale certificates, information regarding out-of-state sales or use of equipment, materials or services, and any

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other exemption certificates or information requested by a Party.

20.AUDITS

20.1Services.  Upon reasonable notice from Michaels, Supplier and Supplier Agents shall promptly provide Michaels, Michaels Agents (including any external auditors of Michaels and any internal Michaels Agents responsible for evaluating compliance), and any of Michaels’ regulators (collectively, “Auditors”) with:  (a) access to any facilities, personnel and information technology systems used for providing the Services and under Supplier or Supplier Agents’ control;  and (b) any assistance and information the Auditors may require, in each case for the purpose of performing audits or inspections of the Services, the Service Locations, the Systems, and the business of Michaels relating to the Services (including to verify performance of the Services, the Fees, the use of Michaels resources, and regulatory compliance).  If any audit by an auditor designated by Michaels, a Michaels Agent or a regulatory authority results in Supplier being notified that Supplier or Supplier Agents are not in compliance with any Law or audit requirement, Supplier shall, and shall cause Supplier Agents to, promptly take actions to comply with such Law or audit requirement.

20.2Fee Records.  Fee Audits may be performed by Michaels for a period not to exceed three years preceding the date of audit (“Audit Period”).  Upon notice from Michaels, Supplier shall promptly provide Michaels and Auditors with access to such financial records and supporting documentation as may be reasonably requested by Michaels, and Michaels or Auditors may audit the Fees invoiced to and paid by Michaels to determine if such Fees are accurate and in accordance with this Agreement.  If any such audit reveals that Supplier has overcharged Michaels, Michaels shall notify Supplier of the amount of such overcharge and unless Supplier disputes such finding in good faith, Supplier shall promptly pay to Michaels the amount of the overcharge during the Audit Period, plus Interest calculated from the date of receipt by Supplier of the overcharged amount until the date of payment to Michaels.  If any such audit reveals an overcharge to Michaels of an amount equal to 5% of the Fees, whether internal or external, associated with the audited Services for the Audited Period, Supplier shall reimburse Michaels for the cost of such audit.

20.3SAS 70 Reports; .

(a)If Supplier is performing such SAS 70 Type II audit at Supplier’s enterprise, Supplier shall provide Michaels with a SAS 70 Type II service auditor’s report as it relates to Services, at no cost to Michaels.  If such a report is not available, Supplier shall at no additional cost to Michaels, provide Michaels with any reports and assistance reasonably requested by Michaels in connection with Michaels’s obtaining a SAS 70 Type II audit report (“Standard SAS 70 Type II Reports”) for all accounting or internal control activities related to the provision of Services by Supplier or Supplier Agents.  All third party costs for Standard SAS 70 Type II Reports required by Michaels will be borne by Michaels.  If obtaining a SAS 70 type II report for any particular accounting or internal control activity is not practical, Supplier will provide any reports or assistance reasonably requested by Michaels or Michaels’ auditors for Michaels auditor’s verification that internal controls are in place and functioning as designed.

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(b)With respect to information technology services (“IT Services”) provided as part of the Services, the reports and other assistance required for facilitating Michaels to obtain a Standard SAS 70 Type II Report, should at a minimum, include the following IT Services control objectives:  (i) security management; (ii) asset classification and management/data security; (iii) personnel security; (iv) physical/environmental security; (v) operations management, including change control procedures; (vi) system access management and network security; (vii) communications security; (viii) applications development, maintenance and implementation event journaling; (ix) data center operations controls; (x) system software controls; (xi) access security controls; (xii) application system development and maintenance controls; and (xiii) such other matters as are requested by Michaels.  Supplier shall consult with Michaels regarding the inclusion of appropriate Michaels-specific transactions to be sampled in connection with the assistance required.  Assistance and reports for the Standard SAS 70  Type II Reports shall be provided as at the end of the end of Michaels’ fiscal year end.  In the event that assistance and reports required from Supplier are provided as of a date other than Michaels year end, Supplier shall provide Michaels, a written statement by an officer of Supplier that there has been no change in Supplier’s internal controls and that such controls and systems have functioned correctly since the date of the most recent Standard SAS 70 Report. Supplier agrees, on 30 days written notice to Supplier to change the due date for reports and assistance as necessary to facilitate Michaels’ year end financial statement certification requirements. For clarity, it is agreed that any cost and expenses internally incurred by Supplier in connection with the assistance and reports contemplated in this Section 20.3 will be borne by Supplier and if such assistance and report reasonably require Supplier to engage any third parties, including third party auditors, the cost and expenses of such third parties will be borne by Michaels.

(c)With respect to non-IT Services provided as part of the Services, the assistance and reports provided for Michaels obtaining its SAS 70 Type II Reports (“Custom SAS 70 Type II Reports”) shall include testing of Supplier’s operations in connection with the Services against the control objectives agreed for that non-IT Service on Exhibit 2 and include other matters and the control objectives requested by Michaels (“Control Objectives”).  The assistance and reports for the Custom SAS 70 Type II Reports shall cover the period July through January, or such other dates as reasonably determined by Michaels to comply with Michaels year end reporting requirements and certifications. .  In the event that assistance and reports required from Supplier are provided as of a date other than Michaels year end, Supplier shall provide Michaels, a written statement by an officer of Supplier that there has been no change in Supplier’s internal controls and that such controls and systems have functioned correctly since the date of the most recent Standard SAS 70 Report.  Reports and assistance to Michaels will be delivered promptly, but in no instance later than 10 days after Michaels fiscal year end.  For clarity, it is agreed that any cost and expenses internally incurred by Supplier in connection with the assistance and reports contemplated in this Section 20.3 will be borne by Supplier and if such assistance and report reasonably require Supplier to engage any third parties, including third party auditors, the cost and expenses of such third parties will be borne by Michaels.

(d)Supplier is not obligated to provide assistance and reports for the Custom SAS 70 Type II Report regarding the non-IT Services until 6 months after the Commencement Date that applies to those non-IT Services.  Instead, Supplier covenants that its operations with respect to the non-IT Services shall conform to the applicable Control Objectives as of the Commencement

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Date.  Supplier shall perform a self assessment (and provide Michaels with a copy of the written report resulting from such self assessment) of its operations with respect to the non-IT Services to determine compliance with the Control Objectives based on the conduct of such operations during the first 30 days after the Commencement Date and, where required by Michaels, Supplier shall, at Michaels’s cost and expense, provide an audit conducted by an independent third party (“Control Audit”) on the accounting and internal controls used by the Supplier for non-IT Services.  Supplier shall consult with Michaels prior to conducting each Control Audit regarding the scope of the audit and any Michaels requirements for the audit report.  Unless otherwise agreed, Supplier shall with respect to each Control Audit, provide a report complying with the requirements of Michaels, and including statements on:

(i)the fairness of presentation of the controls for each Control Objective;

(ii)the design of the controls with regard to their ability to meet defined Control Objectives; and

(iii)the operational effectiveness of those controls over the period for the Control Audit.

The report shall be completed and delivered to Michaels on or before the date nominated by Michaels, or such other date agreed with Supplier.

20.4Certain Audits

(a)Without limiting Supplier’s obligations under Section 20.1, upon Michaels’ request, Supplier shall provide Michaels or Michaels Agents access to any facilities and personnel and equipment used to provide the Services and under Supplier or Supplier Agents’ control and any assistance and information Michaels or the Auditors may reasonably require in order to conduct an audit and test (collectively, “Test”) of the Services (including Tests at all Michaels Service Locations) for the purpose of determining Michaels’ compliance with the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder or any successor or similar Laws (collectively, “Sarbanes Oxley”).  If any Test reveals deficiencies or weaknesses in internal controls and procedures relating to the Services (as such deficiencies or weaknesses are characterized under the standards of the Public Company Accounting Oversight Board; the standards and rules of the Securities and Exchange Commission; or the standards used by Michaels management or Michaels’ registered public accounting firm to evaluate Michaels’ internal control structure or any other applicable standards, collectively “Standards”), Supplier shall develop and submit to Michaels a plan to cure such deficiencies or weaknesses (the “Cure Plan”) within 30 days after Michaels’ notice of the deficiencies or weaknesses and commence implementation of the Cure Plan at its own cost and expense immediately after Michaels’ approval of such plan, or within another time period agreed by the Parties.  After Supplier has implemented the Cure Plan in accordance with this Section 20.4(a), Michaels may conduct additional Tests of the Services (including Tests at all Michaels Service Locations) to determine Michaels’ compliance with Sarbanes Oxley as such compliance relates to the Services, the costs of such tests to be borne by Supplier.  If such Tests reveal deficiencies or weaknesses in internal controls and procedures relating to the Services (as such deficiencies or weaknesses are characterized under the Standards),

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which deficiencies or weaknesses arise from Supplier’s failure to implement a Cure Plan properly or Supplier’s failure to perform any other obligations under the Agreement, Supplier shall promptly develop a plan to remedy such deficiencies or weaknesses and implement such plan upon Michaels’ approval as soon as reasonably practicable.

(b)In addition to Supplier’s obligations under Section 20.4(a), Supplier shall correct promptly any deficiencies or weaknesses in internal controls and procedures relating to the Services that are identified:  (i) by Michaels during the Term in connection with any internal control assessment, audit or similar review conducted or report prepared by Michaels or a Michaels Agent pursuant to Sarbanes-Oxley; or (ii) by Supplier or Supplier Agents (including and internal or external auditor of Supplier).  Without limiting the generality of the preceding sentence, if at any time Michaels determines that any matter identified in an audit conducted pursuant to this Article 20 would:

(i)be considered a significant deficiency or a material weakness in Michaels’ internal control structure and procedures for financial reporting (as such deficiency is characterized under the Standards);

(ii)require Michaels to disclose the risk of non-compliance to any regulatory body;

(iii)prevent Michaels management from evaluating and affirming to the effectiveness of its internal control structure and procedures for financial reporting pursuant to Sarbanes-Oxley; or

(iv)prevent Michaels’ registered public accounting firm from providing an affirmative attestation opinion with respect to Michaels’ evaluation described in Section 20.4(b)(iii),

then Supplier shall submit to Michaels a Cure Plan within 10 days after Michaels’ notice thereof, such that Michaels is able to complete the management evaluation and attestation required by Sarbanes-Oxley and Supplier shall implement such Cure Plan at its own cost and expense immediately after Michaels’ approval of such plan, or within another time period agreed by the Parties.  After Supplier has implemented the Cure Plan in accordance with this Section 20.4(a), Michaels may conduct additional Tests of the Services (including Tests at all Michaels Service Locations) to determine Michaels’ compliance with Sarbanes Oxley as such compliance relates to the Services, the costs of such Tests as it relates to verification of implementation of cure in accordance with Cure Plan shall be borne by Supplier. If such deficiency is not resolved immediately, or within another time period agreed by the Parties, without limiting Michaels’ other rights and remedies, Michaels may terminate this Agreement without payment of any Termination Fees.

20.5Record Retention.  Supplier shall retain records and supporting documentation:  (a) sufficient to satisfy the requirements set forth in this Article 20; (b) as necessary to document the Services and the Fees paid or payable by Michaels under this Agreement, including all third party invoices with respect to Pass-Through Expenses; (c) in accordance with Michaels’ retention policies and procedures as in effect from time to time; (d) as required by Law; and (e) in any event for at least 6 years after the End

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Date (unless a longer or shorter period is specified in Michaels’ retention policies and procedures).  At any time after one year from the completion of Termination Assistance Services, Supplier may at its cost and option deliver to Michaels any and all documents that are the subject of record retention requirement under this Agreement and upon such delivery, Supplier shall be relieved of any further obligations with respect to record retention.

20.6Facilities.  Supplier shall provide to Michaels and Michaels Agents, on Supplier’s premises (or, if the audit is being performed on a Supplier Agent, the Supplier Agent’s premises if necessary), space, office furnishings (including lockable cabinets), and utilities as Michaels or such Michaels Agents may reasonably require to perform the audits described in this Article 20.

20.7General Audit Procedures.

(a)Michaels shall not be given access to:  (i) the proprietary information of other Supplier customers; (ii) Supplier Service Locations that are not related to Michaels or the Services; or (iii) Supplier’s internal costs (except to the extent that such costs are claimed as a Pass-Through Expense by Supplier) or Supplier’s proprietary information unrelated to the Services, except as necessary to audit amounts that are invoiced to Michaels.  Except with respect to any security audit, Michaels shall provide reasonable advance notice to Supplier for any forthcoming audit.  All audit reports shall be treated as confidential information of Supplier and Michaels.

(b)In performing audits, the Auditors shall use commercially reasonable efforts to avoid unnecessary disruption of Supplier’s operations and unnecessary interference with Supplier’s ability to perform the Services in accordance with the Service Levels.  Where an Auditor desires to install any audit Software within Supplier’s environment, the installation and operation of such Software shall be subject to Supplier’s approval through its change management process and Michaels will be responsible for any damage to Software or Equipment or loss of data caused by the installation or operation of such Software.

(c)Following any audit, Michaels shall provide a copy of the audit report to Supplier and conduct (in the case of an internal audit), or request its external auditors or examiners to conduct, a conference with Supplier to review any issues identified in the audit that Michaels will request Supplier to remediate; provided that Michaels shall not be obligated to provide any information that in Michaels’ reasonable opinion relates to, or may relate to, a dispute between Supplier and Michaels.  Where required by Michaels, Supplier shall submit to Michaels a remediation plan setting out the actions required to be performed by Supplier to address any deficiencies, weaknesses, concerns or recommendations of any audit (“Remediation Plan”).  Upon approval of the Remediation Plan by Michaels, Supplier shall, at its own cost and expense perform the actions detailed in that Remediation Plan in accordance with that Remediation Plan and the dates set out therein.  After Supplier has implemented the Remediation Plan in accordance with this Section 20.4(a), Michaels may conduct additional Tests of the Services (including Tests at all Michaels Service Locations) the costs of such Tests shall be borne by Supplier ..

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(d)In performing audits, the Auditors and their internal and external auditors, inspectors, regulators or other representatives shall comply with Supplier’s standard, reasonable physical and information security procedures and shall cause external Auditors (other than government Auditors) to execute a confidentiality agreement substantially similar to the agreement set forth on Exhibit 11 (“Michaels Agent NDA”).  External Auditors designated by Michaels shall not be a Supplier Competitor unless otherwise agreed by Supplier; provided that if a Supplier Competitor is in Michaels’ reasonable judgment the only entity that can perform an audit effectively with respect to a portion of the Services (e.g., because such Supplier Competitor is the only party able to assess a technology platform competently), such Supplier Competitor may perform the audit so long as such Supplier Competitor executes the Michaels Agent NDA.

(e)Supplier shall not be obligated to disclose any information or material that is a confidential information of Supplier’s other customers or information the disclosure of which would be a breach of Supplier’s confidentiality obligation to Supplier’s other customers or third parties unrelated to the Services.  Any entity that serves as Michaels’ regular independent external auditor is conclusively presumed to be acceptable to Supplier as an independent external auditor for the purpose of this Section 20.7(e).

20.8Supplier Audits.  Within 10 days following receipt, unless prevented by any applicable Laws or regulations, Supplier shall make available to Michaels the findings of any review or audit conducted on Supplier, Supplier Affiliates or Supplier Agents (including internal and external auditors), to the extent such findings cover the Agreement or the Services, unless disclosure of such audit is not permitted .

21.CONFIDENTIALITY

21.1General Obligations.  All Confidential Information relating to or obtained from Michaels or Supplier shall be protected from unauthorized use and disclosure by the receiving Party to the same extent and in at least the same manner as such Party protects its own confidential information of a similar nature (and in no event with less than reasonable care), and neither Party shall use the Confidential Information of the other Party except as necessary to provide, receive or use the Services as applicable based on the purpose of disclosure.  Neither Michaels nor Supplier shall disclose, publish, release, transfer or otherwise make available Confidential Information of, or obtained from, the other in any form to, or for the use or benefit of, any person or entity without the disclosing Party’s consent.  Each Party shall, however, be permitted to disclose relevant aspects of the other Party’s Confidential Information to its officers, directors, agents, professional advisors, contractors (including the Benchmarker), subcontractors and employees and to the officers, directors, agents, professional advisors, contractors, subcontractors and employees of its affiliates (collectively, “Permitted Parties”), to the extent such disclosure is not restricted under any Assigned Agreements, any Managed Agreements, any Consents or any Laws or Governmental Approvals and only to the extent that such disclosure is reasonably necessary for the performance of its duties and obligations or the determination, preservation or exercise of its rights and remedies under this Agreement; provided that such Permitted Parties that are employees, officers, or directors of a Party are under a duty to maintain the confidentiality of such information that is no less restrictive than the obligations contained in this Section 21.1 and all other Permitted Parties have previously executed a written confidentiality agreement with respect to Confidential Information that imposes confidentiality obligations no less restrictive than those contained in this Section 21.1; and provided further that the receiving

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Party shall take all reasonable measures to ensure that Confidential Information of the disclosing Party is not disclosed or duplicated in contravention of the provisions of this Agreement by any of the receiving Party’s Permitted Parties The receiving Party shall be liable for any act by a Permitted Party to whom it has disclosed the disclosing Party’s Confidential Information which act constitutes a breach of the obligations under this Section 21.1.  The obligations in this Section 21.1 shall not restrict any disclosure as required by any Law (provided that the recipient shall give prompt notice to the disclosing Party of such requirement and cooperate, upon the disclosing Party’s request, in obtaining a protective order with respect to such information).

21.2Unauthorized Acts.  Without limiting either Party’s rights with respect to a breach of this Article 21, each Party shall:

(a)promptly notify the other Party of any unauthorized possession, use or knowledge, or attempt thereof, of the other Party’s Confidential Information by any person or entity that may become known to such Party;

(b)promptly furnish to the other Party full details of the unauthorized possession, use or knowledge, or attempt thereof, and assist the other Party in investigating or preventing the recurrence of any unauthorized possession, use or knowledge, or attempt thereof, of Confidential Information;

(c)cooperate with the other Party in any litigation and investigation against third parties deemed necessary by the other Party to protect its proprietary rights; and

(d)promptly use its best efforts to prevent a recurrence of any such unauthorized possession, use or knowledge, or attempt thereof, of Confidential Information.

Each Party shall bear the cost it incurs as a result of compliance with this Section 21.2.

21.3Injunctive Relief.  The Parties acknowledge and agree that monetary damages may be inadequate to compensate for a breach of the provisions contained in this Article 21 or other confidentiality provisions of this Agreement.  In the event of such breach, the injured Party may be entitled to seek injunctive relief and any and all other remedies available at law or in equity.  This Section 21.3 in no way limits the liability or damages that may be assessed against a Party in the event of a breach by the other Party of any of the provisions of this Article 21.

21.4Return of Confidential Information.  Except as necessary for Michaels to receive the benefit of the Termination Assistance Services or the licenses granted under Article 27 or Article 14, the receiving Party shall return or destroy (at the disclosing party’s option) Confidential Information of the disclosing party in the receiving party’s (or its agents’) possession:  (a) upon the request of the disclosing party with respect to all or the requested portion of such Confidential Information (provided that such request would not hinder the delivery or receipt of the Services or a Party’s other obligations under this Agreement); and (b) on the End Date with respect to all such Confidential Information.

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22.REPRESENTATIONS AND WARRANTIES

22.1By Michaels.  Michaels represents and warrants that:

(a)Michaels is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Delaware;

(b)Michaels has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the execution, delivery and performance of this Agreement by Michaels has been duly authorized by Michaels;

(c)Michaels is duly licensed, authorized or qualified to do business and is in good standing in every jurisdiction in which a license, authorization or qualification is required for the ownership or leasing of its assets or the transaction of business of the character transacted by it, except where the failure to be so licensed, authorized or qualified would not have a material adverse effect on Michaels’ ability to fulfill its obligations under this Agreement; and

(d)Michaels is in compliance with all Laws applicable to Michaels’ obligations under this Agreement and has obtained or will obtain all applicable material permits and licenses required of Michaels in connection with its obligations under this Agreement.

22.2By Supplier.  Supplier represents and warrants that:

(a)Supplier is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of New York;

(b)Supplier has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the execution, delivery and performance of this Agreement by Supplier has been duly authorized by Supplier and shall not conflict with, result in a breach of, or constitute a default under any other agreement to which Supplier is a party or by which Supplier is bound;

(c)Supplier is duly licensed, authorized or qualified to do business and is in good standing in every jurisdiction in which a license, authorization or qualification is required for the ownership or leasing of its assets or the transaction of business of the character transacted by it, except where the failure to be so licensed, authorized or qualified would not have a material adverse effect on Supplier’s ability to fulfill its obligations under this Agreement;

(d)Supplier is in compliance with all Laws applicable to Supplier’s obligations under this Agreement and has obtained all applicable material permits and licenses required of Supplier in connection with its obligations under this Agreement;

(e)there is no outstanding litigation, arbitrated matter or other dispute to which Supplier is a party which, if decided unfavorably to Supplier, would reasonably be expected to have a material adverse effect on Supplier’s ability to fulfill its obligations under this Agreement; and

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(f)Supplier and Supplier Agents have full power and authority to grant Michaels the rights granted herein without the consent of any other party and Supplier has not created or permitted any restrictions, settlements, judgments or adverse claims on any materials developed or furnished by Supplier and Supplier Agents to Michaels.

22.3DISCLAIMER.  EXCEPT AS SPECIFIED IN SECTION 22.1 AND SECTION 22.2, NEITHER Michaels NOR SUPPLIER MAKES ANY OTHER WARRANTIES WITH RESPECT TO THE SERVICES OR THE SYSTEMS OR EQUIPMENT AND EACH EXPLICITLY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

23.ADDITIONAL COVENANTS.

23.1By Michaels.  Michaels covenants and agrees with Supplier that during the Term and the Termination Assistance Period Michaels shall comply with all Laws applicable to Michaels, and, except as otherwise provided in this Agreement, shall obtain all Michaels Government Approvals, Consent and other applicable material permits and licenses required of Michaels in connection with its obligations under this Agreement.

23.2By Supplier.  Supplier covenants and agrees with Michaels that during the Term and the Termination Assistance Period:

(a)Supplier shall provide the Services with promptness, diligence and in a professional manner, in accordance with the practices and professional standards used in well-managed operations performing services similar to the Services, and Supplier shall use adequate numbers of qualified individuals with suitable training, education, experience and skill to perform the Services;

(b)Supplier shall comply with all Laws applicable to Supplier in the performance of this Agreement and shall obtain all applicable Supplier Consents, Supplier Government Approvals and permits and licenses required of Supplier in connection with its obligations hereunder;

(c)the Services, Supplier Software, Supplier Equipment, Commissioned Materials, Work Product and any other resources or items used by Supplier or furnished to Michaels by Supplier or Supplier Agents in providing the Services shall not infringe upon the proprietary rights of any third party (except to the extent such claim is based on:  (i) a modification to the Services, Supplier Software, Supplier Equipment, Commissioned Materials, Work Product: (A) by Michaels or Michaels Agents (other than Supplier); or (B) that was not made by or at the written direction of the Supplier; (ii) compliance by Supplier with written specifications provided by Michaels; (iii) Michaels’ combination of the Services, Supplier Software, Supplier Equipment, Commissioned Materials, Work Product with items not provided or recommended by Supplier; (iv) Michaels’ use of the Services, Supplier Software, Supplier Equipment, Commissioned Materials, Work Product other than in a manner that is permitted by this Agreement;(v) infringement arising from Michaels Software or other material provided by Michaels for access and use of Supplier in connection with the Service; provided, that the exclusions described in clauses (i)(B) and (ii) will not apply in the event that Supplier

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knew, or ought to have known, that such materials infringed upon the proprietary or other rights of a third party);

(d)           Supplier shall promptly notify Michaels if Supplier learns of any claim, pending or threatened, or any fact upon which a claim could be made, that asserts that the Services, Supplier Software, Supplier Equipment, Commissioned Materials, Work Product and any other resources or items used by Supplier or furnished to Michaels by Supplier or Supplier Agents in providing the Services, or Michaels’ receipt and use of the foregoing as contemplated under this Agreement may infringe upon the proprietary rights of any third party;

(e)           without limiting Supplier’s obligations under any applicable Statements of Work, Supplier shall take all commercially reasonable best efforts to prevent any viruses, trojan horses, worms, spyware, back doors, email bombs, malicious code or similar items (collectively, “Malware”) to be coded or introduced into the Systems by Supplier or Supplier Agents, and shall use all reasonable efforts to prevent Malware from being introduced into the System by any third parties; provided that in the event that Malware is found to have been introduced into the Systems, Supplier shall use all commercially reasonable best efforts to mitigate the effects of the Malware and, if the Malware causes a loss of operational efficiency or loss of data, mitigate and make all commercially reasonable best efforts to restore such lost data;

(f)            Supplier shall take all commercially reasonable best efforts to prevent any Software or Equipment that would have the effect of disabling or otherwise shutting down all or any portion of the Services is coded or introduced into the Systems.  With respect to any disabling code that may be part of the Software, Supplier shall not invoke such disabling code at any time (whether during or after the Term) for any reason.  If at any time the licensor of any Supplier Third Party Software shall invoke or threaten to invoke any disabling code in Supplier Third Party Software licensed to Supplier which could adversely affect the Services, Supplier shall use its best efforts to preclude such action on the part of such licensor;

(g)           neither Supplier nor any Supplier Agents shall make any unauthorized representations on Michaels’ behalf or about Michaels, nor commit or bind Michaels other than as specifically authorized;

(h)           Supplier or Supplier Agents shall not, without the prior approval of Michaels (such approval to include where approved as part of an applicable Statement of Work or Project or where such Software is provided to Supplier by Michaels) include in any Commissioned Materials or Michaels Derivative Works any software that is subject to any “copyleft” or other obligation or condition (including any obligation or condition under any “open source” license such as the GNU Public License, Lesser GNU Public License, or Mozilla Public License) that:  (i) requires or conditions the use or distribution of such software on the disclosure, licensing, or distribution of any source code for any portion of such software; or (ii) could otherwise impose any limitation, restriction, or condition on the right or ability of Michaels to use or distribute such software;

(i)            any Commissioned Materials and other deliverables provided by Supplier pursuant to this Agreement shall:  (i) when delivered and for an agreed warranty period of three months be free from defects in materials, design, and workmanship;

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(ii) when delivered and for an agreed warranty period of three months, perform in conformance with any applicable documentation, manuals, specifications or requirements; and (iii) be free and clear of any liens, claims, charges, debts or other encumbrances created or permitted by Supplier.  If Michaels notifies any errors or non-conformities during the testing period or applicable warranty period, supplier shall as part of the Services, correct such error or non-conformity, provided that Michaels shall compensate Supplier for any additional efforts required by Supplier resulting directly from any modification or misuse of the Commissioned Material or deliverable by Michaels;

(j)            With respect to a Commissioned Material or deliverable agreed as part of New Services where the pricing is on a fixed fee basis, unless otherwise agreed by the Parties, with respect to any such Commissioned Materials:  (i) if there is any defect or nonconformity during the applicable warranty period, upon notice from Michaels, Supplier shall promptly, at its sole cost and expense, correct or replace any such defect or nonconformity; and (ii) if Supplier fails to do so within 15 days from receipt of notice (or other time period agreed by the Parties), Michaels may at its option either obtain from Supplier any amounts reasonably expended to correct or replace such defect or nonconformity, or terminate the applicable New Service Proposal and obtain a refund of amounts paid for such Commissioned Materials, provided that the provisions of this Section 23.2(j) shall not apply and Michaels shall compensate Supplier for any additional efforts required by Supplier resulting directly from any modification or misuse of the Commissioned Material by Michaels; and

(k)           all facilities at Supplier Service Locations will be maintained and operated in accordance with all applicable building codes and ordinances.

24.DISPUTE RESOLUTION.

24.1Resolution Procedures.  Except as otherwise provided below, the Parties shall initially attempt to resolve any dispute arising under or related to this Agreement (a “Dispute”) in accordance with the procedures set forth in this Section 24.1.

(a)           Account Managers.  Within 5 business days after either Party furnishes to the other notice of a Dispute, the Michaels Account Manager and the Supplier Account Manager shall consider the Dispute in person or by telephone and shall attempt in good faith to resolve the Dispute for a period of 5 business days.  If the Dispute is not resolved, as agreed by the Parties, within such 5 business day period, the Dispute shall be escalated in accordance with Section 24.1(b).

(b)           Vice Presidents.  If a Dispute is not resolved in accordance with Section 24.1(a), a Vice President level executive of each of Michaels and Supplier shall meet within 5 business days after a Party’s request to discuss the Dispute in person at a Michaels Service Location designated by Michaels (or by telephone if agreed by Michaels) and shall attempt in good faith to resolve the Dispute for a period of 5 business days.

(c)           Supplier President.  If a Dispute is not resolved in accordance with Section 24.1(b), Supplier shall make available within 5 business days after Michaels’ request Supplier’s President or Supplier’s ISU Head to discuss the Dispute in person

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at a Michaels Service Location designated by Michaels (or by telephone if agreed by Michaels) and the Parties shall attempt in good faith to resolve the Dispute for a period of 5 business days.  Unless the Parties otherwise agree, either Party may pursue its rights and remedies under this Agreement after the expiration of such 5 business day period.

24.2Exclusions.  Notwithstanding the foregoing, no Dispute relating to Section 15.3, Article 21, or Article 27 shall be subject to Section 24.1.  In addition, nothing in this Agreement shall limit either Party’s right to seek immediate injunctive or other equitable relief whenever the facts or circumstances would permit a Party to seek such relief in a court of competent jurisdiction.

24.3Continuity of Services.  Supplier acknowledges that the timely and complete performance of its obligations pursuant to this Agreement is critical to the business and operations of Michaels.  Accordingly, in the event of a Dispute between Michaels and Supplier, Supplier and Michaels shall continue to perform their respective obligations under this Agreement in good faith during the resolution of such Dispute unless and until this Agreement is terminated in accordance with the provisions hereof.  This provision shall not operate or be construed as extending the Term or prohibiting or delaying a Party’s ability to exercise an otherwise valid right to terminate under this Agreement.

25.TERMINATION.

25.1Termination for Convenience.  Michaels may terminate this Agreement, in whole or in part, for convenience by giving Supplier notice of the termination at least 120 days prior to the termination date specified in the notice.

25.2Termination for Change in Control of Michaels.  In the event of a Change in Control of Michaels, Michaels may terminate this Agreement by giving Supplier notice of the termination at least 120 days prior to the termination date specified in the notice.

25.3Termination for Change in Control of Supplier.  In the event of a Change in Control of Supplier, Supplier shall notify Michaels of such Change in Control and Michaels may terminate this Agreement by giving Supplier notice of the termination at least 60 days prior to the termination date specified in the notice provided Michaels exercises its termination rights within 180 days after the receipt of notice of Change in Control of Supplier from Supplier.

25.4Termination for Cause.

(a)           If Supplier fails to perform any of its obligations under this Agreement in any material respect or repeatedly fails to perform any of its obligations under this Agreement and the cumulative effect thereof could reasonably be considered material, and does not cure such breach within 30 days after receipt (the “Supplier Default Cure Period”) of a notice of breach from Michaels (the “Supplier Default Notice”), then Michaels may, without limiting Michaels’ other rights or remedies under this Agreement, by giving notice to Supplier, terminate this Agreement, in whole or in part, as of the termination date specified in the notice and without payment of any Termination Fee.

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(b)           If Michaels fails to perform any of its obligations under this Agreement in any material respect including failure to make payment of undisputed Fees and Charges due to Supplier and does not cure such default within 30 days after receipt (the “Michaels Default Cure Period”) of a notice of breach or default from Supplier (the “Michaels Default Notice”), then Supplier may, by giving notice to Michaels, terminate this Agreement in whole or part, as of the termination date specified in the notice of termination.  The foregoing is the only circumstance in which Supplier may terminate this Agreement.

25.5Termination in Case of Insolvency.  Michaels or Supplier may, by giving notice thereof to the other Party, terminate this Agreement as of the date specified in such termination notice, if:

(a)           The other Party:  (i) shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (ii) shall:  (A) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its property or assets; (B) make a general assignment for the benefit of its creditors; (C) commence a voluntary case under the U.S. Bankruptcy Code; (D) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts; (E) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code; or (F) take any corporate, partnership or other action for the purpose of effecting any of the foregoing; or

(b)           a proceeding or case shall be commenced, without the application or consent of Supplier, in any court of competent jurisdiction seeking:  (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts; (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of Supplier or of all or any substantial part of its property or assets; or (iii) similar relief with respect to Supplier under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or

(c)           an order for relief against the other Party shall be entered in an involuntary case under the Bankruptcy Code.

25.6Service Level Failures.  Michaels may, without limiting Michaels’ other rights or remedies under this Agreement, by giving notice to Supplier, terminate the applicable Statement of Work or the Agreement (if in connection with an IT or IS Statement of Work), in whole or in part, as of the termination date specified in the notice and without payment of any Termination Fee, if:  (a) there are 3 consecutive Critical Service Level Defaults with respect to the same Critical Service Level ; or (b) there are 6 Critical Service Level Defaults with respect to any Critical Service Levels within any rolling 6-month period, or (c) 75% percentage points or more of the Pool Percentage Available for Allocation are accrued from Service Level Credits in any rolling 12 month period.]

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25.7        Effect of Termination.  Upon termination of this Agreement or a portion thereof for any reason, Michaels shall pay in accordance with Section 18, any Base Charges, Charges and Pass-Through Expenses that are accrued through to the End Date with respect to the terminated Services.  The effect of termination on commitments pursuant to Section 18.10 are set forth in Exhibit 4.

26.TERMINATION FEES

26.1        Termination Fees.  Exhibit 4 sets forth the Termination Fees that may be payable to Supplier if this Agreement is terminated pursuant to Section 25.1 or Section 25.2.  Any Termination Fees payable in accordance with Exhibit 4 shall be due and payable on the End Date.

26.2        No Other Termination Fees.  Except for the Termination Fees specified in Exhibit 4, and the fees provided in Section 25.7, no termination fee or other charge shall be payable by Michaels in connection with the termination of this Agreement.  In addition, Supplier shall not charge Michaels more than once for any amount included in any fee owed pursuant to Exhibit 4 that relates to any resource for which Supplier has already received or shall receive payment.

27.TERMINATION ASSISTANCE AND EXIT RIGHTS

27.1        Termination Assistance.  Upon Michaels’ request at any time during the Termination Assistance Period, Supplier shall provide, and shall cause Supplier Agents to provide, all necessary assistance to allow the Services to continue without interruption or adverse effect and to facilitate the orderly transfer of the Services to Michaels or its designee (the “Successor”) during the Termination Assistance Period, including the Termination Assistance Services, regardless of the reason for the termination, expiration or cessation of Services.  The quality and level of performance of the Services during the Termination Assistance Period shall be consistent with the general quality and level of performance of the Services during the Term taking into account the dependencies and activities of transition.  If this Agreement or any portion thereof is terminated by Supplier pursuant to Section 25.4(b), prior to requiring Supplier to perform any Termination Assistance Services, Michaels shall pay all undisputed amounts then due and in such cases the fees for Termination Assistance Services shall be paid in advance during each month that Michaels requests Termination Assistance Services (subject to month end adjustments).

27.2        Payment.  The Base Charges and the Charges and applicable Pass-Through Expenses include all Termination Assistance Services provided by Supplier during the Term, and Supplier shall not charge Michaels any variable or other fees for such services unless mutually agreed by the Parties through the Change Management Process for an agreed Statement of Work.  For Termination Assistance Services provided by Supplier after the last day of the Term, Supplier shall provide such services:  (a) in the case of Termination Assistance Services that are Services, at the rates in effect for such Services immediately prior to termination or expiration of the Agreement and (b) for Termination Assistance Services for which no rates exist immediately prior to such termination or expiration, at Supplier’s standard commercial rates then in effect, subject to discounts consistent with the discounts applied under this Agreement or Supplier’s most favorable rates for similarly situated customers for all other services, whichever is

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lower.  Termination Assistance Services provided after the last day of the Term shall be subject to the provisions of the Agreement as such provisions would have been applicable to the Services prior to the effective date of termination or expiration.   Notwithstanding the foregoing, if Michaels terminates this Agreement pursuant to Section 25.4(a), Supplier shall provide all Termination Assistance Services (other than the Services) to Michaels without charge.  After the End Date, Supplier shall:  (x) answer questions from Successors regarding the Services at the applicable time and materials rates for such services set forth in the Agreement; and (y) deliver to Michaels or Successor any Michaels-Owned Materials and any other remaining Michaels-owned reports and documentation still in Supplier’s possession; and (z) notify Michaels of all records, supporting documentation and Confidential Information of Michaels retained by Supplier pursuant to Section 20.5, or to which Section 21.4 applies and return all such records, supporting documentation and Confidential Information to Michaels upon Michaels’ request.

27.3Exit Rights.

(a)           Provision of Michaels Materials.  At Michaels’ request at any time during the Termination Assistance Period, Supplier shall, and shall cause Supplier Agents to, deliver to Michaels, at no cost to Michaels, a current copy of the Michaels-Owned Materials not previously delivered to Michaels and any other materials in Supplier’s possession to which Michaels obtains a license pursuant to this Agreement or otherwise has the right to possess a copy of, in the form used to provide the Services as of the time of Michaels’ request, in object code form in the case of any of the foregoing that are Software).  If such request is made after the last day of the Term, Supplier shall provide all such materials used to provide the Services as of the last day of the Term as well as all such materials developed or used to provide the Services during the Termination Assistance Period.  The rights granted to Supplier and Supplier Agents in Article 14 shall immediately terminate on the End Date, and Supplier shall, and shall cause Supplier Agents to, destroy or erase all copies of the Michaels-Owned Materials then in Supplier’s or Supplier Agents’ possession.  Supplier shall, upon Michaels’ request, certify to Michaels that all such copies have been destroyed or erased.

(b)           Supplier Proprietary Software.   Upon Michaels’ request at any time during the Termination Assistance Period, Supplier shall offer to grant to Michaels or Successor, subject to parties entering into Supplier’s standard software license agreement used by Supplier, any commercially offered Supplier Proprietary Software and any non-commercially offered Supplier Proprietary Software for maintenance purposes only at Supplier’s then current price for similar license and/or maintenance , as applicable, offered on a Most Favored Customer pricing,, any or all Supplier Proprietary Software used to provide the Services as of the time of Michaels’ request, or, if such request is made after the last day of the Term, used to provide the Services as of the last day of the Term, in each case as requested by Michaels.  Upon Michaels’ request, Supplier shall provide to Michaels or Successor support and maintenance services for any Supplier Proprietary Software licensed under this Section 27.3(b) on terms, conditions, and prices agreed upon by Supplier and Michaels or Successor, as applicable, which shall in no event be less favorable to Michaels or Successor than Supplier’s most favorable terms, conditions, and prices for such services provided to similar customers.]

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(c)Supplier Third Party Software.  Upon Michaels’ request at any time during the Termination Assistance Period, with respect to Supplier Third Party Software used to provide the Services as of the time of Michaels’ request, or, if such request is made after the last day of the Term, then used to provide the Services as of the last day of the Term, Supplier shall, and shall cause Supplier Agents to:

(i)            assign to Michaels or Successor, at Michaels’ option, the license agreements for which Supplier obtained assignment rights pursuant to Section 14.3 applicable to such Software, and

(ii)           use commercially reasonable best efforts to obtain for Michaels on reasonable terms, licenses for all applicable Supplier Third Party Software not subject to assignment under Section 27.3(c)(i), such that:  (A) Michaels may Use, and sublicense to third parties the right to Use, such Software in connection with Michaels’ use, provision (to itself) or receipt from Successor of services similar to the Services; or (B) Successor may Use, and sublicense to third parties the right to Use, such Software in connection with the provision of services similar to the Services to Michaels

Upon Michaels’ request, Supplier shall reasonably assist Michaels or Successor in obtaining directly from third parties any Software or substitute therefor for which Michaels or Successor does not assume the applicable third party agreements.

(d)Leases, Service Agreements, and Equipment.  Upon Michaels’ request at any time during the Termination Assistance Period, Supplier shall, and shall cause Supplier Agents to:  (i) assign to Michaels or its designee leases for the Equipment used primarily to provide the Services as of the last day of the Term; (ii) assign to Michaels any contracts for services provided by third parties dedicated to the Services; and (iii) sell to Michaels, at the lesser of Supplier’s then-current book value or fair market value, some or all of the Equipment owned by Supplier or Supplier Agents and used primarily to provide the Services (and all user and other documentation in its possession that relates to such Equipment) free and clear of all liens, security interests or other encumbrances.  Supplier shall grant to Michaels a warranty of title with respect to all such Equipment.  Supplier shall also represent and warrant that any leases associated with any such Equipment are not in default and that all payments thereunder have been made through the date of transfer to Michaels.  Upon Michaels’ request, Supplier shall, and shall cause Supplier Agents to, reasonably assist Michaels or Successor in obtaining directly from third parties any third party services.

(e)Network Services.  To the extent that Supplier has incorporated Michaels’ network into any Supplier network, Supplier shall, and shall cause Supplier Agents to, continue to provide up to 2 years of continued network services after the End Date at the then current rates in the Agreement for such service as requested by Michaels, in order to permit Michaels or Successor to establish its own network in an orderly manner.

28.INDEMNITIES.

28.1Indemnity by Michaels.  Michaels shall indemnify Supplier, its Affiliates, and their respective directors, officers and employees from, and defend and hold Supplier harmless from and against, any Losses suffered, incurred or sustained by Supplier

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or to which Supplier becomes subject, resulting from, arising out of or relating to any third party claim:

(a)           that the Michaels Software, Systems or other material provided by Michaels infringes upon the proprietary rights of any third party except to the extent caused by:  (i) a modification to the Michaels Software:  (A) by Supplier or Supplier Agents; or (B) that was not made by or at the written direction of Michaels or as expressly authorized under the applicable Statement of Work; (ii)  compliance by Michaels with written specifications provided by Supplier]; (iii) Supplier’s combination of the Michaels Software with items not provided or recommended by Michaels; or (iv) Supplier’s use of the Michaels Software other than in a manner that is permitted by this Agreement;

(b)           relating to the material inaccuracy, untruthfulness or breach of any representation or warranty made by Michaels in Article 22;

(c)           relating to:  (i) a violation of Law for the protection of persons or members of a protected class or category of persons by Michaels or Michaels Agents, including unlawful discrimination; (ii) accrued employee benefits not expressly assumed by Supplier; (iii) any representations, oral or written, made by Michaels or Michaels Agents to the Affected Employees or Affected Contractors; and (iv) any other aspect of the Affected Employees’ or Affected Contractors’ (including Transitioned Employees) employment or other relationship with Michaels or termination thereof by Michaels (including claims for breach of an express or implied contract of employment);

(d)           relating to Michaels’ or Michaels Agents’ failure to obtain, maintain or comply with the Michaels Governmental Approvals or failure to obtain or maintain the Consents;

(e)           relating to any amounts, including taxes, interest and penalties, assessed against Supplier which are the obligation of Michaels pursuant to Article 19;

(f)relating to personal injury (including death) or property loss or damage resulting from Michaels’ or Michael’s Agent’s acts or omissions;

(g)           relating to a breach of Article 21;

(h)           relating to a breach of any of the covenants in Section 23.1;

(i)            relating to any claim under an Assigned Agreement that relates to the period prior to the Assignment Date, except to the extent that the Parties agree otherwise;

(j)            arising out of Supplier’s compliance with any written instructions or written guidelines provided to Supplier by Michaels regarding the performance or completion of any business process (as part of the business process services); except to the extent that Supplier knew, or ought to have known, that such instructions infringed upon the proprietary or other rights of a third party; and

(k)           relating to a breach of a Managed Agreement by Michaels.

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Michaels shall indemnify Supplier from any costs and expenses incurred in connection with the enforcement of this Section 28.1.

28.2Indemnity by Supplier.  Supplier shall indemnify Michaels, its Affiliates and their respective directors, officers and employees from, and defend and hold Michaels harmless from and against, any Losses suffered, incurred or sustained by Michaels or to which Michaels becomes subject, resulting from, arising out of or relating to any third party claim:

(a)           that the Services, Supplier Software, Supplier Equipment, Commissioned Materials, Work Product and any other resources or items used by Supplier or furnished to Michaels by Supplier or Supplier Agents in the provision of the Services (collectively, “Materials”) infringe upon the proprietary or other rights of any third party (except to the extent such claim is based on:  (i) a modification to the Materials: (A) by Michaels or Michaels Agents (other than Supplier); or (B) that was not made by or at the written direction of the Supplier; (ii) compliance by Supplier with written specifications provided by Michaels; (iii) Michaels’ combination of the Materials with items not provided or recommended by Supplier; (iv) Michaels’ use of the Materials other than in a manner that is permitted by this Agreement; or (v) infringement arising from any Michaels Software or Michaels Owned Material:  provided, that the exclusions described in clauses (i)(B) and (ii) will not apply in the event that Supplier knew, or ought to have known, that such materials infringed upon the proprietary or other rights of a third party);

(b)           relating to the Services or this Agreement brought by a Supplier Agent or personnel thereof, including any disputes between Supplier and Supplier Agents;

(c)           by a Supplier customer to whom Supplier provides services from a Supplier Service Location, which claim relates to any Michaels Data at such location or Supplier’s provision of Services to Michaels from such location;

(d)           relating to the inaccuracy, untruthfulness or breach of any representation or warranty made by Supplier in Article 22;

(e)           relating to Supplier’s or Supplier Agents’ failure to obtain, maintain or comply with the Supplier Consents and Supplier Governmental Approvals or to comply with the Consents;

(f)            relating to:  (i) a violation of Law for the protection of persons or members of a protected class or category of persons by Supplier or Supplier Agents, including unlawful discrimination; (ii) accrued employee benefits not expressly retained by Michaels; (iii) any representations, oral or written, made by Supplier or Supplier Agents to Michaels employees or contractors, including the Affected Employees and Affected Contractors; and (iv) any other aspect of the Affected Employees’ or Affected Contractors (including Transitioned Employees) employment or other relationship with Supplier or termination thereof by Supplier;

(g)           relating to any amounts, including taxes, interest and penalties, assessed against Michaels that are the obligation of Supplier pursuant to Article 19;

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(h)           relating to personal injury (including death) or property loss or damage resulting from Supplier’s or Supplier Agents’ acts or omissions;

(i)            relating to a breach of Supplier’s obligations with respect to Michaels Data (including Article 15);

(j)            relating to any fine or other penalty imposed by Law arising as a result of a breach of any of Supplier’s obligations under this Agreement;

(k)           relating to a breach of Article 21;

(l)            relating to a breach of any of the covenants in Sections 23.2(b) and 23.2(g);

(m)          relating to a breach of Supplier of its obligation with respect to Managed Agreements ; or

(n)           relating to Supplier’s failure to comply with the terms of an Assigned Agreement as they relate to the period after the date of assignment.

Supplier shall indemnify Michaels from any costs and expenses incurred in connection with the enforcement of this Section 28.2.

28.3        Obligation to Replace.  In the event that any use of the Services, any technology used to provide the Services, or any item provided to Michaels by Supplier or Supplier Agents, in the provision of the Services is, or in Michaels’ opinion is likely to be found to infringe upon or misappropriate the Intellectual Property Rights of any third party or enjoined, Supplier shall, with Michaels’ consent and at Supplier’s own cost and expense and in such a manner as to minimize disturbance to Michaels’ business activities:

(a)           obtain for Michaels the right to continue using the Services, any technology used to provide the Services, or any item provided to Michaels by Supplier or Supplier Agents; or

(b)           modify or replace the Services, any technology used to provide the Services, or any item provided to Michaels by Supplier or Supplier Agents, so that it is no longer infringing (provided that such modification or replacement does not degrade the functionality, performance or quality of the affected component of the Services).

In addition to the remedies set forth above, Supplier shall remain responsible for providing Services in accordance with this Agreement.  If Supplier is unable, after using all reasonable efforts, to promptly implement the measures described in Sections 28.3(a) or 28.3(b) Michaels may, upon notice to Supplier:  (i) obtain from a third party or itself provide those Services which Supplier failed to provide, and adjust the Fees to account for the corresponding reduction in Services after good faith discussions with Supplier regarding such adjustment; or (ii) terminate this Agreement, in whole or in part, without payment of any Termination Fee, as of the date specified by Michaels in its notice of termination.

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28.4        Indemnification Procedures.  If any third party claim is commenced against a person or entity entitled to indemnification under Section 28.1 or Section 28.2 (the “Indemnified Party”), notice thereof shall be given to the Party that is obligated to provide indemnification (the “Indemnifying Party”) as promptly as practicable.  If, after such notice, the Indemnifying Party acknowledges that this Agreement applies with respect to such claim, then the Indemnifying Party shall be entitled, if it so elects, in a notice promptly delivered to the Indemnified Party, but in no event less than 10 days prior to the date on which a response to such claim is due, to immediately take control of the defense and investigation of such claim and to employ and engage attorneys reasonably acceptable to the Indemnified Party to handle and defend the same, at the Indemnifying Party’s sole cost and expense.  The Indemnified Party shall cooperate, at the cost of the Indemnifying Party, in all reasonable respects with the Indemnifying Party and its attorneys in the investigation, trial and defense of such claim and any appeal arising therefrom; provided, however, that the Indemnified Party may, at its own cost and expense, participate, through its attorneys or otherwise, in such investigation, trial and defense of such claim and any appeal arising therefrom.  No settlement of a claim that involves a remedy other than the payment of money by the Indemnifying Party shall be entered into without the consent of the Indemnified Party.  After notice by the Indemnifying Party to the Indemnified Party of its election to assume full control of the defense of any such claim, the Indemnifying Party shall not be liable to the Indemnified Party for any legal expenses incurred thereafter by such Indemnified Party in connection with the defense of that claim.  If the Indemnifying Party does not assume full control over the defense of a claim subject to such defense as provided in this Section 28.4, the Indemnifying Party may participate in such defense, at its sole cost and expense, and the Indemnified Party shall have the right to defend the claim in such manner as it may deem appropriate, reserving its right to claim the cost and expense of the Indemnifying Party from the Indemnifying Party.

29.          DAMAGES.

29.1Consequential Damages.  Neither Michaels nor Supplier shall be liable for any indirect, incidental, special, or consequential damages (including lost profit or loss of data), arising out of or relating to its performance or failure to perform under this Agreement, even if advised of the possibility of such damages.

29.2Direct Damages.

(a)           Definition of Direct Damages.  Each Party shall be liable to the other Party for any direct damages arising out of or relating to such Party’s performance or failure to perform under this Agreement.  The following shall be deemed to be direct damages of a Party:  (i) costs of reconstructing or reloading data; (ii) costs of implementing and performing work-arounds regarding a service failure; (iii) costs of replacing lost, stolen or damaged goods or materials; (iv) costs to procure replacement services from an alternate source as a result of a failure to perform, to the extent in excess of the applicable Fees; (v) overtime, straight time and related expenses and allocated overhead (including travel, lodging, wages) as a result of a failure to perform; (vi) payments or penalties imposed by a governmental or regulatory body as a result of a failure to comply; and (vii) in the case of Michaels, costs incurred by Michaels in transitioning the Services to another supplier or to Michaels’ internal staff in connection with Michaels’ termination of this Agreement in whole or in part in accordance with Section 25.4(a).

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(b)           Cap on Direct Damages.  Notwithstanding Section 29.2(a), the aggregate and total liability of each of Michaels and Supplier under this Agreement, whether based on an action or claim in contract, equity, negligence, tort or otherwise, for any event, act or omission shall not exceed an amount equal to the sum of the aggregate of:  (i) Fees paid for the 15 consecutive month-period immediately preceding the date of the first occurrence of the applicable event, act, or omission giving rise to such damages (or if less than 15 months have elapsed since the Effective Date, then 15 times the average monthly Fees paid during the elapsed time since the Effective Date); and (ii) the Service Level Credits incurred to date by Supplier on the date such damages are awarded.

29.3Exclusions.  The limitations or exculpations of liability set forth in Section 29.1 and Section 29.2 shall not apply to:  (a) the failure of:  (i) Michaels to make payments of undisputed Fees; or (ii) Supplier to issue credits (including Reduced Resource Credits and Service Level Credits) or otherwise make payments due under this Agreement; (b) a Party’s indemnification obligations, as set forth in Article 28; (c) breaches of Articles 14 and 21, and Sections 4.5 and 4.6; (d) Supplier obligations with respect to Michaels Data (including Sections 15.4 and 15.5); (e) any amounts, including taxes, interest and penalties, assessed against a Party that are the obligation of the other Party pursuant to Article 19; (f) liability resulting from the fraud, – gross negligence intentional or willful misconduct of a Party;  or (g) fines, sanctions, damages, judgments or other penalties imposed on a Party by a Governmental Authority as a result of a breach of such party’s obligations under this Agreement .

Further, the Cap on Direct Damages set forth in Section 29.2(b) shall not apply for (a) liability of either Party for wrongful termination of this Agreement or a Statement of Work; or (b) Supplier’s abandonment of its obligation to provide the Services or to perform any other work or refusal to provide the Services in breach of this Agreement.

30.INSURANCE.

30.1Documentation.  Supplier shall provide to Michaels within 10 business days after the Effective Date evidence of all insurance required hereunder, and thereafter at any time any insurance policy covered in this Article 30 is renewed, or upon request by Michaels, during the Term and the Termination Assistance Period (except with respect to “claims made” policies for which Supplier shall provide evidence of insurance for 3 years after the End Date).  The insurance companies providing such insurance must have an A.M. Best rating of A-IX or better and be licensed or authorized to conduct business in all states in which Michaels does business.  Michaels shall have the right to require Supplier to obtain the insurance required under this Article 30 from another insurance carrier in the event Michaels determines that Supplier’s then current insurance carrier does not have an A.M. Best rating of A-IX or better or is not licensed or authorized to conduct business in all states in which Michaels does business.  All policies and certificates of insurance shall be written as primary policies with respect to Services performed and products supplied by Supplier and Supplier Agents and not written as policies contributing to, or to be used in excess of the Michaels insurance policies or any self-insurance program in which Michaels may participate with respect to such Services and products, unless due to the gross negligence or willful misconduct of Michaels.  The provisions of this Article 30 shall in no way limit the liability of Supplier.  The obligations under this Article 30 are mandatory; failure of Michaels to request certificates of insurance or insurance policies shall not constitute a waiver of

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Supplier’s obligations and requirements to maintain the minimal coverages specified.  Supplier shall maintain, in its files, evidence of all subcontractors’ insurance coverage.

30.2        Types and Amounts.  During the Term and the Termination Assistance Period, and at its own cost and expense, Supplier shall, and shall cause all Supplier Agents to, obtain and maintain the following insurance coverage:

(a)           Commercial General liability insurance with a combined single annual aggregate limit of not less than $5,000,000 (“CGL”).

(b)           Errors and Omission insurance, including unauthorized use of or unauthorized access to Supplier’s computer systems that results in a breach of privacy, in an amount not less than $10,000,000 per claim and not less than $10,000,000 in the aggregate.

(c)           Workers’ compensation insurance and other insurance as required by statute in the state in which the work shall be performed.  Coverage shall include Employers Liability with a limit not less than $1,000,000 for each occurrence (“WCEL”).

(d)           Automobile Liability insurance covering owned and unowned vehicles with a combined single limit of not less than $1,000,000 for each occurrence (“BAL”).

(e)           Excess risk property insurance covering all risk of physical loss or damage, including as a result of flood or earthquake, for the replacement value of any Michaels-owned property at Supplier’s premises.

(f)            All risk property insurance covering all risk of physical loss or damage, including as a result of flood or earthquake, for the replacement value of any Michaels-owned property and papers on Supplier’s premises.

(g)           Employee Dishonesty coverage, naming Michaels as loss payee, for loss arising out of, or in connection with, any fraudulent or dishonest acts committed by Supplier employees acting alone or with others, including loss of property that is owned by Michaels or held by Michaels in any capacity for which Michaels is legally liable, in the amount of $5,000,000 per occurrence.

(h)           If Supplier purchases “claims made” insurance, all acts and omissions of Supplier and its representatives and agents, shall be, during the Term and the Termination Assistance Period, “continually covered” notwithstanding the termination of this Agreement or the provisions of this Agreement allowing Supplier to purchase “claims made” insurance coverage.  In order for the acts and omissions of Supplier and its representatives and agents to be “continually covered” there must be insurance coverage for the entire period commencing on the Effective Date of this Agreement and ending on the date that is at a minimum three years after the End Date, and such insurance must satisfy the liability coverage requirements provided for in this Agreement.  Supplier acknowledges and agrees that the provisions of this Article 30 may require Supplier to purchase “tail insurance” if its coverage lapses or “nose insurance” or “tail insurance” if Supplier changes insurance carriers, even after this Agreement is terminated.  Upon any failure by Supplier to obtain and maintain any insurance coverage specified in this Section 30.2, without limiting Michaels’ other rights and remedies, Michaels may, at its sole discretion (following cure notice of not less than 15 days): (i) purchase such insurance coverage on

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Supplier’s behalf and deduct any such purchase and maintenance costs from the Fees; or (ii) terminate this Agreement without payment of any Termination Fees.

30.3        Policy Requirements.  Michaels and Michaels Agents shall be listed on all such insurance policies (except workers’ compensation insurance) obtained by Supplier and Supplier Agents as “Additional Insureds” up to the amount required of Supplier under this Agreement, and such policies shall expressly reference this Agreement with respect to Michaels’ status as “Additional Insured”.  If a “claims made” policy is purchased, then Supplier shall also purchase adequate “tail coverage” for claims made against Michaels after such policy has lapsed or been canceled or this Agreement is no longer in effect.  The provisions of Section 30.2 shall not be deemed to limit the liability of Supplier hereunder, or limit any rights that Michaels may have including, without limitation, rights of indemnity or contribution.

30.4        Risk of Loss.  Each Party is responsible for the risk of loss of, or damage to, any property of the other Party in the possession or control of the first Party, unless such loss or damage was caused by the acts or omissions of the other Party or its Agent.

31.MISCELLANEOUS PROVISIONS.

31.1        Assignment.  Neither Party shall, without the consent of the other Party, assign this Agreement, except that Supplier may assign this Agreement, in whole or part, to an Affiliate or business unit of Supplier and that Michaels may assign this Agreement, in whole or in part, to:  (a) an Affiliate or business unit of Michaels; or (b) pursuant to a Change in Control of Michaels, a reorganization of Michaels, or a transfer or sale of any business unit, line of business, product line, or substantial portion of its assets, without such consent.  Assignment of this Agreement shall not release a Party from any obligation or liability under this Agreement.  The consent of a Party to any assignment of this Agreement shall not constitute such Party’s consent to further assignment.  This Agreement shall be binding on the Parties and their respective successors and permitted assigns.  Any assignment in contravention of this Section 31.1 shall be void.

31.2        Notices.  Wherever under this Agreement one Party is required to give notice to the other, such notice shall be deemed effective:  (a) 3 calendar days after deposit in the United States Mail, postage prepaid, certified or registered mail, return receipt requested; (b) 1 business day after deposit with a national overnight courier; (c) if given by facsimile, that day such facsimile is sent, provided confirmation of such notice is also sent by national overnight courier or delivered in person; or (d) upon delivery if delivered in person or by messenger, in each case, addressed to the following addresses (or such other address as either party may be notified of as described above):

To Michaels:	Michaels Stores, Inc
	Attention:
With a copy to:	Michaels Stores, Inc
	Attention: General Counsel
To Supplier:	Tata America International Corporation
	Attn: General Counsel

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Either Party may change its address or facsimile number for notification purposes by giving the other Party 10 days notice of the new address or facsimile number and the date upon which it shall become effective.

31.3        Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one single agreement between the Parties.

31.4        Relationship.  The Parties intend to create an independent contractor relationship and nothing contained in this Agreement shall be construed to make either Michaels or Supplier partners, joint venturers, principals, agents (except as expressly set forth in Article 8) or employees of the other.  No officer, director, employee, agent, affiliate or contractor retained by Supplier to perform work on Michaels’ behalf under this Agreement shall be deemed to be an employee, agent or contractor of Michaels.  Neither Party shall have any right, power or authority, express or implied, to bind the other.

31.5        Severability.  If any provision of this Agreement is held by a court of competent jurisdiction to be contrary to Law, then the remaining provisions of this Agreement, if capable of substantial performance, shall remain in full force and effect.

31.6        Waivers.  No delay or omission by either Party to exercise any right or power it has under this Agreement shall impair or be construed as a waiver of such right or power.  A waiver by any Party of any breach or covenant shall not be construed to be a waiver of any succeeding breach or any other covenant.  All waivers must be signed by the Party waiving its rights.

31.7        Timing and Cumulative Remedies.  No right or remedy herein conferred upon or reserved to either Party is exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy under this Agreement, or under applicable law, whether now or hereafter existing.

31.8        Entire Agreement.  This Agreement and the Exhibits to this Agreement represent the entire agreement between the Parties with respect to its subject matter, and there are no other representations, understandings or agreements between the Parties relative to such subject matter.

31.9        Amendments.  No amendment to, or change, waiver or discharge of, any provision of this Agreement shall be valid unless in writing and signed by, in the case of Michaels, the Michaels Account Manager, and in the case of Supplier, the Supplier Account Manager.

31.10      Survival.  The terms of Sections 1, 14, 15, 18.2, 18.3, 18.4, 19.1, 20.5, 21, 22.3, 26, 27, 28, 29 and 31 shall survive the expiration or termination of this Agreement.

31.11      Third Party Beneficiaries.  Except with respect to the Affiliates, each Party intends that this Agreement shall not benefit, or create any right or cause of action in or on behalf of, any person or entity other than the Parties.

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31.12      Governing Law and Venue.  The rights and obligations of the parties under this Agreement shall be governed in all respects by the laws of the United States and the State of Texas, without regard to conflicts of laws principles that would require the application of the laws of any other jurisdiction.  Supplier agrees that it shall only bring any action or proceeding arising from or relating to this Agreement in a federal court in Dallas, Texas, and Supplier irrevocably submits to the personal jurisdiction and venue of any such court in any such action or proceeding or in any action or proceeding brought in such courts by Michaels.  Supplier further irrevocably consents to the service of process from any of the aforesaid courts by mailing copies thereof by registered or certified mail, postage prepaid, to Supplier at its address designated pursuant to this Agreement, with such service of process to become effective 30 days after such mailing. TO THE FULLEST EXTENT PERMITTED BY LAW, EACH PARTY HEREBY WAIVE ITS RIGHT TO SEEK JURY TRIAL IN ANY PROCEEDINGS RELATING TO OR ARISING FROM THIS AGREEMENT.

31.13      Covenant of Further Assurances.  Michaels and Supplier covenant and agree that, subsequent to the execution and delivery of this Agreement and, without any additional consideration, each of Michaels and Supplier shall execute and deliver any further legal instruments and perform any acts that are or may become necessary to effectuate the purposes of this Agreement.

31.14      Export.  Supplier shall not knowingly export or re-export any personal computer system, part, technical data or sub-elements under this Agreement, directly or indirectly, to any destinations prohibited by the United States Government.  The term “technical data” in this context, means such data as is defined as technical data by applicable United States export regulations.

31.15      Conflict of Interest.  Supplier shall not pay any salaries, commissions, fees or make any payments or rebates to any employee or agent of Michaels, or to any designee of such employee or agent, or favor any employee or agent of Michaels, or any designee of such employee or agent, or otherwise provide any gifts, entertainment, services or goods to such employees or agents that are of a value in excess of that which is reasonable and customary in Michaels’ industry, which might unduly influence Michaels’ actions with respect to Supplier, which might embarrass Michaels if revealed publicly, or which might violate any Law (collectively, “Gratuities”).  Supplier agrees that its obligation to Michaels under this Section 31.15 shall also be binding upon Supplier Agents.  Supplier further agrees to insert the provisions of this Section 31.15 in each contract with a Supplier Agent.  If Supplier has, before or after the Effective Date, provided any Gratuities in violation of this Section 31.15, Michaels may, upon notice to Supplier, terminate this Agreement, in whole or in part, without payment of any Termination Fee, as of the date specified by Michaels in its notice of termination.

31.16      Publicity ..  Supplier will not use Michaels’ trade name, brands, or company logo in any manner whatsoever, except as agreed by Michaels in a separate written communication by a Vice President or above.  Michaels may revoke any approval previously provided by Michaels upon reasonable notice to Supplier.  Except as provided in such approval by Michaels, Supplier shall not make any statement, advertisement or publicity, nor issue any marketing letter disclosing the existence, terms or the subject matter of this Agreement without the specific prior approval of Michaels.  [The next page is the signature page.]

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IN WITNESS WHEREOF, each of Michaels and Supplier has caused this Agreement to be signed and delivered by its duly authorized representative.

Tata America International Corporation, operating as TCS America		Michaels Stores, Inc and its Subsidiaries
/s/ Satyanarayan S. Hegde		/s/ Elaine D. Crowley
Signature		Signature
Satyanarayan S. Hegde		Elaine D. Crowley
Name		Name:
General Counsel & Senior Vice President		EVP & CFO
Title	Date January 16, 2009	Title	Date January 16, 2009

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EXECUTION COPY

DEFINITIONS

EXHIBIT 1

TO

MASTER SERVICES AGREEMENT

BY AND BETWEEN

MICHAELS STORES, INC

AND

TATA AMERICA INTERNATIONAL CORPORATION

JANUARY 16, 2009

“Affected Contractors” means those Michaels contractors some or all of whose functions, services or responsibilities become the Services to be performed by Supplier after the Effective Date as contemplated and in accordance with the provisions of the Agreement.

“Affected Employees” means those Michaels employees some or all of whose functions, services or responsibilities become the Services to be performed by Supplier after the Effective Date as contemplated and in accordance with the provisions of the Agreement.

“Affiliate” means, with respect any entity, any other entity that now or in the future is Controlling, Controlled by, or under common Control with the entity, and in the case of Michaels, includes any other entity that now or in the future:  (a) is managed or operated by Michaels, or (b) is owned through stock ownership by a shareholder of Michaels.

“Agreement” has the meaning set forth in the Preamble of the Agreement.

“Applicable Terms” has the meaning set forth in Section 8.3 of the Agreement.

“Assigned Agreements” means the third party agreements that are assigned to Supplier in connection with the Agreement, if any, and designated as Assigned Agreements in Exhibit 9.

“At Risk Amount” means, with respect to a Statement of Work, for any month during the Term, 10% of the Fees paid or payable by Michaels under that Statement of Work in that month.

“Auditors” has the meaning set forth in Section 20.1 of the Agreement.

“Authorized Users” means Michaels, Michaels Agents and customers, business partners, vendors and joint venture partners whose relationship with Michaels involves the use of or interaction with the Services, including Michaels Third Party Contractors (to the extent that such Michaels Third Party Contractors are performing services for Michaels and need access to Michaels systems).

“Background Technology” of a Party means all Intellectual Property that:  (a) is:  (i) owned or licensed by such Party; and (ii) in existence in electronic or written form on or prior to the Effective Date; or (b) is conceived and reduced to practice, developed, acquired, or licensed by such Party after the Effective Date independently of the work undertaken pursuant to the Agreement.

“Base Charges” means the monthly charges for the Base Services which charges are calculated in accordance with Exhibit 4 and/or the Pricing Exhibit to the applicable Statement of Work.

“Base Services” means the services and Supplier’s obligations thereto covered by the Base Charges as specified or described in Exhibit 4 and/or in the Pricing Exhibit to the applicable Statement of Work included in Exhibit 2, including the application of Section 4.1 of the Agreement, as applicable.

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“Benchmark Results” means the final results of the Benchmarking Process delivered by the Benchmarker in a written report to Michaels and Supplier, including any supporting documentation requested by Michaels or Supplier to analyze the results of the Benchmarking Process.

“Benchmark Review Period” means the 30-day period following receipt by Michaels and Supplier of the Benchmark Results.

“Benchmarker” means a third Party specified on Exhibit 19 that shall conduct the Benchmarking Process.

“Benchmarking Process” means the objective measurement and comparison process established in accordance with Section 10.3 of the Agreement that measures the performance and cost to Michaels of the Services against the performance and cost of similar services in the industry.

“Change Management Process” means the process and procedures applicable to all Changes, including changes in the Systems, the Services and the Michaels information technology environment, as such process is set forth in Exhibit 5.

“Change in Control” means any event or series of events that result directly or indirectly in a change in the management or Control of a Party.  Without limiting the generality of the foregoing, the following shall be considered a Change in Control:  (a) the consolidation or merger of a Party with or into any entity; (b) the sale, transfer or other disposition of all or substantially all of the assets of a Party; or (c) any change in the beneficial ownership of 50% or more (or such lesser percentage that constitutes Control) of the outstanding voting securities or other ownership interests of a Party.  Notwithstanding the foregoing, any corporate reorganization among Affiliates shall not be considered to be a Change in Control.

“Change(s)” means any change to the Services, including changes to the Software, Systems or Equipment used to provide the Services if such change would alter in any material respect:  (a) the functionality, performance standards or technical environment of the Software, Systems or Equipment used to provide the Services; (b) the manner in which the Services are provided; (c) the composition of the Services; or (d) the cost to Michaels of the Services.

“Charges” means the monthly charges associated with the Services under a Statement of Work, based on the pricing and rate card set forth in Exhibit 4 and within the Pricing Exhibit of the applicable Statement of Work.

“Commencement Date” means the date on which Supplier assumes responsibility for the provision of the Services under a Statement of Work as such date is specified in the Transition Plan for those Services.

“Commissioned Materials” means any Software, associated Documentation, or other materials developed by or on behalf of Supplier and Supplier Agents:  (a) pursuant to Article 6; (b) pursuant to specifications or other directions provided by Michaels or Michaels

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Agents, whether such specifications or directions are developed alone by such parties or jointly with the Supplier (regardless of whether or not developed pursuant to Article 6); or (c) pursuant to a Project that is part of the Services; in each case whether developed independently or jointly with Michaels or Michaels Agents.

“Confidential Information” of Michaels or Supplier means all information and documentation of Michaels and Supplier, respectively, whether disclosed to or accessed by Michaels or Supplier in connection with the Agreement, including:  (a) with respect to Michaels and Supplier (i) information regarding its business, projects, operations, finances, activities, affairs, research, development, products, technology, network architecture, internal procedures, business models, business plans, business processes, marketing and sales plans, customers, finances, personnel data, computer system and program designs, processing techniques and generated outputs, procurement processes or strategies or suppliers, and any ideas, trade secrets, inventions (whether or not patentable), patent applications, proposals, techniques, formulas, methods of operation and other intellectual property; and (ii) any information that Michaels or Supplier is required by Law or company policy to maintain as confidential, including personnel and payroll records, and any other information that relates to or is about, an identified or identifiable person;  (b) pricing and commitments under the Agreement; (c) any information developed by reference to or use of Michaels’ or Supplier’s Confidential Information; (d) with respect to Michaels, all Michaels Data and all information of Michaels or its respective customers, suppliers, contractors and other third parties doing business with Michaels; provided, however, that except to the extent otherwise provided by Law, the term “Confidential Information” shall not include information that:  (w) is independently developed by the recipient, as demonstrated by the recipient’s written records, without violating the disclosing Party’s proprietary rights; (x) is or becomes publicly known (other than through unauthorized disclosure); (y) is already known by the recipient at the time of disclosure (other than through unauthorized disclosure), as demonstrated by the recipient’s written records, and the recipient has no obligation of confidentiality other than pursuant to the Agreement or any confidentiality agreements between Michaels and Supplier entered into before the Effective Date; or (z) is rightfully received by a Party free of any obligation of confidentiality.

“Consents” means all licenses, consents, permits, approvals and authorizations necessary to allow Supplier and Supplier Agents to access and/or use any of the following solely to provide the Services: Michaels Data, Michaels Facilities, Michaels Software, Michael Service Locations, Michaels-Owned Material, Michaels Equipment and other materials made available by Michaels to Supplier and services provided under Michaels third party services contracts. Michaels Consent includes consent of third parties required for Michaels to assign the Assigned Agreements to Supplier and Supplier to manage and administer the Managed Agreements pursuant to Article 8 of the Agreement.

“Consulting Services” means the services and Supplier obligations specified or described in the applicable Statement of Work included in Exhibit 2 including the application of Section 4.1 of the Agreement, as applicable.

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“Contract Year” means a fiscal year of Michaels (ending on the Saturday closest to January 31) during the Term, except that the first Contract Year shall begin on the Effective Date and end on January 30, 2010.

“Control” means, with respect to any entity, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities (or other ownership interest), by contract, or otherwise.

“Critical Service Level” means any Service Level designated as a “critical” Service Level”.

“Critical Service Level Default” means a failure by Supplier to meet the specified Service Level target for a Critical Service Level.

“Critical Transition Milestone” means any milestone in the Transition Plan designated as a “critical” milestone.

“Current and Planned Projects” has the meaning set forth in Section 4.2(e) of the Agreement.

“Derivative Work” means any work based upon one or more preexisting works, or any other form in which a work is recast, transformed, revised, adapted or otherwise changed.

“Disaster Recovery Plan” means the plan approved by Michaels to restore the Services, Software and Systems to a pre-established level in the event that all or a portion of the Services, Software or Systems are unavailable.

“Dispute” has the meaning set forth in Section 24.1 of the Agreement.

“Divested Entities” has the meaning set forth in Section 5.4(b) of the Agreement.

“Documentation” means, with respect to Software and tools, all materials, documentation, specifications, technical manuals, user manuals, flow diagrams, file descriptions and other written information that describes the function and use of such Software or tools.

“Effective Date” means January 16, 2009.

“End Date” means the last day of the Termination Assistance Period.

“End Users” means the Authorized Users and all of their employees, agents, representatives or other persons who are authorized to access the Systems and/or Services on behalf the Authorized Users.

“Equipment” means computers and related equipment, including central processing units and other processors, controllers, modems, communications and telecommunications equipment (voice, data and video), cables, storage devices, printers, terminals, other

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peripherals and input and output devices, and other tangible mechanical and electronic equipment intended for the processing, input, output, storage, manipulation, communication, transmission and retrieval of information and data.

“Executive Steering Committee” means a committee established by the parties pursuant to Exhibit 5 with an equal number of members from Michaels and Supplier.

“Extension Period” means the First Extension Period and the Second Extension Period.

“Fees” means amounts payable by Michaels to Supplier pursuant to the Agreement, and Exhibit 4, as those Fees are more specifically described with respect to a Statement of Work in the Pricing Exhibit to the applicable Statement of Work.

“First Extension Period” has the meaning set forth in Section 2.2 of the Agreement.

“Force Majeure Event” has the meaning set forth in Section 17.2 of the Agreement.

“Governmental Approvals” means all licenses, consents, permits, approvals and authorizations of any Governmental Authority, or any notice to any Governmental Authority, the granting of which is required by Law, including Regulatory Requirements, for the consummation and performance of the transactions contemplated by the Agreement or the provision of Services under the Agreement.

“Governmental Authority” means any Federal, state, municipal, local, territorial, or other governmental department, regulatory authority, or judicial or administrative body, whether domestic, foreign, or international.

“Gratuities” has the meaning set forth in Section 31.15 of the Agreement.

“Indemnified Party” has the meaning set forth in Section 28.4 of the Agreement.

“Indemnifying Party” has the meaning set forth in Section 28.4 of the Agreement.

“Individual Transition Manager” has the meaning set forth in Section 5.1 of the Agreement.

“Initial Agreement Expiration Date” means the date that is the end of Michaels’ fiscal year 2013, which is the Saturday closest to January 31 in 2014.

“Initial Agreement Term” has the meaning specified in Section 2.1 of the Agreement.

“Intellectual Property Rights” means all past, present, and future rights of the following types, which may exist or be created under the laws of any jurisdiction in the world:  (a) rights associated with works of authorship, including exclusive exploitation rights, copyrights, moral rights, and mask works; (b) trademark and trade name rights and similar rights; (c) trade secret rights; (d) patents and industrial property rights; (e) other proprietary rights in intellectual property of every kind and nature; and (f) rights in or relating to registrations, renewals, extensions, combinations, divisions, and reissues of, and applications for, any of the rights referred to in

5

subsections (a) through (e) of this sentence.

“Intellectual Property” means all algorithms, APIs, apparatus, circuit designs and assemblies, Confidential Information, databases and data collections, designs, diagrams, documentation, drawings, flow charts, formulae, ideas and inventions (whether or not patentable or reduced to practice), know-how, materials, marketing and development plans, marks (including brand names, product names, logos, and slogans), methods, models, network configurations and architectures, procedures, processes, protocols, schematics, software code (in any form including source code and executable or object code), specifications, subroutines, techniques, tools, uniform resource identifiers, user interfaces, web sites, works of authorship, and other forms of technology and intellectual property.

“Interest” means simple interest at the rate of 1% per month, but in no event to exceed the maximum rate of interest allowed by Law.

“Key Supplier Personnel” means the Supplier Account Manager and such other members of the Supplier Staff designated as Key Supplier Personnel on Exhibit 8.

“Law” means any declaration, decree, directive, legislative enactment, order, ordinance, regulation, rule, requirement or other binding restriction of or by any Governmental Authority, including any modified or supplemented version of the foregoing and any newly adopted Law replacing a previous Law.

“Losses” means any and all damages, fines, penalties, deficiencies, losses, liabilities (including settlements and judgments) and expenses (including interest, court costs, reasonable fees and expenses of attorneys, accountants and other experts and professionals or other reasonable fees and expenses of litigation or other proceedings or of any claim, default or assessment).

“Malware” has the meaning set forth in Section 23.2(e) of the Agreement.

“Managed Agreement Invoice” means any invoice submitted by third parties in connection with the Managed Agreements.

“Managed Agreements” means the third party agreements designated as managed agreements in Exhibit 9.

“Michaels” means Michaels Stores, Inc.

“Michaels Account Manager” has the meaning set forth in Section 7.1 of the Agreement.

“Michaels Agent NDA” has the meaning set forth in Section 20.7(d) of the Agreement.

6

“Michaels Agents” means the employees, agents, contractors, subcontractors, consultants, personnel and representatives of Michaels, other than Supplier and Supplier Agents.

“Michaels Data” means:  (a) all data and information:  (i) submitted or made available to Supplier or Supplier Agents by or on behalf of Michaels; (ii) obtained, developed or produced by Supplier or Supplier Agents for Michaels in connection with the Agreement; or (iii) to which Supplier or Supplier Agents have access in connection with the provision of the Services; and (b) all derivatives of any of the foregoing.

“Michaels Default Cure Period” has the meaning set forth in Section 25.4(b) of the Agreement.

“Michaels Default Notice” has the meaning set forth in Section 25.4(b) of the Agreement.

“Michaels Derivative Works” means any Derivative Works of Michaels Software or Michaels Background Technology and related Documentation developed pursuant to the Agreement by or on behalf of Supplier or Supplier Agents, whether developed independently or jointly with Michaels or Michaels Agents, excluding in all cases, Commissioned Materials.

“Michaels Equipment” has the meaning set forth in Section 8.1(a) of the Agreement.

“Michael Facilities” has the meaning set forth in Section 7.2 of the Agreement.

“Michaels Governmental Approvals” has the meaning specified in Section 4.5 of the Agreement.

“Michaels Laws” has the meaning set forth in Section 4.6 of the Agreement.

“Michaels-Owned Materials” has the meaning specified in Section 14.5 of the Agreement.

“Michaels Policies” means the Michaels corporate policies listed on Exhibit 7, as such policies are made available to Supplier during the Term and Termination Assistance Period, as well as any related Michaels procedures communicated to Service Provider that implement such policies.

“Michaels Proprietary Software” means Software and any associated Documentation that is owned, acquired or developed by Michaels and used in connection with the provision of the Services.

“Michaels Service Location(s)” means locations at which Services are provided to Michaels, as those locations at the Effective Date are set out on Exhibit 6, which Exhibit may be amended or changed from time to time by Michaels in accordance with the Agreement.

7

“Michaels Software” means the Michaels Proprietary Software, the Michaels Third Party Software, and the Michaels Derivative Works, collectively.

“Michaels Third Party Contractors” has the meaning set forth in Section 5.5 of the Agreement.

“Michaels Third Party Software” means the Software and Documentation that is licensed or leased by Michaels from a third party and used in connection with the provision of the Services.

“New Entities” has the meaning specified in Section 5.4(a) of the Agreement.

“New Equipment” has the meaning set forth in Section 8.2(b) of the Agreement.

“New Service Proposal” has the meaning specified in Section 6.1 of the Agreement.

“New Services” means any new service or significant change to the Services requested by Michaels:  (a) that is materially different from the Services; (b) that requires materially different levels of effort or resources from Supplier; and (c) for which there is no current Resource Baseline or charging methodology.  New Services shall not include (y) increases in the volume of Services, or (z) the disaggregation of an existing Service from a category of Services (or other functional service area). For further clarity, New Services shall not include the additional Services identified on Exhibit 21.

“Parties” means Michaels and Supplier, collectively.

“Party” means either Michaels or Supplier, as applicable.

“Pass-Through Expense” means cost or an expense which Michael has an obligation to reimburse Supplier as a result of such cost or expense expressly being designated as a pass-through expense in the Agreement, Exhibit 4 or the applicable Statement of Work.

“Permitted Parties” has the meaning specified in Section 21.1 of the Agreement.

“Policies and Procedures Manual” means the manual prepared by Supplier in accordance with the Agreement and the requirements in Exhibit 5 that contains the Change Management Process and related procedures that Supplier must follow in connection with changes to the Services, the Systems and the Michaels information technology environment.

“Project” means any discrete set of development services (such as design, development or enhancement of software or solution).  Each of the Current and Planned Projects is a Project.

“Regulatory Requirements” means the Laws to which Michaels is required to submit, or voluntarily submits, from time to time.

“Remediation Plan” has the meaning set forth in Section 20.7(c) of the Agreement.

8

“Resource Baseline” means a baseline volume for a specific category of services, as such baseline volumes are set forth in Exhibit 4.

“Sarbanes-Oxley” has the meaning set forth in Section 20.4 of the Agreement.

“Second Extension Period” has the meaning set forth in Section 2.2 of the Agreement.

“Service Category” means a grouping of elements of the Services, as specified in Exhibit 2.

“Service Level” means a component of the Services that is measured in accordance with the criteria specified in Exhibit 3.

“Service Level Credit” means a credit applied against the Charges or Fees as specified in the Agreement, Exhibit 3 or an applicable Statement of Work.

 “Service Level Default” shall have the meaning assigned to it in Exhibit 3.

“Service Location(s)” means any Michaels Service Location or Supplier Service Location, as applicable.

“Services” has the meaning specified in Section 4.1 of the Agreement.

“Software” means:  (a) the source code and object code versions of any applications, operating system software, computer software languages, utilities, other computer programs, in whatever form or media, including the tangible media upon which the foregoing are recorded, together with all corrections, improvements, updates and releases thereof; (b) any software development and performance testing tools, and related know-how, methodologies, processes, technologies or algorithms; and (c) any Documentation related to any of the foregoing.

“Statements of Work” mean the descriptions of certain Base Services, Consulting Services and Supplier obligations set forth in Exhibit 2, additional Services described in Exhibit 21 for which Parties may enter into a new Statement of Work or amendment of an existing Statement of Work in Exhibit 2, and New Services for which additional Statements of Work as agreed to by the Parties in accordance with Article 6 of the Agreement.

“Standards” has the meaning set forth in Section 20.4 of the Agreement.

“Successor” has the meaning specified in Section 27.1 of the Agreement.

“Supplier” means Tata America International Corporation, operating as TCS America, a New York corporation.

“Supplier Account Manager” has the meaning specified in Section 12.1 of the Agreement.

9

“Supplier Agents” means the employees, agents, contractors, subcontractors, consultants, personnel and representatives of Supplier.

“Supplier Competitor” means the competitors of Supplier set forth on Exhibit 12.

“Supplier Consents” means all licenses, consents, permits, approvals and authorizations that are necessary to allow:  (a) Supplier and Supplier Agents to use:  (i) the services provided for the benefit of Michaels under Supplier’s third party services contracts; (ii) the Supplier Software and Supplier tools; (iii) any assets owned or leased by Supplier; and (iv) any other Software or Equipment provided by Supplier in connection with the Services; (b) Supplier and Supplier Agents to:  (i) use any third party services retained by Supplier to provide the Services during the Term and the Termination Assistance Period; and (ii) grant to Michaels the rights (including assignments of Intellectual Property Rights) in the Michaels-Owned Materials and other Intellectual Property transferred or licensed to Michaels hereunder; and (c) Supplier to fulfill its obligations under Article 27 of the Agreement.

“Supplier Default Cure Period” has the meaning set forth in Section 25.4(a) of the Agreement.

“Supplier Default Notice” has the meaning set forth in Section 25.4(a) of the Agreement.

“Supplier Derivative Works” means Derivative Works of Supplier Software, Supplier Background Technology, and associated Documentation developed pursuant to the Agreement by or on behalf of Supplier or Supplier Agents.

“Supplier Equipment” means that Equipment leased or owned by Supplier and Supplier Agents that is used by Supplier and Supplier Agents to provide the Services.

“Supplier Governmental Approvals” has the meaning set forth in Section 4.5 of the Agreement.

“Supplier Laws” has the meaning set forth in Section 4.6 of the Agreement.

“Supplier Proprietary Software” means the Software owned, acquired or developed by or on behalf of Supplier and used in connection with the Services.

“Supplier Service Location” means a Supplier service location identified in Exhibit 6 or any new Supplier Service Location thereafter added pursuant to Article 11 of the Agreement.

“Supplier Software” means the Supplier Proprietary Software, the Supplier Third Party Software, and the Supplier Derivative Works, collectively.

“Supplier Staff” means the personnel of Supplier and Supplier Agents who provide the Services.

10

“Supplier Third Party Software” means the Software and Documentation licensed, leased or otherwise obtained by Supplier from a third party that is used in connection with the Services or with any Supplier Software or Michaels Software.

“Systems” means the Software, tools and the Equipment, collectively, used in connection with the Services.

“Taxes” has the meaning set forth in Section 19.1 of the Agreement.

“Term” means the Initial Agreement Term and any renewal terms agreed by the Parties in accordance with Section 2.2 of the Agreement.

“Termination Assistance Period” means a period of time designated by Michaels, commencing on a date designated by Michaels, after Michaels has determined that there shall be a termination or expiration of the Agreement or any other cessation of all or any part of the Services (including due to a divestiture or partial termination by Michaels), in each case as requested by Michaels and continuing for up to 18 months after the last day of the Term, and which may be extended by Michaels for up to an additional 6 months, during which Supplier shall provide the Termination Assistance Services with respect to any part of the Services being terminated.

“Termination Assistance Services” means Supplier’s (and Supplier Agents’) provision of:  (a) the Services (and any replacements thereof or substitutions therefore); (b) cooperation with Michaels and Successor as necessary to facilitate the smooth and orderly transition of the Services to Successor; (c) information relating to the number and function of each of the Supplier Staff; (d) subject to the approval of Michaels, a plan for the smooth and orderly transition of the performance of the Services from Supplier to Michaels or Successor; (e) training for personnel of Michaels and/or Successor in the performance of the Services being transitioned to Successor; (f) access to Transitioned Employees who remain at that time as the Supplier Staff so that Michaels or its designees may extend offers of employment to such Transitioned Employees; waivers of Section 12.9 of the Agreement with respect to such Transitioned Employees; waivers of any prohibitions in any employment agreements of such Transitioned Employees that may restrict such individuals from accepting offers from Michaels or Successor; cooperation with Successors efforts to hire such Transitioned Employees, including not making counter offers; (g) information related to the Services that will assist Michaels in drafting requests for proposals relating to the Services, and cooperation with, and due diligence information for, recipients of such requests for proposals; and (h) other services requested by Michaels necessary to facilitate the transfer of Services.

“Termination Fee” means a fee specified in Exhibit 4 that Michaels shall pay to Supplier in the event Michaels terminates the Agreement pursuant to Section 25.1 or Section 25.2 of the Agreement.

“Third Party Contracts” means the Assigned Agreements and the Managed Agreements, collectively.

11

“Tier One Offshore Service Providers” means suppliers providing services in offshore locations who are generally considered in standard industry benchmarkers (such as Gartner Reports) as tier one service providers, including, but not limited to: Accenture; Computer Sciences Corporation; IBM; Infosys Technologies; Wipro; and Unisys Corporation.

“Transformation Services” has the meaning set forth in Section 5.3 of the Agreement.

“Transition Charge” means a charge for the Transition Services specified in Exhibit 4.

“Transition Credit” means a credit applied against the Fees as a result of Supplier’s failure to meet a Transition Milestone, which credit is specified in the Transition Plan.

“Transition Manager” has the meaning set forth in Section 5.1 of the Agreement.

“Transition Plan” has the meaning given in Section 5.1 of the Agreement.

“Transition Milestones” means milestones, including Critical Transition Milestones, relating to Supplier’s obligations to complete certain Transition Services on certain dates in accordance with the Transition Plan.  The Transition Milestones are set forth in the Transition Plan

“Transition Services” has the meaning set forth in Section 5.1 of the Agreement.

“Transitioned Employees” means certain Michaels employees listed in Exhibit 15 who become employees of Supplier or Affiliates of Supplier in accordance with Exhibit 15.

“Turnover” has the meaning set forth in Section 12.4 of the Agreement.

“Use” means the right to use, execute, reproduce, perform, display, maintain, modify, enhance, create Derivative Works of, make and have made.

“Work Product” means any manuals, reports, diagrams, data models, schematics, training materials and similar items created by Supplier or Supplier Agents in the course of performing the Services, excluding Software, Supplier IP and any Supplier Background Technology that is contained in such Work Product.

12

EX-10.30

Exhibit 10.30

401(K) NON-STANDARDIZED PROTOTYPE ADOPTION AGREEMENT #002

FOR

THE CHARLES SCHWAB DEFINED CONTRIBUTION PLAN AND TRUST #01

Section 1.	General Plan Information	2
Section 2.	Service Definitions for Eligibility, Vesting and Allocations	3
Section 3.	Eligibility Requirements	5
Section 4.	Elective Deferrals	11
Section 5.	Safe Harbor Contributions	11
Section 6.	Non-Safe Harbor Matching Contributions	12
Section 7.	Non-Safe Harbor Non-Elective Contributions	14
Section 8.	Rollovers and Employee Contributions	15
Section 9.	Prevailing Wage Contributions	16
Section 10.	Vesting Requirements	17
Section 11.	Compensation Definitions	19
Section 12.	Allocation of Forfeitures	24
Section 13.	Allocation of Earnings and Losses	25
Section 14.	Normal and Early Retirement Age	25
Section 15.	Distribution Provisions	26
Section 16.	Loans, Insurance and Directed Investments	28
Section 17.	Top Heavy Allocations	29
Section 18.	Testing Elections	29
Section 19.	401(k) SIMPLE Provisions	29
Section 20.	Miscellaneous Provisions	30
Section 21.	Signature Provisions	31

1

Section 1.  General Plan Information

1.1

Plan Name

Michaels Stores, Inc. Employees 401(k) Plan

Plan #   001

1.2

Sponsoring Employer

Michaels Stores, Inc.

Address

8000 Bent Branch Drive

City

Irving

State  TX

ZIP Code  75063

Telephone #

972-409-1300

Tax ID # 75-1943604

Trust ID #

1.3

Fiscal Year.

x  A 12-consecutive month period beginning Jan 31 and ending Jan 30

o  Except for a short Fiscal Year beginning

o A 52-53 week year o beginning  o ending

1.4

Type of Business Entity. (check one)

x

C-Corporation

o

S-Corporation

o

Partnership

o

Sole Proprietorship

o

Tax Exempt Organization

o

Limited Liability Company (LLC)

o

Limited Liability Partnership (LLP)

o

Other (must be a legal entity recognized under Federal income tax laws)

1.5

Adopting Employers. Check here x if there are additional adopting employers and complete the “Adopting Employer Addendum.”

1.6

Plan Administrator    Michaels Stores, Inc.

Address  8000 Bent Branch Drive

City

Irving

State  TX

ZIP Code  75063

Telephone #    972-409-1300

Fax #

1.7

Trustees. The Trustees of the Plan are as selected below. (The use of a trust agreement other than one which has been approved by the Internal Revenue Service for use with this Plan will remove the Plan from M&P status and render it individually designed.)

o

Individual Trustees    0

Address

City

State

ZIP Code

x

Corporate Trustee              The Charles Schwab Trust Company

Address 215 Fremont Street, 6th Floor

City   San Francisco                                           State   CA                                                              ZIP Code   94105

2

oDiscretionary Trustee. The corporate Trustee has full discretion in investing the assets of the Plan except as otherwise instructed by the Administrator, by the Employer, by an Investment Manager, by another Named Fiduciary < o or by a Participant in accordance with Section 16.3 of the Adoption Agreement with regard to Participant directed investments >.

xDirected Trustee. The corporate Trustee is only permitted to invest the assets of the Plan as directed by the Administrator, by the Employer, by an Investment Manager, by another Named Fiduciary < o or by a Participant in accordance with Section 16.3 of the Adoption Agreement with regard to Participant directed investments >.

1.8      Effective Dates

oThis is a new plan effective                                       .

x   This is an amended plan effective Feb 1, 2009 with an original effective date of Feb 1, 1987.

oThis is a frozen plan which was frozen                                       . The Plan remains frozen and is being amended and restated effective . The original effective date of the Plan is .

1.9       Plan Year. A 12-consecutive month period beginning Jan 1 and ending Dec 31.

o    Except for a short Plan Year beginning                                                                                                                   .

1.10    Anniversary Date. The Anniversary Date of the Plan is  Dec 31.

1.11Permitted Contributions. The contributions checked below are currently permitted under the terms of the Plan. (check all that apply)

xPre-Tax Elective Deferrals (see Section 4 of the Adoption Agreement on page 11)

oRoth Elective Deferrals (see Section 4 of the Adoption Agreement on page 11)

oADP Safe Harbor Contributions (see Section 5 of the Adoption Agreement on page 11)

oACP Safe Harbor Contributions (see Section 5 of the Adoption Agreement on page 12)

xNon-Safe Harbor Matching Contributions (see Section 6 of the Adoption Agreement on page 12)

oNon-Safe Harbor Non-Elective Contributions (see Section 7 of the Adoption Agreement on page 14)

xQualified Matching Contributions (see Sections 3.7 of the Basic Plan)

xQualified Non-Elective Contributions (see Sections 3.8 of the Basic Plan)

xRollover Contributions (see Section 8 of the Adoption Agreement on page 15 )

xVoluntary Employee Contributions (see Section 8 of the Adoption Agreement on page 16)

oDeemed IRA Contributions (see Section 8 of the Adoption Agreement on page 16)

oPrevailing Wage Contributions (see Section 9 of the Adoption Agreement on page 16)

Section 2.  Service Definitions for Eligibility, Vesting and Allocations

2.1Method of Determining Service. An Employee’s Years of Service/Periods of Service (“Service”) is determined as follows:

(a)o    Counting of Hours Method Only. A Participant’s Service for all purposes is determined by the Counting of Hours Method, and a Year of Service for eligibility and Vesting is determined as selected in (1) and (2) below.

(1)Eligibility to Participate. A Year of Service for eligibility purposes is                    (max. 1,000) Hours of Service and a Break in Service for eligibility purposes is                    (max. 500) Hours of Service.

(2)Vesting. A Year of Service for Vesting purposes is                    (max. 1,000) Hours of Service and a Break in Service for Vesting purposes is                    (max. 500) Hours of Service.

(b)o    Elapsed Time Method Only. A Participant’s Service for all purposes is determined by the Elapsed Time Method.

(c)x   A Mixture of Methods. A Participant’s Service for each purpose is determined by the method selected below.

(1)   For Eligibility Purposes: (check one)

oElapsed Time Method

x   Counting of Hours Method. A Year of Service for eligibility purposes is 1,000 (max. 1,000) Hours of Service and a Break in Service for eligibility purposes is 500 (max. 500) Hours of Service.

3

(2)   For Vesting Purposes: (check one)

xElapsed Time Method

o    Counting of Hours Method. A Year of Service for Vesting purposes is                    (max. 1,000) Hours of Service and a Break in Service for Vesting purposes is                    (max. 500) Hours of Service.

(3)   For benefit accrual and allocation purposes: (check one)

oElapsed Time Method

x   Counting of Hours Method

2.2Predecessor Service. oService with the following entity or entities will be credited as selected in (a), (b), (c), (d) and (e) below:(this section need only be completed if the Employer does not maintain the plan of the predecessor employer)

(a)oElective Deferrals, QMACs and QNECs. Service with an entity listed above will be given for eligibility purposes under Section 3.2(a) of the Adoption Agreement.

(b)oADP Safe Harbor Contributions. Service with an entity listed above will be given for eligibility purposes under Section 3.2(b) of the Adoption Agreement.

(c)oACP Safe Harbor Matching Contributions. Service with an entity listed above will be credited for: (check all that apply)

o    Eligibility purposes under Section 3.2(c) of the Adoption Agreement

o    Vesting purposes under Section 10.3 of the Adoption Agreement

(d)oNon-Safe Harbor Matching Contributions. Service with an entity listed above will be credited for: (check all that apply)

o    Eligibility purposes under Section 3.2(d) of the Adoption Agreement

o    Vesting purposes under Section 10.4 of the Adoption Agreement

(e)oNon-Safe Harbor Non-Elective Contributions. Service with an entity listed above will be credited for: (check all that apply)

o    Eligibility purposes under Section 3.2(e) of the Adoption Agreement

o    Vesting purposes under Section 10.5 of the Adoption Agreement

2.3Re-Hired Employees. The Service of an Eligible Employee who Terminates Employment and is rehired after incurring a Break in Service will be credited in accordance with the provisions selected below.

(a)o    One Year Holdout Rule. The One Year Holdout Rule will be applied to rehired Eligible Employees.

(b)x   Rule of Parity. The Rule of Parity will be applied to non-Vested rehired Eligible Employees.

2.4Computation Periods. If eligibility and/or Vesting are determined by the Counting of Hours Method, the following will apply:

(a)   xThe eligibility computation period will: (check one)

x   Be based on an Employee’s 12-month employment year

o    Switch to the Plan Year after an Employee’s initial 12-month employment year

(b)   oThe Vesting computation period will be: (check one)

o    The Plan Year

o    Based on an Employee’s 12-month employment year

(c)   xAn Employee will be deemed to have been credited with a Year of Service for eligibility purposes: (check one)

x   At the end of the eligibility computation period in which he or she is credited with the required Hours of Service

o    At the time he or she is actually credited with the required Hours of Service

4

Section 3.  Eligibility Requirements

3.1Eligible Employees. All Employees are Eligible Employees < x except for the class or classes of Employees (as defined in Section 2.1 of the Basic Plan) below who are excluded from participating for the purpose selected >: (check all that apply)

(a)   x   Ineligible Classes for Elective Deferrals, QMACs and QNECs.

x   Union Employees

x   Non-Resident Alien Employees

o    “Merger and Acquisition” Employees (but only during the statutory exclusion period)

o    Highly Compensated Employees (1)

x   Leased Employees (not otherwise excluded by statute) (1)

x   Employees of an Affiliated Employer that does not adopt this Plan (1)

o    Key Employees <o but only those who are also Highly Compensated Employees > (1)

o    Employees who are paid primarily by salary (1)

o    Employees who are paid primarily by the hour (1)

o    Employees who are paid primarily by commissions (1)

x   Other (cannot be age or service related) (1)   Any person receiving payments as a consultant.

(1) Even if checked, these employees are still included in determining if the Plan satisfies the requirements of Code §410(b).

(b)o    Ineligible Classes for ADP Safe Harbor Contributions. Any ineligible classes checked in (a) above are also ineligible for ADP Safe Harbor Contributions. In addition, the classes checked below are ineligible for ADP Safe Harbor Contributions.

o    Union Employees (if not already checked in (a) above)

o    Key Employees who are also Highly Compensated Employees (if not already checked in (a) above) (1)

o    Highly Compensated Employees (if not already checked in (a) above) (1)

o    Other (cannot be age or service related) (1)

(1) Even if checked, these employees are still included in determining if the Plan satisfies the requirements of Code §410(b).

(c)o    Ineligible Classes for ACP Safe Harbor Contributions. Any ineligible classes checked in (a) above are also ineligible for ACP Safe Harbor Contributions. In addition, the classes checked below are ineligible for ACP Safe Harbor Contributions.

o    Union Employees (if not already checked in (a) above)

o    Key Employees who are also Highly Compensated Employees (if not already checked in (a) above) (1)

o    Highly Compensated Employees (if not already checked in (a) above) (1)

o    Other (cannot be age or service related) (1)

5

(1) Even if checked, these employees are still included in determining if the Plan satisfies the requirements of Code §410(b).

(d)   x   Ineligible Classes for Non-Safe Harbor Matching Contributions.

x   Union Employees

x   Non-Resident Alien Employee

o    “Merger and Acquisition” Employees (but only during the statutory exclusion period)

o    Highly Compensated Employees (1)

x   Leased Employees (not otherwise excluded by statute) (1)

x   Employees of an Affiliated Employer that does not adopt this Plan (1)

o    Key Employees < o but only those who are also Highly Compensated Employees > (1)

o    Employees who are paid primarily by salary (1)

o    Employees who are paid primarily by the hour (1)

o    Employees who are paid primarily by commissions (1)

x   Other (cannot be age or service related) (1)   Any person receiving payments as a consultant.

(1) Even if checked, these employees are still included in determining if the Plan satisfies the requirements of Code §410(b).

(e)   o    Ineligible Classes for Non-Safe Harbor Non-Elective Contributions.

o    Union Employees

o    Non-Resident Alien Employees

o    “Merger and Acquisition” Employees (but only during the statutory exclusion period)

o    Highly Compensated Employees (1)

o    Leased Employees (not otherwise excluded by statute) (1)

o    Employees of an Affiliated Employer that does not adopt this Plan (1)

o    Key Employees < o but only those who are also Highly Compensated Employees > (1)

o    Employees who are paid primarily by salary (1)

o    Employees who are paid primarily by the hour (1)

o    Employees who are paid primarily by commissions (1)

o    Other (cannot be age or service related) (1)

(1) Even if checked, these employees are still included in determining if the Plan satisfies the requirements of Code §410(b).

3.2Minimum Age and Service Requirements. An Eligible Employee (see Section 3.1 above) will be eligible to enter the Plan as a Participant for the selected purpose on the applicable Entry Date upon satisfying the following age and/or service requirements:

(a)   x   Requirements for Elective Deferrals, QMACs and QNECs:

(1)   Age Requirement 21 (max. 21 – enter zero if none)

(2)   Service Requirement (check one)

o    A)    None

o    B)    1-Year Period of Service

o    C)       -month Period of Service (max. 12)

o    D)       -week Period of Service (max. 52)

6

o    E)       -day Period of Service (max. 365)

o    F)    1 Year of Service

x   G)    1 Year of Service, or if earlier, 6 (max. 11) consecutive calendar months of employment

x in which the Employee is credited with at least 83-1/3 Hours of Service per month

o    H)    1 Year of Service, or if earlier,                (max. 51) consecutive weeks of employment

o in which the Employee is credited with at least                  Hours of Service per week

o    I)     1 Year of Service, or if earlier,                (max. 364) consecutive days of employment

o in which the Employee is credited with at least                  Hours of Service per day

(b)   o    Requirements for ADP Safe Harbor Contributions:

(1)   Age Requirement                  (max. 21 – enter zero if none)

(2)   Service Requirement (check one)

o    A)    None

o    B)    1-Year Period of Service

o    C)        -month Period of Service (max. 12)

o    D)        -week Period of Service (max. 52)

o    E)        -day Period of Service (max. 365)

o    F)    1 Year of Service

o    G)    1 Year of Service, or if earlier,                (max. 11) consecutive calendar months of employment

o in which the Employee is credited with at least                  Hours of Service per month

o    H)    1 Year of Service, or if earlier,                (max. 51) consecutive weeks of employment

o in which the Employee is credited with at least                  Hours of Service per week

o    I)     1 Year of Service, or if earlier,                (max. 364) consecutive days of employment

o in which the Employee is credited with at least                  Hours of Service per day

(c)   o    Requirements for ACP Safe Harbor Contributions:

(1)   Age Requirement                  (max. 21 – enter zero if none)

(2)   Service Requirement (check one)

o    A)    None

o    B)    1-Year Period of Service

o    C)        -month Period of Service (max. 12)

o    D)        -week Period of Service (max. 52)

o    E)        -day Period of Service (max. 365)

o    F)    1 Year of Service

o    G)    1 Year of Service, or if earlier,                (max. 11) consecutive calendar months of employment

o in which the Employee is credited with at least                  Hours of Service per month

o    H)    1 Year of Service, or if earlier,                (max. 51) consecutive weeks of employment

o in which the Employee is credited with at least                  Hours of Service per week

o    I)     1 Year of Service, or if earlier,                (max. 364) consecutive days of employment

o in which the Employee is credited with at least                  Hours of Service per day

(d)   x   Requirements for Non-Safe Harbor Matching Contributions:

(1)   Age Requirement 21 (max. 21 – enter zero if none)

(2)   Service Requirement (check one)

o    A)    None

o    B)        -Year Period of Service (max. 2, but Vesting must be 100% if more than 1 year is used)

o    C)        -month Period of Service (max. 24, but Vesting must be 100% if more than 12 months are used)

o    D)        -week Period of Service (max. 104, but Vesting must be 100% if more than 52 weeks are used)

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o    E)        -day Period of Service (max. 730, but Vesting must be 100% if more than 365 days are used)

o    F)        Year(s) of Service (max. 2, but Vesting must be 100% if more than 1year is used)

x   G)    1 Year of Service, or if earlier, 6 (max. 11) consecutive calendar months of employment

x in which the Employee is credited with at least 83-1/3 Hours of Service per month

o    H)    1 Year of Service, or if earlier,                (max. 51) consecutive weeks of employment

o in which the Employee is credited with at least                  Hours of Service per week

o    I)     1 Year of Service, or if earlier,                (max. 364) consecutive days of employment

o in which the Employee is credited with at least                  Hours of Service per day

(e)   o    Requirements for Non-Safe Harbor Non-Elective Contributions:

(1)   Age Requirement                  (max. 21 – enter zero if none)

(2)   Service Requirement (check one)

o    A)    None

o    B)        -Year Period of Service (max. 2, but Vesting must be 100% if more than 1 year is used)

o    C)        -month Period of Service (max. 24, but Vesting must be 100% if more than 12 months are used)

o    D)        -week Period of Service (max. 104, but Vesting must be 100% if more than 52 weeks are used)

o    E)        -day Period of Service (max. 730, but Vesting must be 100% if more than 365 days are used)

o    F)        Year(s) of Service (max. 2, but Vesting must be 100% if more than 1year is used)

o    G)    1 Year of Service, or if earlier,                (max. 11) consecutive calendar months of employment

o in which the Employee is credited with at least                  Hours of Service per month

o    H)    1 Year of Service, or if earlier,                (max. 51) consecutive weeks of employment

o in which the Employee is credited with at least                  Hours of Service per week

o    I)     1 Year of Service, or if earlier,                (max. 364) consecutive days of employment

o in which the Employee is credited with at least                  Hours of Service per day

3.3Entry Dates. An Eligible Employee who has satisfied the applicable age and service requirements selected in Section 3.2 will enter the Plan as a Participant for the applicable purpose on the Entry Date (as defined in Section 2.2 of the Basic Plan) selected below.

(a)   x   Entry Date for Elective Deferrals, QMACs and QNECs: (check one)

Note: If Section 3.2(a)(2)(G), (H) or (I) is checked, an Eligible Employee who is entering the Plan as a Participant after satisfying the 1 Year of Service component of such service requirement will enter the Plan as a Participant on the earlier of (1) the first day of the Plan Year that occurs after the date he or she satisfies the 1 Year of Service requirement (and any applicable age requirement) or (2) the date that occurs six months after the date he or she satisfies the 1 Year of Service requirement (and any applicable age requirement). The Entry Date or Entry Dates selected below will only apply to an Eligible Employee who is entering the Plan as a Participant after satisfying the months, days or weeks component of such service requirement (and any applicable age requirement).

o    The first day of the Plan Year coincident with or following the date the requirements are satisfied. (1)

o    The last day of the Plan Year coincident with or following the date the requirements are satisfied. (1)

o    The first day of the month coincident with or following the date the requirements are satisfied.

o    The first day of the payroll period coincident with or following the date the requirements are satisfied.

x   The same day the requirements are satisfied.

o    The first day of the 1st or 7th month coincident with or following the date the requirements are satisfied.

o    The last day of the 6th or 12th month coincident with or following the date the requirements are satisfied.

o    The first day of the 1st, 4th, 7th or 10th month coincident with or following the date the requirements are satisfied.

o    The last day of the 3rd, 6th, 9th or 12th month coincident with or following the date the requirements are satisfied.

(1)This option cannot be checked if the age requirement in 3.2(a)(1) is 21 and/or if one of the following service requirements is checked: 3.2(a)(2)(B); 3.2(a)(2)(C) and the number of months is more than 6; 3.2(a)(2)(D) and the number of weeks is more than 26; 3.2(a)(2)(E) and the number of days is more than 182; or 3.2(a)(2)(F).

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(b)   o    Entry Date for ADP Safe Harbor Contributions: (check one)

Note: If Section 3.2(b)(2)(G), (H) or (I) is checked, an Eligible Employee who is entering the Plan as a Participant after satisfying the 1 Year of Service component of such service requirement will enter the Plan as a Participant on the earlier of (1) the first day of the Plan Year that occurs after the date he or she satisfies the 1 Year of Service requirement (and any applicable age requirement) or (2) the date that occurs six months after the date he or she satisfies the 1 Year of Service requirement (and any applicable age requirement). The Entry Date or Entry Dates selected below will only apply to an Eligible Employee who is entering the Plan as a Participant after satisfying the months, days or weeks component of such service requirement (and any applicable age requirement).

o    Retroactive to the first day of the Plan Year in which the requirements are satisfied.

o    The first day of the Plan Year coincident with or following the date the requirements are satisfied.  (1)

o    The first day of the Plan Year nearest the date the requirements are satisfied.

o    The last day of the Plan Year coincident with or following the date the requirements are satisfied. (1)

o    The last day of the Plan Year nearest the date the requirements are satisfied.

o    The first day of the month coincident with or following the date the requirements are satisfied.

o    The first day of the payroll period coincident with or following the date the requirements are satisfied.

o    The same day the requirements are satisfied.

o    The first day of the 1st or 7th month coincident with or following the date the requirements are satisfied.

o    The last day of the 6th or 12th month coincident with or following the date the requirements are satisfied.

o    The first day of the 1st, 4th, 7th or 10th month coincident with or following the date the requirements are satisfied.

o    The last day of the 3rd, 6th, 9th or 12th month coincident with or following the date the requirements are satisfied.

(1)This option cannot be checked if the age requirement in 3.2(b)(1) is 21 and/or if one of the following service requirements is checked: 3.2(b)(2)(B); 3.2(b)(2)(C) and the number of months is more than 6; 3.2(b)(2)(D) and the number of weeks is more than 26; 3.2(b)(2)(E) and the number of days is more than 182; or 3.2(b)(2)(F).

(c)   o    Entry Date for ACP Safe Harbor Contributions: (check one)

Note: If Section 3.2(c)(2)(G), (H) or (I) is checked, an Eligible Employee who is entering the Plan as a Participant after satisfying the 1 Year of Service component of such service requirement will enter the Plan as a Participant on the earlier of (1) the first day of the Plan Year that occurs after the date he or she satisfies the 1 Year of Service requirement (and any applicable age requirement) or (2) the date that occurs six months after the date he or she satisfies the 1 Year of Service requirement (and any applicable age requirement). The Entry Date or Entry Dates selected below will only apply to an Eligible Employee who is entering the Plan as a Participant after satisfying the months, days or weeks component of such service requirement (and any applicable age requirement).

o    Retroactive to the first day of the Plan Year in which the requirements are satisfied.

o    The first day of the Plan Year coincident with or following the date the requirements are satisfied.  (1)

o    The first day of the Plan Year nearest the date the requirements are satisfied.

o    The last day of the Plan Year coincident with or following the date the requirements are satisfied.  (1)

o    The last day of the Plan Year nearest the date the requirements are satisfied.

o    The first day of the month coincident with or following the date the requirements are satisfied.

o    The first day of the payroll period coincident with or following the date the requirements are satisfied.

o    The same day the requirements are satisfied.

o    The first day of the 1st or 7th month coincident with or following the date the requirements are satisfied.

o    The last day of the 6th or 12th month coincident with or following the date the requirements are satisfied.

o    The first day of the 1st, 4th, 7th or 10th month coincident with or following the date the requirements are satisfied.

o    The last day of the 3rd, 6th, 9th or 12th month coincident with or following the date the requirements are satisfied.

(1)This option cannot be checked if the age requirement in 3.2(c)(1) is 21 and/or if one of the following service requirements is checked: 3.2(c)(2)(B); 3.2(a)(2)(C) and the number of months is more than 6; 3.2(c)(2)(D) and the number of weeks is more than 26; 3.2(c)(2)(E) and the number of days is more than 182; or 3.2(c)(2)(F).

9

(d)   x   Entry Date for Non-Safe Harbor Matching Contributions: (check one)

Note: If Section 3.2(d)(2)(G), (H) or (I) is checked, an Eligible Employee who is entering the Plan as a Participant after satisfying the 1 Year of Service component of such service requirement will enter the Plan as a Participant on the earlier of (1) the first day of the Plan Year that occurs after the date he or she satisfies the 1 Year of Service requirement (and any applicable age requirement) or (2) the date that occurs six months after the date he or she satisfies the 1 Year of Service requirement (and any applicable age requirement). The Entry Date or Entry Dates selected below will only apply to an Eligible Employee who is entering the Plan as a Participant after satisfying the months, days or weeks component of such service requirement (and any applicable age requirement).

o    Retroactive to the first day of the Plan Year in which the requirements are satisfied.

o    The first day of the Plan Year coincident with or following the date the requirements are satisfied. (1)

o    The first day of the Plan Year nearest the date the requirements are satisfied.

o    The last day of the Plan Year coincident with or following the date the requirements are satisfied. (1)

o    The last day of the Plan Year nearest the date the requirements are satisfied.

o    The first day of the month coincident with or following the date the requirements are satisfied.

o    The first day of the payroll period coincident with or following the date the requirements are satisfied.

x   The same day the requirements are satisfied.

o    The first day of the 1st or 7th month coincident with or following the date the requirements are satisfied.

o    The last day of the 6th or 12th month coincident with or following the date the requirements are satisfied.

o    The first day of the 1st, 4th, 7th or 10th month coincident with or following the date the requirements are satisfied.

o    The last day of the 3rd, 6th, 9th or 12th month coincident with or following the date the requirements are satisfied.

(1)This option cannot be checked if the age requirement in 3.2(d)(1) is 21 and/or if one of the following service requirements is checked: 3.2(d)(2)(B); 3.2(a)(2)(C) and the number of months is more than 6; 3.2(d)(2)(D) and the number of weeks is more than 26; 3.2(d)(2)(E) and the number of days is more than 182; or 3.2(d)(2)(F).

(e)   o    Entry Date for Non-Safe Harbor Non-Elective Contributions: (check one)

Note: If Section 3.2(e)(2)(G), (H) or (I) is checked, an Eligible Employee who is entering the Plan as a Participant after satisfying the 1 Year of Service component of such service requirement will enter the Plan as a Participant on the earlier of (1) the first day of the Plan Year that occurs after the date he or she satisfies the 1 Year of Service requirement (and any applicable age requirement) or (2) the date that occurs six months after the date he or she satisfies the 1 Year of Service requirement (and any applicable age requirement). The Entry Date or Entry Dates selected below will only apply to an Eligible Employee who is entering the Plan as a Participant after satisfying the months, days or weeks component of such service requirement (and any applicable age requirement).

o    Retroactive to the first day of the Plan Year in which the requirements are satisfied.

o    The first day of the Plan Year coincident with or following the date the requirements are satisfied. (1)

o    The first day of the Plan Year nearest the date the requirements are satisfied.

o    The last day of the Plan Year coincident with or following the date the requirements are satisfied. (1)

o    The last day of the Plan Year nearest the date the requirements are satisfied.

o    The first day of the month coincident with or following the date the requirements are satisfied.

o    The first day of the payroll period coincident with or following the date the requirements are satisfied.

o    The same day the requirements are satisfied.

o    The first day of the 1st or 7th month coincident with or following the date the requirements are satisfied.

o    The last day of the 6th or 12th month coincident with or following the date the requirements are satisfied.

o    The first day of the 1st, 4th, 7th or 10th month coincident with or following the date the requirements are satisfied.

o    The last day of the 3rd, 6th, 9th or 12th month coincident with or following the date the requirements are satisfied.

(1)This option cannot be checked if the age requirement in 3.2(e)(1) is 21 and/or if one of the following service requirements is checked: 3.2(e)(2)(B); 3.2(a)(2)(C) and the number of months is more than 6; 3.2(e)(2)(D) and the number of weeks is more than 26; 3.2(e)(2)(E) and the number of days is more than 182; or 3.2(e)(2)(F).

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Section 4.  Elective Deferrals

4.1Elective Deferral Percentage. A Participant can make Elective Deferrals < obeginning (must be on or after the date this Adoption Agreement is signed by the Sponsoring Employer) > in accordance with the provisions selected below.

(a)Minimum and Maximum Percentage. The minimum permitted Elective Deferral percentage is 0% (enter zero if there is no minimum %) of Compensation and the maximum permitted Elective Deferral percentage is 80% (max. 100%) of Compensation. Any other Elective Deferral provisions will be set forth in an administrative policy regarding Elective Deferrals as promulgated by the Administrator from time to time. Such administrative policy may include, but is not limited to, setting the maximum Elective Deferral percentage for Participants who are Highly Compensated Employees (if such percentage is less than the maximum percentage set forth above) and describing a program of automatic increases to a Participants’ Elective Deferral percentage as elected by the Administrator and/or the Participant.

(b)Salary Reduction Agreements. A Participant can change his or her Salary Reduction Agreement: (check one)

x   At any time

o    Annually on the date established by the Administrator

o    Semi-annually on the date established by the Administrator

o    Quarterly on the date established by the Administrator

o    Monthly on the day established by the Administrator

o    On the date or dates as established by the Administrator

(c)oAutomatic Enrollment. Automatic enrollment is permitted. The terms of the automatic enrollment, including but not limited to the percentage, automatic increases to that percentage, the proportion that is considered a Pre-Tax Elective Deferral and/or a Roth Elective Deferral, and the Participants to whom it applies, will be set forth in an administrative policy regarding Elective Deferrals as promulgated from time to time by the Administrator.

4.2x   Catch-Up Contributions. Catch-Up Contributions are permitted in accordance with Section 3.2(e) of the Basic Plan.

4.3oRoth Elective Deferrals. A Participant may designate all or a portion or his or her Elective Deferrals as Roth Elective Deferrals in accordance with Section 3.2(c) of the Basic Plan.

Section 5.  o Safe Harbor Contributions

5.1o“Mandatory” ADP Safe Harbor Non-Elective Contributions. Subject to Section 3.20 of the Basic Plan, the Employer will make an ADP Safe Harbor Non-Elective Contribution for each Safe Harbor Participant in an amount equal to 3% (or such higher percentage as may be elected by the Employer by resolution) of Compensation, except as may be indicated below.

oThe ADP Safe Harbor Non-Elective Contribution will be used to offset the allocation that would otherwise be made to the Participant under Section 7 of the Adoption Agreement. If Section 7.2(d) of the Adoption Agreement is checked, this offset applies only to the second step of the Two-Step Formula or the fourth step of the Four-Step Formula, as applicable.

oThis contribution will be made to the following defined contribution plan in lieu of this Plan:

5.2o“Contingent” ADP Safe Harbor Non-Elective Contributions. Subject to Section 3.20 of the Basic Plan, the Employer may make an ADP Safe Harbor Non-Elective Contribution for each Safe Harbor Participant in an amount equal to 3% (or such higher percentage as may be elected by the Employer by resolution) of Compensation, except as may be indicated below.

oThe ADP Safe Harbor Non-Elective Contribution will be used to offset the allocation that would otherwise be made to the Participant under Section 7 of the Adoption Agreement. If Section 7.2(d) of the Adoption Agreement is checked, this offset applies only to the second step of the Two-Step Formula or the fourth step of the Four-Step Formula, as applicable.

oThis contribution will be made to the following defined contribution plan in lieu of this Plan:

5.3oADP Safe Harbor Basic Matching Contributions. The Employer will make a Matching Contribution for each Safe Harbor Participant equal to the sum of (1) 100% of the Participant’s Elective Deferrals that do not exceed 3% of Compensation for the Allocation Period, plus (2) 50% of the Participant’s Elective Deferrals that exceed 3% of Compensation for the Allocation Period but do not exceed 5% percent of Compensation for the Allocation Period.

11

5.4oADP Safe Harbor Enhanced Matching Contributions. The Employer will make a Matching Contribution for each Safe Harbor Participant equal to the sum of (1) 100% of the Participant’s Elective Deferrals that do not exceed % of Compensation for the Allocation Period, plus (2) % of the Participant’s Elective Deferrals that exceed % of Compensation but do not exceed % of Compensation for the Allocation Period. (Note: In the blank in (1) and the second blank in (2), insert a number that is 3 but not greater than 6. The first and last blanks in (2) must be completed so that, at any rate of elective deferrals, the Matching Contribution is at least equal to the Matching Contribution receivable if the Employer were making ADP Safe Harbor Basic Matching Contributions, but the rate of match cannot increase as deferrals increase.)

Note: You can only select Sections 5.5, 5.6 and/or 5.7 below if you also selected Section 5.1, 5.2, 5.3 or 5.4 above.

5.5oACP Safe Harbor Discretionary Non-Tiered Matching Contributions. The Employer’s ACP Safe Harbor Discretionary Non-Tiered Matching Contribution is totally discretionary, but when made will be a percentage determined by the Employer of a Safe Harbor Participant’s Elective Deferrals that do not exceed 4% of his or her Compensation for the Allocation Period. (Note: Any ACP Safe Harbor Discretionary Non-Tiered Matching Contribution that exceeds 4% of a Participant’s Compensation is considered a Non-Safe Harbor Matching Contribution and is subject to the ACP Test.)

5.6o    ACP Safe Harbor Mandatory Non-Tiered Matching Contributions. The Employer must make an ACP Safe Harbor Mandatory Non-Tiered Matching Contribution equal to % of a Safe Harbor Participant’s Elective Deferrals which do not exceed % (max. 6) of a Safe Harbor Participant’s Compensation for the Allocation Period.

5.7o    ACP Safe Harbor Mandatory Tiered Matching Contributions. The Employer must make an ACP Safe Harbor Mandatory Tiered Matching Contribution for each Safe Harbor Participant equal to the amount determined below, provided the ratio of Matching Contributions for a Safe Harbor Participant to his or her Elective Deferrals and Employee Contributions does not increase as the amount of his or her Elective Deferrals and Employee Contributions increases. In no event can Elective Deferrals that exceed 6% of Compensation for the Allocation Period be matched. (Note: The blanks must be completed so that, at any rate of Elective Deferrals, the rate of Matching Contributions cannot increase as Elective Deferrals increase.)

o  1st tier              % of Elective Deferrals that do not exceed              % of Compensation

o  2nd tier             % of Elective Deferrals that exceed               % but not               % of Compensation

o  3rd tier             % of Elective Deferrals that exceed               % but not               % of Compensation

o  4th tier             % of Elective Deferrals that exceed               % but not               % of Compensation

Section 6.  x Non-Safe Harbor Matching Contributions

6.1Determination of Amount. Non-Safe Harbor Matching Contributions are permitted < obeginning (must be after the later of the Plan’s original effective date or the restatement date) >, subject to the provisions selected below.

(a)oTotally Discretionary Formula (Non-Tiered). Subject to the requirements set forth in Section 3.4(f) of the Basic Plan, the Employer’s Non-Safe Harbor Matching Contribution for any Allocation Period is totally discretionary.

(b)oDiscretionary Formula (Tiered or Non-Tiered) With Fixed Maximum. Subject to the requirements set forth in Section 3.4(f) of the Basic Plan, the Employer may make a Non-Safe Harbor Matching Contribution for any Allocation Period equal to a discretionary percentage of each Benefiting Participant’s Elective Deferrals, not to exceed the following amount for any Allocation Period on behalf of any Benefiting Participant:

o            % (max. 100%) of a Benefiting Participant’s Elective Deferrals

o            % of a Benefiting Participant’s Compensation (this % cannot exceed the minimum deferral % in 4.4(a))

o  $                       for a Benefiting Participant

o  The lesser of               % of a Benefiting Participant’s Compensation or $

o            % (max. 100%) of a Participant Elective Deferrals that do not exceed             % of his or her Compensation

(c)xMandatory Non-Tiered Formula. The Employer must make a Non-Safe Harbor Matching Contribution equal to 50% (max. 100%) of each Benefiting Participant’s Elective Deferrals x not to exceed the following for an Allocation Period:

x  Elective Deferrals in excess of 6% of each Benefiting Participant’s Compensation

o  $                   for each Benefiting Participant

o  The lesser of Elective Deferrals in excess of           % of each Benefiting Participant’s Compensation or $

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(d)oMandatory Tiered Formula. The Employer must make a Non-Safe Harbor Matching Contribution for each Benefiting Participant equal to the amount determined by the tiered formula below. (check each tier that applies, but note that the rate of Non-Safe Harbor Matching Contributions cannot increase as Elective Deferrals increase)

o  1st tier            % of Elective Deferrals that do not exceed               % of Compensation

o  2nd tier           % of Elective Deferrals that exceed              % but not               % of Compensation

o  3rd tier           % of Elective Deferrals that exceed               % but not               % of Compensation

o  4th tier           % of Elective Deferrals that exceed               % but not               % of Compensation

o  5th tier           % of Elective Deferrals that exceed               % but not               % of Compensation

o  6th tier           % of Elective Deferrals that exceed               % but not               % of Compensation

o  7th tier           % of Elective Deferrals that exceed               % but not               % of Compensation

o  8th tier           % of Elective Deferrals that exceed               % but not               % of Compensation

o  9th tier           % of Elective Deferrals that exceed               % but not               % of Compensation

o  10th tier         % of Elective Deferrals that exceed               % but not               % of Compensation

(e)oMandatory Years/Periods of Service Formula. The Employer must make a Non-Safe Harbor Matching Contribution for each Benefiting Participant equal to the Matching percentage indicated below of each Benefiting Participant’s Elective Deferrals based on the Benefiting Participant’s < o 1-Year Periods of Service > < o Years of Service, and a Year of Service for purposes of this Section is a Plan Year in which a Participant is credited with                (max. 1,000) Hours of Service >, subject to any limitations indicated below. (check each tier that applies)

Years/Periods of Service	Matching %
to		%	< o up to $         > < o up to        % of Compensation >
to		%	< o up to $         > < o up to        % of Compensation >
to		%	< o up to $         > < o up to        % of Compensation >
to		%	< o up to $         > < o up to        % of Compensation >
to		%	< o up to $         > < o up to        % of Compensation >

6.2Benefiting Participants. Any Employee who has entered the Plan as a Participant for Non-Safe Harbor Matching Contribution purposes and makes an Elective Deferral in an Allocation Period < o and who is an NHCE for that Allocation Period > will be a Benefiting Participant under this Section for an Allocation Period based on the conditions below < o provided the Participant is still an Eligible Employee under Section 3.1(d) on the last day of the Allocation Period (or earlier Termination of Employment) >.

(a)   Participants who are still Employees on the last day of the Allocation Period (check one)

x  Will always be Benefiting Participants regardless of Service

o  Must be credited with                  (max. 1,000) Hours of Service in the Allocation Period

o  Must be credited with a                  (max. 6) month Period of Service in the Allocation Period

o  Must be credited with                  (max. 6) consecutive calendar months of employment in the Allocation Period

o  Must be credited with                  (max. 182) consecutive days of employment in the Allocation Period

(b)Participants who Terminate Employment before the last day of the Allocation Period because of retirement on or after Normal Retirement Age < o or Early Retirement Age >, or because of death or Disability (check one)

o  Will not be Benefiting Participants for that Allocation Period

x  Will always be Benefiting Participants regardless of Service

o  Must be credited with                  (max. 1,000) Hours of Service in the Allocation Period

o  Must be credited with a                  (max. 6) month Period of Service in the Allocation Period

o  Must be credited with                  (max. 6) consecutive calendar months of employment in the Allocation Period

o  Must be credited with                  (max. 182) consecutive days of employment in the Allocation Period

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(c)   Participants who Terminate Employment before the last day of the Allocation Period for any other reason (check one)

o  Will not be Benefiting Participants for that Allocation Period

x  Will always be Benefiting Participants regardless of Service

o  Must be credited with                  (max. 1,000) Hours of Service in the Allocation Period

o  Must be credited with a                  (max. 6) month Period of Service in the Allocation Period

o  Must be credited with                  (max. 6) consecutive calendar months of employment in the Allocation Period

o  Must be credited with                  (max. 182) consecutive days of employment in the Allocation Period

6.3oCatch-Up Contributions. Catch-Up Contributions will be matched under the formula selected in Section 6.1 < obut any limitations selected in such formula will be ignored >.

6.4oVoluntary Employee Contributions. Voluntary Employee Contributions will be matched under the formula selected in Section 6.1 < obut any limitations selected in such formula will be ignored >.

6.5oAdditional Non-Safe Harbor Matching Contributions. An Employer may make additional Non-Safe Harbor Matching Contributions as selected in the “Additional Non-Safe Harbor Matching Contribution Addendum” attached hereto.

Section 7.  o Non-Safe Harbor Non-Elective Contributions

7.1Determination of Amount. Non-Safe Harbor Non-Elective Contributions are permitted < obeginning (must be after the later of the Plan’s original effective date or the restatement date) >, and the amount made by the Employer for any Allocation Period will be determined by the formula below. (check one)

o  Totally discretionary on the part of the Employer

o  Equal to at least               % of the Compensation of all Benefiting Participants

o  Equal to at least $

o  As required by the following collective bargaining agreement

o  Other (describe how the amount is determined)

7.2Allocation Method. Non-Safe Harbor Non-Elective Contributions made to the Plan will be allocated in the manner selected below.

(a)  oPro-rata based on the Compensation for the Allocation Period of all Benefiting Participants.

(b)  oPer capita (same dollar amount) for the Allocation Period to all Benefiting Participants.

(c)  oPro-rata based on the allocation points of all Benefiting Participants. Each Participant’s allocation points for each Allocation Period will be the sum of the points selected below. (check all that apply, but 1) or 2) must be checked)

o  1)            points for each year of a Participant’s age

o  2)            points for each of a Participant’s credited Years/Periods of Service < o to a maximum of            years >

o  3)            points per each $               (max. $200) of a Participant’s Compensation paid in the Allocation Period

(d)  oUsing permitted disparity in < o a 2-step allocation only > < o a 4-step allocation only > < o a 2-step allocation in non-Top Heavy Plan Years and a 4-step allocation in Top Heavy Plan Years >, in accordance with Section 3.5(a)(4) of the Basic Plan, based on the integration percentage and the integration level selected below.

Integration%	Integration Level
o  5.7%	o  The Taxable Wage Base
	o              % of the Taxable Wage Base (must be 20% or less of the Taxable Wage Base)
	o  $           (amount must be 20% or less of the Taxable Wage Base)
o  5.4%	o  80% of the Taxable Wage Base rounded up < o $1 > < o $100 > < o $1,000 >
	o                % of the Taxable Wage Base (must be more than 80% but less than 100%)
	o  $              (amount must be more than 80% but less than 100% of the Taxable Wage Base)
o  4.3%	o  20% of the Taxable Wage Base rounded up < o $1 > < o $100 > < o $1,000 >
	o             % of the Taxable Wage Base (must be more than 20% but not more than 80%)
	o  $            (amount must be more than 20% but not more than 80% of the Taxable Wage Base)

14

(e)  oUsing the Participant Group Allocation method as set forth in the “Allocation Group Addendum” attached hereto.

(f)  oUsing the Age-Weighted Allocation method determined with the assumptions indicated below.

Pre-Retirement Interest:             %   Pre-Retirement Mortality:

Post-Retirement Interest:            %   Post-Retirement Mortality:

7.3Benefiting Participants. An Employee who is a Participant for Non-Safe Harbor Non-Elective Contribution purposes will be a Benefiting Participant under this Section for an Allocation Period based on the conditions below < o provided the Participant is still an Eligible Employee under Section 3.1(e) on the last day of the Allocation Period (or earlier Termination of Employment) >.

(a)   Participants who are still Employees on the last day of the Allocation Period (check one)

o    Will always be Benefiting Participants regardless of Service

o    Must be credited with                  (max. 1,000) Hours of Service in the Allocation Period

o    Must be credited with a                  (max. 6) month Period of Service in the Allocation Period

o    Must be credited with                  (max. 6) consecutive calendar months of employment in the Allocation Period

o    Must be credited with                  (max. 182) consecutive days of employment in the Allocation Period

(b)Participants who Terminate Employment before the last day of the Allocation Period because of retirement on or after Normal Retirement Age < o or Early Retirement Age >, or because of death or Disability (check one)

o    Will not be Benefiting Participants for that Allocation Period

o    Will always be Benefiting Participants regardless of Service

o    Must be credited with                  (max. 1,000) Hours of Service in the Allocation Period

o    Must be credited with a                  (max. 6) month Period of Service in the Allocation Period

o    Must be credited with                  (max. 6) consecutive calendar months of employment in the Allocation Period

o    Must be credited with                  (max. 182) consecutive days of employment in the Allocation Period

(c)Participants who Terminate Employment before the last day of the Allocation Period for any other reason (check one)

o    Will not be Benefiting Participants for that Allocation Period

o    Will always be Benefiting Participants regardless of Service

o    Must be credited with                  (max. 1,000) Hours of Service in the Allocation Period

o    Must be credited with a                  (max. 6) month Period of Service in the Allocation Period

o    Must be credited with                  (max. 6) consecutive calendar months of employment in the Allocation Period

o    Must be credited with                  (max. 182) consecutive days of employment in the Allocation Period

7.4o    Additional Non-Safe Harbor Non-Elective Contributions. An Employer may make additional Non-Safe Harbor Non-Elective Contributions as selected in the “Additional Non-Safe Harbor Non-Elective Contribution Addendum” attached hereto.

Section 8.  x Rollovers and Employee Contributions

8.1x   Rollover Contributions.Rollover Contributions are permitted < obeginning (must be after the later of the Plan’s original effective date or the restatement date) >, subject to the provisions selected below.

(a)   Rollover Contributions can be made to the Plan by: (check one)

o    Any Employee (including those who are not Eligible Employees)

x   Any Eligible Employee (whether a Participant or not)

o    Any Eligible Employee who has become a Participant for Elective Deferral purposes

o    Any Eligible Employee who has become a Participant for Non-Safe Harbor Matching Contribution purposes

o    Any Eligible Employee who has become a Participant for Non-Safe Harbor Non-Elective Contribution purposes

(b)   Rollover Contributions will be accepted from the following types of plans: (check any that apply)

x   Code §401(a) plans (qualified retirement plans)

x   Code §403(a) plans (qualified annuity plans)

x   Code §403(b) plans (annuities purchased by a Code §501(c)(3) organization and certain educational institutions)

15

x   Code §408(a) plans (individual retirement accounts)

x   Code §408(b) plans (individual retirement annuities)

x   Code §457(b) plans (governmental only)

(c)   Rollover Contributions can also include the following: (check all that apply)

o    Roth Elective Deferrals (Note: Can be checked only if this Plan also permits Roth Elective Deferrals)

o    Voluntary Employee Contributions

o    Mandatory Employee Contributions

o    Participant loans

o    In kind distributions (other than Participant loans)

(d)Rollover Contributions can be withdrawn from the Plan: (check one)

x   At any time

o    Annually on a date set by the Administrator

o    Semi-annually on dates set by the Administrator

o    Quarterly on dates set by the Administrator

o    Monthly on dates set by the Administrator

o    Only upon Termination of Employment and only at the time selected in Section 15.5 of the Adoption Agreement

(e)   Rollover Contributions which are withdrawn from the Plan < x can > < o cannot > be redeposited in the Plan.

8.2x   Voluntary Employee Contributions.Voluntary Employee Contributions are permitted < obeginning (must be after the later of the Plan’s original effective date or the restatement date) >, subject to the provisions selected below.

(a)   Voluntary Employee Contributions can be made to the Plan by: (check one)

x   Any Eligible Employee who has become a Participant for Elective Deferral purposes

o    Any Eligible Employee who has become a Participant for Non-Safe Harbor Matching Contribution purposes

o    Any Eligible Employee who has become a Participant for Non-Safe Harbor Non-Elective Contribution purposes

(b)Minimum and Maximum Contribution. The minimum permitted Voluntary Employee Contribution is 0% (enter zero if no minimum) of Compensation and the maximum permitted contribution is 10% (max. 100) of Compensation. Voluntary Employee Contributions can be made < o annually > < o monthly > < x each payroll period >.

(c)   Voluntary Employee Contributions can be withdrawn from the Plan: (check one)

x   At any time

o    Annually on a date set by the Administrator

o    Semi-annually on dates set by the Administrator

o    Quarterly on dates set by the Administrator

o    Monthly on dates set by the Administrator

o    Only upon Termination of Employment and only at the time selected in Section 15.5 of the Adoption Agreement

8.3o    Deemed IRAs.Deemed Individual Retirement Accounts are permitted < obeginning (must be after the later of the Plan’s original effective date or the restatement date) >, subject to the provisions selected below. (check one)

o    Any Eligible Employee who has become a Participant for Elective Deferral purposes

o    Any Eligible Employee who has become a Participant for Non-Safe Harbor Matching Contribution purposes

o    Any Eligible Employee who has become a Participant for Non-Safe Harbor Non-Elective Contribution purposes

Section 9.  o Prevailing Wage Contributions

9.1Prevailing Wage Contributions. Subject to Section 3.6 of the Basic Plan, the Employer will make contributions to the Plan for the Prevailing Wage Service of each Participant < o who is an NHCE >. The Administrator may promulgate additional rules and procedures regarding Prevailing Wage Contributions in an administrative policy regarding Prevailing Wage Contributions.

9.2Vesting. Prevailing Wage contributions are 100% Vested at all times unless they are “annualized” pursuant to Department of Labor Regulations, in which case they will be Vested in accordance with the schedule selected in Section 10.6 of the Adoption Agreement. Notwithstanding the foregoing, to the extent a Prevailing Wage contribution is used to offset an Employer contribution that is required to be 100% Vested at all times, such Prevailing Wage contribution will also be 100% Vested at all times.

16

Section 10.  Vesting Requirements

10.1Full and Immediate Vesting Upon Retirement, Death or Disability. A Participant’s Vested Interest in his or her Participant’s Account will be 100% upon reaching Normal Retirement Age and upon the occurrence of the following: (check all that apply)

o    Reaching Early Retirement Age

x   Death prior to Termination of Employment

o    Disability prior to Termination of Employment

10.2Elective Deferrals, QMACs, QNECs and ADP Safe Harbor Contributions. A Participant’s Vested Interest in all Elective Deferrals, QMACS, QNECs and ADP Safe Harbor Contributions allocated to him or her will be 100% at all times.

10.3oACP Safe Harbor Matching Contributions. A Participant’s Vested Interest in his or her ACP Safe Harbor Matching Contribution Account will be determined by the provisions selected below.

(a)The Vesting schedule for ACP Safe Harbor Matching Contributions in a non-Top Heavy Plan Year is: (check one)

o    100% full and immediate

oThe schedule set forth below

1 Year / Period of Service                     %

2 Years / Periods of Service                  %   (must be at least 20% unless 100% Vesting occurs after 3 years)

3 Years / Periods of Service                  %   (must be at least 40%)

4 Years / Periods of Service                  %   (must be at least 60%)

5 Years / Periods of Service                  %   (must be at least 80%)

6 Years / Periods of Service                  %   (must be 100%)

(b)   The Vesting schedule for ACP Safe Harbor Matching Contributions in a Top Heavy Plan Year is: (check one)

o    100% full and immediate

oThe schedule set forth below

1 Year / Period of Service                     %

2 Years / Periods of Service                  %   (must be at least 20% unless 100% Vesting occurs after 3 years)

3 Years / Periods of Service                  %   (must be at least 40%)

4 Years / Periods of Service                  %   (must be at least 60%)

5 Years / Periods of Service                  %   (must be at least 80%)

6 Years / Periods of Service                  %   (must be 100%)

(c)oVesting Schedule for Pre-EGTRRA Contributions. Notwithstanding paragraphs (a) and (b) above, a Participant’s Vested Interest in ACP Safe Harbor Contributions which were made to the Plan prior to January 1, 2001 will be determined in accordance with the Vesting schedule in effect when such contributions were made to the Plan.

(d)oService Excluded for Vesting. All Service with the Employer is counted in determining a Participant’s Vested Interest in the ACP Safe Harbor Matching Contribution Account except the following: (check all that apply)

o    Service before age 18

o    Service before the Employer maintained this Plan or a predecessor plan

o    Service during a period for which the Employee made no mandatory contributions to the Plan

10.4x   Non-Safe Harbor Matching Contributions. A Participant’s Vested Interest in his or her Non-Safe Harbor Matching Contribution Account will be determined by the provisions below selected below.

(a)The Vesting schedule for Non-Safe Harbor Matching Contributions in a non-Top Heavy Plan Year is: (check one)

o    100% full and immediate

xThe schedule set forth below

1 Year / Period of Service 33.00%

2 Years / Periods of Servic 67.00%  (must be at least 20% unless 100% Vesting occurs after 3 years)

3 Years / Periods of Service 100%   (must be at least 40%)

4 Years / Periods of Service 100%   (must be at least 60%)

5 Years / Periods of Service 100%   (must be at least 80%)

6 Years / Periods of Service 100%   (must be 100%)

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(b)   The Vesting schedule for Non-Safe Harbor Matching Contributions in a Top Heavy Plan Year is: (check one)

o    100% full and immediate

xThe schedule set forth below

1 Year / Period of Service 33.00%

2 Years / Periods of Servic 67.00%  (must be at least 20% unless 100% Vesting occurs after 3 years)

3 Years / Periods of Service 100%   (must be at least 40%)

4 Years / Periods of Service 100%   (must be at least 60%)

5 Years / Periods of Service 100%   (must be at least 80%)

6 Years / Periods of Service 100%   (must be 100%)

(b)oVesting Schedule for Pre-EGTRRA Contributions. Notwithstanding paragraphs (a) and (b) above, a Participant’s Vested Interest in Non-Safe Harbor Matching Contributions which were made to the Plan prior to January 1, 2001 will be determined in accordance with the Vesting schedule in effect when such contributions were made to the Plan.

(c)oService Excluded for Vesting. All Service with the Employer is counted in determining a Participant’s Vested Interest in the Non-Safe Harbor Matching Contribution Account except the following: (check all that apply)

o    Service before age 18

o    Service before the Employer maintained this Plan or a predecessor plan

o    Service during a period for which the Employee made no mandatory contributions to the Plan

10.5oNon-Safe Harbor Non-Elective Contributions. A Participant’s Vested Interest in all Non-Safe Harbor Non-Elective Contributions allocated to him or her will be determined by the provisions selected below.

(a)   The Vesting schedule for Non-Safe Harbor Non-Elective Contributions in a non-Top Heavy Plan Year is: (check one)

o    100% full and immediate

o    7 Year Graded

o    5 Year Cliff

oThe schedule set forth below

1 Year / Period of Service              %

2 Years / Periods of Service           %   (must be at least 20% unless 100% Vesting occurs after 3 years)

3 Years / Periods of Service           %   (must be at least 40%)

4 Years / Periods of Service           %   (must be at least 60%)

5 Years / Periods of Service           %   (must be at least 80%)

6 Years / Periods of Service           %   (must be 100%)

(b)   The Vesting schedule for Non-Safe Harbor Non-Elective Contributions in a Top Heavy Plan Year is: (check one)

o    100% full and immediate

oThe schedule set forth below

1 Year / Period of Service              %

2 Years / Periods of Service           %   (must be at least 20% unless 100% Vesting occurs after 3 years)

3 Years / Periods of Service           %   (must be at least 40%)

4 Years / Periods of Service           %   (must be at least 60%)

5 Years / Periods of Service           %   (must be at least 80%)

6 Years / Periods of Service           %   (must be 100%)

(c)oService Excluded for Vesting. All Service with the Employer is counted in determining a Participant’s Vested Interest in the Non-Safe Harbor Non-Elective Contribution Account except the following: (check all that apply)

o    Years of Service before age 18

o    Years of Service before the Employer maintained this Plan or a predecessor plan

o    Years of Service during a period for which the Employee made no mandatory contributions to the Plan

18

10.6o    Prevailing Wage Contributions. Except as otherwise provided in Section 9.2 of the Adoption Agreement, a Participant’s Vested Interest in all Prevailing Wage contributions allocated to him or her will be determined by the provisions below.

(a)   The Vesting schedule for Prevailing Wage Contributions in a non-Top Heavy Plan Year is: (check one)

o    100% full and immediate

o    7 Year Graded

o    5 Year Cliff

oThe schedule set forth below

1 Year / Period of Service             %

2 Years / Periods of Service          %   (must be at least 20% unless 100% Vesting occurs after 3 years)

3 Years / Periods of Service          %   (must be at least 40%)

4 Years / Periods of Service          %   (must be at least 60%)

5 Years / Periods of Service          %   (must be at least 80%)

6 Years / Periods of Service          %   (must be 100%)

(b)   The Vesting schedule for Prevailing Wage Contributions in a Top Heavy Plan Year is: (check one)

o    100% full and immediate

oThe schedule set forth below

1 Year / Period of Service             %

2 Years / Periods of Service          %   (must be at least 20% unless 100% Vesting occurs after 3 years)

3 Years / Periods of Service          %   (must be at least 40%)

4 Years / Periods of Service          %   (must be at least 60%)

5 Years / Periods of Service          %   (must be at least 80%)

6 Years / Periods of Service          %   (must be 100%)

(c)oService Excluded for Vesting. All Service with the Employer is counted in determining a Participant’s Vested Interest in the Prevailing Wage Contribution Account except the following: (check all that apply)

o    Years of Service before age 18

o    Years of Service before the Employer maintained this Plan or a predecessor plan

o    Years of Service during a period for which the Employee made no mandatory contributions to the Plan

Section 11.  Compensation Definitions

11.1x   Elective Deferrals. A Participant’s Compensation for Elective Deferral purposes will be determined as selected below.

(a)   Compensation is defined as: (check one)

x   Form W-2 Compensation

o    Code §3401 Compensation

o    Safe Harbor Code §415 Compensation

(b)   Elective contributions under Code §125, §132(f)(4), §402(h), §403(b), §457(b) and §414(h)(2) will: (check one)

o    Be included as Compensation

x   Not be included as Compensation

(c)   The Compensation measuring period is the: (check one)

x   Plan Year

o    Fiscal Year ending on or within the Plan Year

o    Calendar year ending on or within the Plan Year

(d)x   The following categories of remuneration will not be counted as Compensation:(check all that apply)

x   1) Compensation received prior to becoming a Participant

o    2) Compensation received while an ineligible Employee under Section 3.1(a) of the Adoption Agreement

o    3) All items in Regulation §1.414(s)-1(c)(3) (i.e., expense allowances, fringe benefit, moving expenses, etc.)

o    4) Post-Severance Compensation (1)

19

o    5) Deemed 125 Compensation (1)

o    6) Bonuses (1)

o    7) Overtime (1)

o    8) Commissions (1)

x   9) Other (describe) (1)  See 1 in Addendum

(1)If checked, the Plan’s definition of compensation may fail to satisfy the safe harbor requirements unless such compensation is excluded only with respect to Highly Compensated Employees under paragraph (e) below.

(e)o    The amounts excluded under (d)(4) – (9) will only be excluded with respect to: (check all that apply)

o    Highly Compensated Employees

o    Other (cannot be a class that only includes NHCEs)

11.2o    ADP Safe Harbor Contributions. A Participant’s Compensation for purposes of any ADP Safe Harbor Contributions contributed under Section 5 of the Adoption Agreement will be determined as selected below.

(a)   Compensation is defined as: (check one)

o    Form W-2 Compensation

o    Code §3401 Compensation

o    Safe Harbor Code §415 Compensation

(b)Elective contributions under Code §125, §132(f)(4), §401(k), §402(h), §403(b), §457(b) and §414(h)(2) will: (check one)

o    Be included as Compensation

o    Not be included as Compensation

(c)   The Compensation measuring period is the: (check one)

o    Plan Year

o    Fiscal Year ending on or within the Plan Year

o    Calendar year ending on or within the Plan Year

(d)o    The following categories of remuneration will not be counted as Compensation: (check all that apply)

o    1) Compensation received prior to becoming a Participant

o2) Compensation received while an ineligible Employee under Sections 3.1(a) and (b) of the Adoption Agreement

o3) All items in Regulation §1.414(s)-1(c)(3) (i.e., expense allowances, fringe benefit, moving expenses, etc.)

o    4) Post-Severance Compensation (1)

o    5) Deemed 125 Compensation (1)

o    6) Bonuses (1)

o    7) Overtime (1)

o    8) Commissions (1)

o    9) Other (describe) (1)

(1)If checked, the Plan’s definition of compensation may fail to satisfy the safe harbor requirements unless such compensation is excluded only with respect to Highly Compensated Employees under paragraph (e) below.

(e)o    The amounts excluded under (d)(4) – (9) will only be excluded with respect to: (check all that apply)

o    Highly Compensated Employees

o    Other (cannot be a class that only includes NHCEs)

20

11.3oACP Safe Harbor Contributions. A Participant’s Compensation for purposes of any ACP Safe Harbor Contributions contributed under Section 5 of the Adoption Agreement will be determined as selected below.

(a)Compensation is defined as: (check one)

oForm W-2 Compensation

oCode §3401 Compensation

oSafe Harbor Code §415 Compensation

(b)Elective contributions under Code §125, §132(f)(4), §401(k), §402(h), §403(b), §457(b) and §414(h)(2) will: (check one)

oBe included as Compensation

oNot be included as Compensation

(c)The Compensation measuring period is the: (check one)

oPlan Year

oFiscal Year ending on or within the Plan Year

oCalendar year ending on or within the Plan Year

(d)oThe following categories of remuneration will not be counted as Compensation: (check all that apply)

o 1) Compensation received prior to becoming a Participant

o 2) Compensation received while an ineligible Employee under Sections 3.1(a) and (c) of the Adoption Agreement

o 3) All items in Regulation §1.414(s)-1(c)(3) (i.e., expense allowances, fringe benefit, moving expenses, etc.)

o 4) Post-Severance Compensation(1)

o 5) Deemed 125 Compensation(1)

o 6) Bonuses (1)

o 7) Overtime(1)

o 8) Commissions(1)

o 9) Other (describe) (1)

(1)If checked, the Plan’s definition of compensation may fail to satisfy the safe harbor requirements unless such compensation is excluded only with respect to Highly Compensated Employees under paragraph (e) below.

(e)oThe amounts excluded under (d)(4) – (9) will only be excluded with respect to: (check all that apply)

o Highly Compensated Employees

o Other (cannot be a class that only includes NHCEs)

11.4xNon-Safe Harbor Matching Contributions. A Participant’s Compensation for purposes of Non-Safe Harbor Matching Contributions contributed under Section 6 of the Adoption Agreement will be determined as selected below.

(a)Compensation is defined as: (check one)

xForm W-2 Compensation

oCode §3401 Compensation

oSafe Harbor Code §415 Compensation

(b)Elective contributions under Code §125, §132(f)(4), §401(k), §402(h), §403(b), §457(b) and §414(h)(2) will: (check one)

oBe included as Compensation

xNot be included as Compensation

(c)The Compensation measuring period is the: (check one)

x Plan Year

o Fiscal Year ending on or within the Plan Year

o Calendar year ending on or within the Plan Year

21

(d)xThe following categories of remuneration will not be counted as Compensation: (check all that apply)

x 1) Compensation received prior to becoming a Participant for Non-Safe Harbor Matching Contributions

o 2) Compensation received while an ineligible Employee under Section 3.1(d) of the Adoption Agreement

o 3) All items in Regulation §1.414(s)-1(c)(3) (i.e., expense allowances, fringe benefit, moving expenses, etc.)

o 4) Post-Severance Compensation (1)

o 5) Deemed 125 Compensation (1)

o 6) Bonuses (1)

o 7) Overtime (1)

o 8) Commissions (1)

x 9) Other (describe) (1) See 2 in Addendum

(1)If checked, the Plan’s definition of compensation may fail to satisfy the safe harbor requirements unless such compensation is excluded only with respect to Highly Compensated Employees under paragraph (e) below.

(e)oThe amounts excluded under (d)(4) – (9) will only be excluded with respect to: (check all that apply)

o Highly Compensated Employees

o Other (cannot be a class that only includes NHCEs)

11.5oNon-Safe Harbor Non-Elective Contributions. A Participant’s Compensation for purposes of Non-Safe Harbor Non-Elective Contributions contributed under Section 7 of the Adoption Agreement will be determined as selected below.

(a)Compensation is defined as: (check one)

oForm W-2 Compensation

oCode §3401 Compensation

oSafe Harbor Code §415 Compensation

(b)Elective contributions under Code §125, §132(f)(4), §401(k), §402(h), §403(b), §457(b) and §414(h)(2) will: (check one)

oBe included as Compensation

oNot be included as Compensation

(c)The Compensation measuring period is the: (check one)

oPlan Year

oFiscal Year ending on or within the Plan Year

oCalendar year ending on or within the Plan Year

(d)oThe following categories of remuneration will not be counted as Compensation: (check all that apply)

o1) Compensation received prior to becoming a Participant for Non-Safe Harbor Non-Elective Contributions

o2) Compensation received while an ineligible Employee under Section 3.1(e) of the Adoption Agreement

o3) All items in Regulation §1.414(s)-1(c)(3) (i.e., expense allowances, fringe benefit, moving expenses, etc.)

o4) Post-Severance Compensation (1)

o5) Deemed 125 Compensation (1)

o6) Bonuses (1)

o7) Overtime (1)

o8) Commissions (1)

o 9) Other (describe) (1)

(1)If checked, the Plan’s definition of compensation may fail to satisfy the safe harbor requirements unless such compensation is excluded only with respect to Highly Compensated Employees under paragraph (e) below.

(e)oThe amounts excluded under (d)(4) – (9) will only be excluded with respect: (check all that apply)

o Highly Compensated Employees

o Other (cannot be a class that only includes NHCEs)

22

(f)oImputed Compensation During Periods of Disability.  Subject to Section 1.39(c) and Section 1.41(g) of the Basic Plan, a Participant’s Compensation will be imputed during periods of total disability (as defined in Code §22(e)(3)) in determining or allocating Non-Safe Harbor Non-Elective Contributions. Any such imputation will be limited to the number of Plan Years (and Limitation Years) specified in an administrative policy, and the number of such Plan Years and Limitations Years can be different for affected Participants who are HCEs and those who are NHCEs.

11.6xVoluntary Employee Contributions. A Participant’s Compensation for purposes of any Voluntary Employee Contributions contributed under Section 8.2 of the Adoption Agreement will be determined as selected below.

(a)Compensation is defined as: (check one)

xForm W-2 Compensation

oCode §3401 Compensation

oSafe Harbor Code §415 Compensation

(b)Elective contributions under Code §125, §132(f)(4), §401(k), §402(h), §403(b), §457(b) and §414(h)(2) will: (check one)

oBe included as Compensation

xNot be included as Compensation

(c)The Compensation measuring period is the: (check one)

xPlan Year

oFiscal Year ending on or within the Plan Year

oCalendar year ending on or within the Plan Year

(d)xThe following categories of remuneration will not be counted as Compensation: (check all that apply)

x1) Compensation received prior to becoming a Participant

o2) Compensation received while an ineligible Employee under Section 3.1(a) of the Adoption Agreement

o3) All items in Regulation §1.414(s)-1(c)(3) (i.e., expense allowances, fringe benefit, moving expenses, etc.)

o4) Post-Severance Compensation (1)

o5) Deemed 125 Compensation (1)

o6) Bonuses (1)

o7) Overtime (1)

o8) Commissions (1)

x9) Other (describe) (1) See 3 in Addendum

(1)If checked, the Plan’s definition of compensation may fail to satisfy the safe harbor requirements unless such compensation is excluded only with respect to Highly Compensated Employees under paragraph (e) below

(e)oThe amounts excluded under (d)(4) – (9) will only be excluded with respect: (check all that apply)

o Highly Compensated Employees

o Other (cannot be a class that only includes NHCEs)

11.7Code §415(c)(3) Compensation for Top Heavy Allocation Purposes and Key Employee Determinations. An Employee’s Code §415(c)(3) Compensation used to determine any Top Heavy Minimum Allocations and whether an Employee is also a Key Employee is based on the selection below.

xForm W-2 Compensation

oCode §3401 Compensation

oSafe Harbor Code §415 Compensation

oStatutory Code §415 Compensation

11.8Code §415(c)(3) Compensation for Code §415 Limitation Determinations. An Employee’s Code §415(c)(3) Compensation used to determine the Employee’s Annual Addition limitation under Article 6 of the Basic Plan is based on the selection below.

xForm W-2 Compensation

oCode §3401 Compensation

oSafe Harbor Code §415 Compensation

oStatutory Code §415 Compensation

23

11.9Code §415(c)(3) Compensation for Highly Compensated Employee Determinations and Other Statutory Purposes. An Employee’s Code §415(c)(3) Compensation used to determine whether the Employee is also a Highly Compensated Employee, and for other statutory purposes that do not appear elsewhere in this Adoption Agreement, is based on the selection below.

xForm W-2 Compensation

oCode §3401 Compensation

oSafe Harbor Code §415 Compensation

oStatutory Code §415 Compensation

Section 12.  xAllocation of Forfeitures

12.1Time When Forfeitures Occur. Forfeitures of any kind will occur: (check one)

xWhen a Terminated Participant’s entire Vested Account has been distributed (or after 5 consecutive Breaks in Service, if earlier)

oAfter a Terminated Participant incurs              (max. 5) consecutive Breaks in Service

12.2oACP Safe Harbor Matching Contributions. Forfeitures of ACP Safe Harbor Matching Contributions which are not used to pay administrative expenses as permitted under Section 3.13(b) of the Basic Plan will be allocated (or used) as follows:

(a)Forfeitures attributable to ACP Safe Harbor Matching Contributions will be: (check one)

o1) Used to reduce Employer contributions as described in Section 3.13(b)(2) of the Basic Plan

o2) Added to Employer contributions as described in Section 3.13(b)(2) of the Basic Plan

o3) Allocated to Benefiting Participants pro-rata based on his or her Compensation for the Plan Year

(b)oParticipants Eligible to Be Benefiting Participants.The following are eligible to be Benefiting Participants for an Allocation Period with respect to Forfeitures allocated under paragraph (a)(3) above:

oThose who are Participants for Elective Deferral purposes (whether they defer or not)

oThose who are Participants for Non-Safe Harbor Matching Contribution purposes

oThose who are Participants for Non-Safe Harbor Non-Elective Contribution purposes

12.3xNon-Safe Harbor Matching Contributions. Forfeitures of Non-Safe Harbor Matching Contributions which are not used to pay administrative expenses as permitted under Section 3.13(b) of the Basic Plan will be allocated (or used) as follows:

(a)Forfeitures attributable to Non-Safe Harbor Matching Contributions will be: (check one)

x1) Used to reduce Employer contributions as described in Section 3.13(b)(2) of the Basic Plan

o2) Added to Employer contributions as described in Section 3.13(b)(2) of the Basic Plan

o3) Allocated to Benefiting Participants in the manner selected in paragraphs (b), (c) and (d) below

(b)oMethod of Allocation.Forfeitures allocated under (a)(3) will be allocated to each Benefiting Participant as follows:

oPro-rata based on his or her Compensation for the Plan Year

oPro-rata based on his or her Elective Deferrals for the Plan Year

oPro-rata based on his or her Non-Safe Harbor Matching Contributions for the Plan Year

oPro-rata based on his or her Non-Safe Harbor Matching Contribution Account balance

(c)oParticipants Eligible to Be Benefiting Participants.The following are eligible to be Benefiting Participants for an Allocation Period with respect to Forfeitures allocated under paragraph (a)(3) above:

oThose who are Participants for Elective Deferral purposes

oThose who are Participants for Non-Safe Harbor Matching Contribution purposes

oThose who are Participants for Non-Safe Harbor Non-Elective Contribution purposes

(d)oBenefiting Participants.Any Participant selected in paragraph (c) < o who is a NHCE for the Allocation Period > will be a Benefiting Participant for purposes of the allocations under paragraph (a)(3) above, provided the Participant also satisfies the applicable requirements in Section 6.2 of the Adoption Agreement.

24

12.4oNon-Safe Harbor Non-Elective Contributions. Forfeitures of Non-Safe Harbor Non-Elective Contributions which are not used to pay administrative expenses as permitted under Section 3.13(b) of the Basic Plan will be allocated (or used) as follows:

(a)Forfeitures attributable to Non-Safe Harbor Non-Elective Contributions will be: (check one)

o1) Used to reduce Employer contributions as described in Section 3.13(b)(2) of the Basic Plan

o2) Added to Employer contributions as described in Section 3.13(b)(2) of the Basic Plan

o3) Allocated to Benefiting Participants in the manner selected in paragraphs (b), (c) and (d) below

(b)oMethod of Allocation.Forfeitures allocated under (a)(3) will be allocated to each Benefiting Participant as follows:

oPro-rata based on his or her Compensation for the Plan Year

oPro-rata based on his or her Elective Deferrals for the Plan Year

oPro-rata based on his or her Non-Safe Harbor Non-Elective Contributions for the Plan Year

oPro-rata based on his or her Non-Safe Harbor Non-Elective Contribution Account balance

(c)oParticipants Eligible to Be Benefiting Participants.The following are eligible to be Benefiting Participants for an Allocation Period with respect to Forfeitures allocated under paragraph (a)(3) above:

oThose who are Participants for Elective Deferral purposes

oThose who are Participants for Non-Safe Harbor Matching Contribution purposes

oThose who are Participants for Non-Safe Harbor Non-Elective Contribution purposes

(d)oBenefiting Participants.Any Participant selected in paragraph (c) < o who is a NHCE for the Allocation Period > will be a Benefiting Participant for purposes of the allocations under paragraph (a)(3) above, provided the Participant also satisfies the applicable requirements in Section 7.3 of the Adoption Agreement.

Section 13.  Allocation of Earnings and Losses

13.1Allocation Method. Investment earnings and losses will be allocated to each Participant’s Account in a non-discriminatory manner in accordance with the terms of Section 3.12 of the Basic Plan.

Section 14.  Normal and Early Retirement Age

14.1Normal Retirement Age. The Plan’s Normal Retirement Age is Age 65(max. 65)

oOr the                  (max. 5th) anniversary of becoming a Participant in the Plan, if later

oOr the date the Participant is credited with at least                  Years/Periods of Service, if later, but in no event later than the later of Age 65 or the 5th anniversary of becoming a Participant in the Plan

14.2Normal Retirement Date. The Plan’s Normal Retirement Date is as selected below. (check one)

oThe Anniversary Date following the date a Participant reaches Normal Retirement Age

oThe Anniversary Date nearest the date a Participant reaches Normal Retirement Age

oThe first day of the month following the date a Participant reaches Normal Retirement Age

oThe first day of the month nearest the date a Participant reaches Normal Retirement Age

xThe same date a Participant reaches Normal Retirement Age

14.3oEarly Retirement Age. Early Retirement is permitted, and the Plan’s Early Retirement Age is Age                (max. 64)

oOr if later, the date the Participant is credited with at least                  Years/Periods of Service

oProvided the Participant is also credited with at least                  Years/Periods of Service

14.4oEarly Retirement Date. The Early Retirement Date is as selected below. (check one)

oAny Anniversary Date after a Participant reaches Early Retirement Age

oThe first day of any month after a Participant reaches Early Retirement Age

oAny date after a Participant reaches Early Retirement Age

25

Section 15.  Distribution Provisions

15.1Normal Form of Distribution for Distributions Other Than Death Benefits. The benefit payable to a Participant who Terminates Employment with the Employer for reasons other than death will be distributed in the manner selected below.

(a)xLump Sum Payment < x and the Optional Forms of Distribution are: (check all that apply) >

xInstallment payments

oPartial payments as requested from time to time by the Participant

oAny form of annuity which can be purchased from an insurance company (subject to the QJSA rules)

(b)oInstallment Payments < o and the Optional Forms of Distribution are: (check all that apply) >

oA lump sum payment

oPartial payments as requested from time to time by the Participant

oAny form of annuity which can be purchased from an insurance company (subject to the QJSA rules)

(c)oQualified Joint and Survivor Annuity < o and the Optional Forms of Distribution are: (check all that apply) >

oA lump sum payment

oInstallment payments

oPartial payments as requested from time to time by the Participant

oAny other form of annuity which can be purchased from an insurance company

15.2Distribution of Benefits Because of Retirement. With respect to a Participant who Terminates Employment because of retirement or on or after his or her Normal (or Early) Retirement Date, distribution will be made in a form permitted under Section 15.1 and will occur within an administratively reasonable time after the Participant’s Normal (or Early) Retirement Date.

15.3Distribution of Benefits Because of Disability. With respect to a Participant who Terminates Employment because of his or her Disability, distribution will be made in a form permitted under Section 15.1 and in accordance with the provisions selected below.

(a)Time of Distribution. Distribution of a Disability Benefit will be made:(check one)

oWithin an administratively reasonable time after Termination of Employment

xIn accordance with the distribution requirements in Section 15.5 below

(b)Definition of Disability. A Participant will be considered to have suffered a Disability for Plan purposes if the Participant suffers a mental or physical impairment while still an Employee which: (check all that apply)

oIn the opinion of a physician acceptable to the Administrator, totally and permanently prevents the Participant from engaging in any occupation for pay or profit.

xIn the opinion of a physician acceptable to the Administrator, totally and permanently prevents the Participant from performing customary and usual duties for the Employer

oIn the opinion of the Social Security Administration, qualifies the Participant for disability benefits under the Social Security Act in effect on the date the Participant suffers the mental or physical impairment.

oIn the opinion of the insurance company, qualifies the Participant for benefits under an Employer-sponsored long-term disability plan which is administered by an independent third party.

(c)oExceptions. Notwithstanding (b) above, a Participant will not be considered to have suffered a Disability for purposes of the Plan if the mental or physical impairment is the result of: (check all that apply)

oThe illegal use of drugs or intoxicants

oAn intentionally self-inflicted injury or sickness

oAn injury suffered as a result of an unlawful or criminal act by the Participant

15.4Distribution of Benefits Upon Death. With respect to any portion of a deceased Participant’s Vested Aggregate Account which is subject to the QJSA requirements, any death benefit payable therefrom to such deceased Participant’s surviving Spouse will be distributed as a Qualified Pre-Retirement Survivor Annuity unless the QPSA has been waived by the Participant in accordance with Section 5.8 of the Basic Plan (or has been waived by the surviving Spouse if elected in paragraph (c) below). With respect to any death benefit payable to a non-Spouse Beneficiary, any death benefit payable to a surviving Spouse where the QPSA has been waived, or any death benefit payable from a portion of a deceased Participant’s Vested Aggregate Account which is not subject to the QJSA requirements, any such death benefit will be distributed in the form of distribution selected in paragraph (a) below.

26

(a)Form of distribution (other than a required QPSA). A Beneficiary can elect to have a death benefit (other than a QPSA) to which he or she is entitled distributed in the following manner:(check all that apply)

xIn a lump sum payment

xIn installment payments (if elected by the Beneficiary)

oIn partial payments as requested from time to time by the Beneficiary

oAny form of annuity which can be purchased from an insurance company (subject to the QPSA rules)

(b)Value of QPSA. With respect to any portion of a deceased Participant’s Vested Aggregate Account which is subject to the QJSA requirements, the value of a QPSA is:

o50% of the deceased Participant’s Vested Aggregate Account

o100%of the deceased Participant’s Vested Aggregate Account

(c)Spousal Waiver of QPSA. With respect to any portion of a deceased Participant’s Vested Aggregate Account which is subject to the QJSA requirements, if a Participant did not waive the QPSA prior to death, the deceased Participant’s surviving Spouse is < o not > permitted to waive the QPSA after the Participant’s death.

15.5Distribution of Benefits for Reasons Other than Retirement, Death or Disability. With respect to a Participant who Terminates Employment for reasons other than retirement, death or Disability, distribution will be made in a form permitted under Section 15.1 and will occur within an administratively reasonable time after the date selected below.

oThe Participant has a 1-year Break in Service

oThe Participant has            (max. 5) consecutive 1-year Breaks in Service

oThe end of the Plan Year in which the Participant Terminates Employment

oThe Participant Terminates Employment

oThe Participant Terminates Employment, but not more than              days after Termination of Employment

oThe Participant Terminates Employment, but not earlier than              days after Termination of Employment

oThe next Valuation Date of the Plan

xThe Participant requests payment

oThe date the Participant reaches his or her Normal (or Early) Retirement Age under the Plan

15.6xMandatory Cash-Outs. Subject to Section 5.5 of the Basic Plan, the Administrator will distribute a Vested Aggregate Account without the consent of any Participant who Terminates Employment based on the threshold selected below.

x$5,000 < o including > < x excluding > Rollover Contributions

o$1,000 including Rollover Contributions

o$               (must be less than $5,000 but more than $1,000) including Rollover Contributions

o$               (must be less than $1,000) including Rollover Contributions

15.7xIn-Service Distributions. Distributions may be made to a Participant < o who is a NHCE > while he or she is still employed by the Employer as selected below.

(a)xDistributions to Participants Still Employed After Normal Retirement Age. Subject to Section 4.2 of the Basic Plan, a Participant who has reached Normal Retirement Age but has not Terminated Employment with the Employer can withdraw all or any portion of his or her Vested Aggregate Account balance.

(b)xDistributions to Participants Still Employed Before Normal Retirement Age. Subject to Section 5.17 of the Basic Plan, a Participant who has not reached Normal Retirement Age and has not Terminated Employment with the Employer can withdraw all or any portion of his or her Vested Interest in the account or accounts selected below.

(1)Elective Deferral, QMAC/QNEC Accounts and ADP Safe Harbor Contribution Accounts. A Participant who has reached Age 591/2(at least 591/2)can withdraw all or a portion of his or her: (check all that apply)

xElective Deferral Account

xQualified Matching Contribution Account

xQualified Non-Elective Contribution Account

oADP Safe Harbor Contribution Account

27

(2)Non-Safe Harbor Matching Contribution Accounts, Non-Safe Harbor Non-Elective Contribution Accounts and ACP Safe Harbor Contribution Accounts. A Participant who has satisfied the conditions selected in subparagraph (3) below can withdraw all or a portion of his or her: (check all that apply)

xVested Non-Safe Harbor Matching Contribution Account

oVested Non-Safe Harbor Non-Elective Contribution Account

oVested ACP Safe Harbor Contribution Account

(3)Conditions for Withdrawals Under Subparagraph (2). A Participant must satisfy the conditions selected below in order to make a withdrawal as selected in subparagraph (2) above. (check all that apply)

oThe Participant must have a 100% Vested Interest in the account

xThe Participant must have reached Age 59½

oThe Participant must have been a Participant for at least 5 years

oThe amount being distributed must have accumulated in the account for at least 2 years

o Other

15.8xFinancial Hardship Distributions. A Participant < x who is still an Employee > can take a hardship distribution from the Plan, subject to Section 5.16 of the Basic Plan and subject to the terms and conditions set forth in an administrative policy regarding financial hardship distributions.

15.9Definition of Spouse.For purposes of the Plan, a Spouse is the person to whom a Participant is legally married < othroughout the one year period ending on the earlier of the Annuity Starting Date or the date of the Participant’s death >.

15.10QDRO Distributions.Benefits payable pursuant to a Qualified Domestic Relations Order are distributable as selected below.

oSuch benefits cannot be distributed until the affected Participant has reached the Earliest Retirement Age

xSuch benefits can be distributed at any time (even if the affected Participant has not yet reached the Earliest Retirement Age)

15.11Required Minimum Distributions. In applying the required minimum distribution requirements set forth in Section 5.9 of the Basic Plan, the following provisions will apply:

(a)Required Beginning Date. The Required Beginning Date for Participants who are not 5% owners is: (check one)

o(1)April 1st of the calendar year following the calendar year in which the Employee reaches Age 701/2

x(2)April 1st of the calendar year following the later of the calendar year in which the Employee reaches Age 701/2 or the calendar year in which the Employee retires

(b)Required Distributions After Death. If a Participant dies before distributions are required to begin and there is a Designated Beneficiary, Section 5.9 of the Basic Plan requires that a Participant’s entire interest be distributed to the Designated Beneficiary by December 31st of the calendar year containing the 5th anniversary of the Participant’s death < x but the Participant or Designated Beneficiary may elect the Life Expectancy method as described in Section 5.9 of the Basic Plan >.

(c)Effective Date. The required minimum distribution rules apply to distributions made on or after January 1, 2003 < o and also to distributions made on or after                                                      (must be on or after January 1, 2002) >.

Section 16.  xLoans, Insurance and Directed Investments

16.1xLoans to Participants. Subject to Section 7.1 of the Basic Plan and a written procedure established by the Employer, loans can be made to Participants from the Plan < o beginning                                          (must be after the later of the Plan’s original effective date or the restatement date) >.

16.2oPurchase of Insurance. Subject to Section 7.2 of the Basic Plan, insurance Policies can be purchased on the life of a Participant at the direction of the following: (check all that apply)

oThe Administrator

oThe Participant

16.3xDirected Investment Accounts. Subject to Section 7.4 of the Basic Plan and a written procedure established by the Employer, Participants can direct the investment of one or more of the their accounts maintained by the Plan < o beginning                                          (must be after the later of the Plan’s original effective date or the restatement date) >.

28

Section 17.  Top Heavy Allocations

17.1Who Receives the Allocation. Subject to Section 3.14 of the Basic Plan, a Top Heavy Allocation will be made in each Top Heavy Plan Year to each Participant who is employed on the last day of the Plan Year < x and is a Non-Key Employee >.

17.2Top Heavy Ratio. In determining the Top Heavy Ratio, the interest and mortality factors set forth in Section 1.191(d) of the Basic Plan will be used < oexcept as selected below(check all that apply) >.

o% interest will used prior to reaching Normal Retirement Age.

o% interest will used after reaching Normal Retirement Age.

oThe                                                                  mortality table will be used after reaching Normal Retirement Age.

17.3Participation in Multiple Plans. An eligible Participant as described in Section 17.1 above who participates in this Plan and in one or more defined benefit plans or in one or more other defined contribution Plans that are part of a Top Heavy Required Aggregation Group will receive the minimum Top Heavy benefit in the manner described in Section 3.14 of the Basic Plan.

Section 18.  Testing Elections

18.1ADP Testing. The ADP Test will be determined as selected below. (check one)

oCurrent year testing

xPrior year testing

oPrior year testing for the first Plan Year and current year testing thereafter, subject to Section 1.7 of the Basic Plan

18.2ACP Testing. The ACP Test (if applicable) will be determined as selected below. (check one)

oCurrent year testing

xPrior year testing

oPrior year testing for the first Plan Year and current year testing thereafter, subject to Section 1.5 of the Basic Plan

18.3Hypothetical Entry Date for Otherwise Excludable Participants.For any Plan Year in which a determination of Otherwise Excludable Participants must be made, the Hypothetical Entry Date related to any determination of an Otherwise Excludable Participant for purposes that include, but are not limited to, the ACP Test and/or the application of the general nondiscrimination test under Code §401(a)(4) (including determining the amount of, and which Participants are subject to, the Minimum Aggregate Allocation Gateway or Minimum Allocation Gateway requirement) is: (check one)

oThe date that the Employee satisfies the maximum statutory age and service requirements under Code §410(a)(1)(A)

xThe Employee’s maximum statutory entry date under Code §410(a)(4) after the Employee satisfies the maximum statutory age and service requirements under Code §410(a)(1)(A)

oThe Employee’s Entry Date(s) under Section 3.3 for the component of the Plan for which the determination relates

18.4oCalendar Year Election. The calendar year election is being made for the purpose of determining who is a HCE.

18.5xTop Paid Group Election. The top paid group election is being made for the purpose of determining who is a HCE.

Section 19.  o401(k) SIMPLE Provisions

19.1oElection of SIMPLE Provisions. The Sponsoring Employer elects to have the 401(k) SIMPLE Provisions described in Section 3.16 of the Basic Plan apply, and the Employer will make the contribution selected in (a) or (b) below.

(a)oMatching Contributions. The Employer will make a Matching Contribution equal to each “eligible employee’s” Elective Deferral up to a limit of < o3% > < o            % > of Compensation determined without regard to Code §401(a)(17). If the percentage is less than 3%, the restrictions in Section 3.16(f) of the Basic Plan apply.

(b)oNon-Elective Contributions. The Employer will make a Non-Elective Contribution equal to 2% of the compensation of each “eligible employee” who makes at least $                         (max. $5,000) of Compensation for the year.

29

19.2oRevocation of SIMPLE Provisions. The Sponsoring Employer revokes the 401(k) SIMPLE Provisions previously elected, effective as of January 1 next following the date this Section 19.2 is signed and dated below by the Sponsoring Employer.

By (on behalf of the Employer) Dated

Section 20.  Miscellaneous Provisions

20.1Limitation Year. In applying the limitations under Code §415, the Limitation Year will be:

xPlan Year

oThe Fiscal Year ending on or within the Plan Year

oThe calendar year ending on or within the Plan Year

20.2Failsafe Allocations. o For any Plan Year in which the Plan fails to satisfy the average benefit percentage test of Code §410(b)(2) or the average benefits test of Regulation §1.401(a)(4), in accordance with Section 3.15 of the Basic Plan to the extent necessary to insure that the Plan satisfies one of the tests set forth in Code §410(b)(1)(A) (in which the Plan initially fails to benefit at least 70% of Non-Highly Compensated Employees) or Code §410(b)(1)(B) (in which the Plan initially fails to benefit a percentage of Non-Highly Compensated Employees that is at least 70% of the percentage of Highly Compensated Employees who benefit under the Plan), an additional Employer contribution may be made and allocated for certain Participants who are not Benefiting Participants for that Plan Year pursuant to the rankings below.

(a)Participants eligible for the failsafe allocation will first be ranked by their (check one)

oHours of Service (or months of Service if Elapsed Time) beginning with the < o highest > < o lowest > number

oCompensation beginning with the < o highest > < o lowest > amount

(b)oBefore an allocation is made, the Participants in (a) will be further ranked(check one)

oBeginning with those who are employed on the last day of Plan Year

oBeginning with those who are credited with at least 1,000 hours of service (6 months of service if elapsed time)

20.3Multiple Defined Contribution Plans.If a Participant (a) is or was covered under two or more current or terminated plans sponsored by the same Employer (or Employers in the same controlled or affiliated service group); or (b) is covered under either a welfare benefit fund as defined in Code §419(e), or an individual medical account as defined in Code §415(l)(2) under which amounts are treated as Annual Additions with respect to any Participant in this Plan, Annual Additions will be adjusted as follows:

xAs set forth in Article 6 of the Basic Plan so the Annual Additions under this Plan will be reduced first

oAs set forth in the Annual Addition Adjustment Addendum.

20.4xProtected Benefits.The benefits set forth in the “Protected Benefits Addendum” are also permitted.

20.5oDomestic Partners. A Participant’s Domestic Partner is treated as a Spouse under the terms of Plan.

20.6Prototype Sponsor Information. The Prototype Sponsor certifies that it will inform the Sponsoring Employer of any amendments to the Plan or of the Prototype Sponsor’s discontinuance or abandonment of the Plan. For more information about the Plan, a Sponsoring Employer may contact the Prototype Sponsor (or its authorized representative) at the following address:

Prototype Sponsor Charles Schwab Trust Co.

Address215 Fremont Street

City San Francisco State CA ZIP Code 94105 Phone (888) 444-4015

20.7Reliance. The adopting Employer may rely on an opinion letter issued by the Internal Revenue Service as evidence that the plan is qualified under Code §401 only to the extent provided in Revenue Procedure 2005-16. The Employer may not rely on the opinion letter in certain other circumstances or with respect to certain qualification requirements that are specified in the opinion letter issued with respect to the plan and in Revenue Procedure 2005-16. In order to have reliance in such circumstances or with respect to such qualification requirements, application for a determination letter must be made to Employee Plans Determinations of the Internal Revenue Service. This Adoption Agreement may be used only in conjunction with Basic Plan #01. The appropriateness of the adoption of this Plan and the terms of the Adoption Agreement, its qualification with the IRS, and the tax and employee benefit consequences are the responsibility of the Employer and its tax and legal advisors. Failure to properly complete this Adoption Agreement may result in disqualification of the Plan.

30

Section 21.  Signature Provisions

21.1Signature of the Sponsoring Employer

By	Date
Print Name	Title

21.2Signature of the Individual Trustees (the individual Trustees may sign here in lieu of executing the separate trust document)

Trustee #1	Date
Print Name
Trustee #2	Date
Print Name
Trustee #3	Date
Print Name
Trustee #4	Date
Print Name
Trustee #5	Date
Print Name
Trustee #6	Date
Print Name

21.3Signature of the Corporate Trustee (the Corporate Trustee may sign here in lieu of executing the separate trust document)

By	Date
Print Name	Title

21.4Signature of the Custodian (complete only if a custodian has been appointed)

By	Date
Print Name	Title

31

CHARLES SCHWAB TRUST COMPANY

PROTOTYPE DEFINED CONTRIBUTION RETIREMENT PLAN

BASIC PLAN # 01

Table of Contents

Article 1			2
Definitions			2
	1.1	ACP Test	2
	1.2	ACP Safe Harbor Matching Contribution	2
	1.3	ACP Safe Harbor Matching Contribution Account	2
	1.4	Actual Contribution Percentage	2
	1.5	Actual Contribution Percentage Test	2
	1.6	Actual Deferral Percentage	2
	1.7	Actual Deferral Percentage Test	3
	1.8	Administrator	3
	1.9	Adopting Employer	3
	1.10	ADP Safe Harbor Contribution	3
	1.11	ADP Safe Harbor Matching Contribution	3
	1.12	ADP Safe Harbor Matching Contribution Account	4
	1.13	ADP Safe Harbor Non-Elective Contribution	4
	1.14	ADP Safe Harbor Non-Elective Contribution Account	4
	1.15	ADP Test	4
	1.16	Affiliated Employer	4
	1.17	Age	4
	1.18	Aggregate Normal Allocation Rate	4
	1.19	Allocation Period	5
	1.20	Allocation Rate	5
	1.21	Anniversary Date	5
	1.22	Annuity Starting Date	6
	1.23	Annual Additions	6
	1.24	Applicable Contribution Rate	6
	1.25	Applicable Plan Year	6
	1.26	Basic Plan	6
	1.27	Beneficiary	6
	1.28	Benefiting Participant	7
	1.29	Break in Service	7
	1.30	Broadly Available Allocation Rates	7
	1.31	Broadly Available Separate Plans	7
	1.32	Cash or Deferred Contribution	7
	1.33	Catch-Up Contribution	7
	1.34	Catch-Up Contribution Limit	8
	1.35	Code	8
	1.36	Code §3401 Compensation	8
	1.37	Code §401(a)(17) Compensation Limit	8
	1.38	Code §414(s) Compensation	8
	1.39	Code §415(c)(3) Compensation	8
	1.40	Committee	9
	1.41	Compensation	9
	1.42	Compensation Determination Period	10
	1.43	Contribution Percentage	10
	1.44	Contribution Percentage Amounts	11
	1.45	Counting of Hours Method	13
	1.46	Current Year Testing Method	13
	1.47	Deductible Employee Contribution	13
	1.48	Deductible Employee Contribution Account	13
	1.49	Deemed Aggregated Allocation Groups	13
	1.50	Deemed Code §125 Compensation	13
	1.51	Deemed IRA Contribution	13
	1.52	Deemed IRA Contribution Account	13
	1.53	Designated Beneficiary	13
	1.54	Determination Date	13
	1.55	Disability	14
	1.56	Distribution Calendar Year	14
	1.57	Domestic Partner	14
	1.58	Early Retirement Age	14

1.59	Early Retirement Date	14
1.60	Earned Income	14
1.61	Elapsed Time Method	15
1.62	Elective Deferral	15
1.63	Eligibility Computation Period	15
1.64	Eligible Employee	15
1.65	Employee	15
1.66	Employee Contribution	16
1.67	Employer	16
1.68	Employment Commencement Date	16
1.69	Equivalent Accrual Rate	16
1.70	ERISA	16
1.71	Excess Annual Additions	17
1.72	Excess Aggregate Contributions	17
1.73	Excess Compensation	17
1.74	Excess Contributions	17
1.75	Excess Elective Deferrals	17
1.76	401(k) Plan	17
1.77	401(m) Plan	17
1.78	Fiscal Year	17
1.79	Forfeiture	17
1.80	Forfeiture Account	18
1.81	Form W-2 Compensation	18
1.82	Gradually Increasing Age or Service Schedule	18
1.83	HCE	19
1.84	Highly Compensated Employee	19
1.85	Hour of Service	19
1.86	Hypothetical Entry Date	20
1.87	Immediately Distributable	20
1.88	Independent Contractor	20
1.89	Key Employee	20
1.90	Leased Employee	21
1.91	Life Expectancy	21
1.92	Limitation Year	21
1.93	Mandatory Employee Contribution	21
1.94	Mandatory Employee Contribution Account	21
1.95	Matching Contribution	21
1.96	Matching Contribution Account	21
1.97	Matching Rate	21
1.98	Maternity or Paternity Leave	22
1.99	Maximum Excess Percentage	22
1.100	Minimum Aggregate Allocation Gateway	22
1.101	Minimum Allocation Gateway	23
1.102	Named Fiduciary	23
1.103	NHCE	23
1.104	Non-Elective Contribution	24
1.105	Non-Highly Compensated Employee	24
1.106	Non-Key Employee	24
1.107	Non-Safe Harbor 401(k) Plan	24
1.108	Non-Safe Harbor 401(m) Plan	24
1.109	Non-Safe Harbor Matching Contribution	24
1.110	Non-Safe Harbor Matching Contribution Account	24
1.111	Non-Safe Harbor Non-Elective Contribution	24
1.112	Non-Safe Harbor Non-Elective Contribution Account	24
1.113	Normal Accrual Rate	24
1.114	Normal Form of Distribution	24
1.115	Normal Retirement Age	24
1.116	Normal Retirement Date	24
1.117	OASI Percentage	24
1.118	One Year Holdout Rule	25
1.119	Otherwise Excludable Participant	25
1.120	Optional Form of Distribution	25

1.121	Participant	25
1.122	Participant’s Account	25
1.123	Participant’s Account Balance	25
1.124	Period of Service	25
1.125	Period of Severance	30
1.126	Permissive Aggregation Group	30
1.127	Plan	30
1.128	Plan Year	30
1.129	Policy	30
1.130	Post-Severance Compensation	30
1.131	Pre-Tax Elective Deferral	30
1.132	Pre-Tax Elective Deferral Account	30
1.133	Prevailing Wage Account	30
1.134	Prevailing Wage Contribution	30
1.135	Prevailing Wage Employee	30
1.136	Prevailing Wage Law	31
1.137	Primarily Defined Benefit in Character	31
1.138	Prior Year Testing Method	31
1.139	QJSA	31
1.140	QMAC	31
1.141	QMAC Account	31
1.142	QNEC	31
1.143	QNEC Account	31
1.144	QPSA	31
1.145	Qualified Joint and Survivor Annuity	31
1.146	Qualified Matching Contribution	31
1.147	Qualified Matching Contribution Account	32
1.148	Qualified Non-Elective Contribution	32
1.149	Qualified Non-Elective Contribution Account	32
1.150	Qualified Pre-Retirement Survivor Annuity	32
1.151	Reemployment Commencement Date	32
1.152	Regulation	32
1.153	Representative Contribution Rate	33
1.154	Representative Matching Rate	33
1.155	Required Aggregation Group	33
1.156	Required Beginning Date	33
1.157	Rollover	34
1.158	Rollover Contribution	34
1.159	Rollover Contribution Account	34
1.160	Rollover Participant	34
1.161	Roth Elective Deferral	34
1.162	Roth Elective Deferral Account	34
1.163	Rule of Parity	34
1.164	Safe Harbor Code §415 Compensation	35
1.165	Safe Harbor 401(k) Contribution	35
1.166	Safe Harbor 401(k) Plan	36
1.167	Safe Harbor 401(m) Plan	36
1.168	Safe Harbor Notice	36
1.169	Safe Harbor Participant	36
1.170	Self-Employed Individual	36
1.171	Service	36
1.172	Sponsoring Employer	36
1.173	Spousal	36
1.174	Spouse	36
1.175	Statutory Code §415 Compensation	36
1.176	Substantially Equal	37
1.177	Taxable Wage Base	37
1.178	Terminated (or Terminates) Employment	37
1.179	Termination of Employment	38
1.180	Terminated Participant	38
1.181	Third-Step Integration Percentage	38
1.182	Top Heavy	38

	1.183	Top Heavy Minimum Allocation	38
	1.184	Top Heavy Ratio	38
	1.185	Transfer Contribution	39
	1.186	Transfer Contribution Account	40
	1.187	Trustee	40
	1.188	Trust (or Trust Fund)	40
	1.189	Valuation Calendar Year	40
	1.190	Valuation Date	40
	1.191	Vested Aggregate Account	40
	1.192	Vested, Vested Interest and Vesting	40
	1.193	Vesting Computation Period	40
	1.194	Voluntary Employee Contribution	40
	1.195	Voluntary Employee Contribution Account	40
	1.196	Year of Service	40
Article 2			46
Plan Participation			46
	2.1	Eligibility Requirements	46
	2.2	Entry Date	47
	2.3	Waiver of Participation	47
	2.4	Reemployment	47
Article 3			48
Contributions and Allocations			48
	3.1	General Contribution and Allocation Provisions	48
	3.2	Elective Deferrals	49
	3.3	Mandatory Employee Contributions	51
	3.4	Non-Safe Harbor Matching Contributions	51
	3.5	Non-Safe Harbor Non-Elective Contributions	53
	3.6	Prevailing Wage Contributions	55
	3.7	Qualified Matching Contributions	56
	3.8	Qualified Non-Elective Contributions	56
	3.9	Rollover Contributions	57
	3.10	Safe Harbor 401(k) Contributions	57
	3.11	Voluntary Employee Contributions	58
	3.12	Allocation of Earnings and Losses	59
	3.13	Forfeitures and Their Usage	59
	3.14	Top Heavy Minimum Allocation	60
	3.15	Failsafe Allocation	61
	3.16	SIMPLE 401(k) Provisions	62
	3.17	Deemed IRA Contributions	64
	3.18	Actual Deferral Percentage Test and Correction	67
	3.19	Actual Contribution Percentage Test and Correction	69
	3.20	ADP Safe Harbor Contributions	71
	3.21	ACP Safe Harbor Contributions	76
	3.22	General Non-Discrimination Test Requirements	77
	3.23	Annual Overall and Cumulative Permitted Disparity Limit	78
Article 4			81
Plan Benefits			81
	4.1	Benefit Upon Normal (or Early) Retirement	81
	4.2	Benefit Upon Late Retirement	81
	4.3	Benefit Upon Death	81
	4.4	Benefit Upon Disability	81
	4.5	Benefit Upon Termination of Employment	81
	4.6	Determination of Vested Interest	81
Article 5			85
Distribution of Benefits			85
	5.1	Distribution of Benefit Upon Retirement	85
	5.2	Distribution of Benefit Upon Death	85
	5.3	Distribution of Benefit Upon Disability	88
	5.4	Distribution of Benefit Upon Termination of Employment	88
	5.5	Mandatory Cash-Out of Benefits	89

	5.6	Restrictions on Immediate Distributions	90
	5.7	Accounts of Reemployed Participants	91
	5.8	Waiver of Benefits and Spousal Consent	93
	5.9	Required Minimum Distributions	95
	5.10	Statutory Commencement of Benefits	98
	5.11	Post-Termination Earnings	99
	5.12	Distribution in the Event of Legal Incapacity	99
	5.13	Missing Payees and Unclaimed Benefits	99
	5.14	Direct Rollovers	99
	5.15	Distribution of Property	100
	5.16	Financial Hardship Distributions	101
	5.17	In-Service Distributions	101
	5.18	Distribution of Excess Elective Deferrals	102
	5.19	Distribution of Excess Contributions	103
	5.20	Distribution of Excess Aggregate Contributions	104
	5.21	Distribution of an Employee’s Rollover Contribution Account	106
	5.22	Distribution of a Participant’s Transfer Contribution Account	107
	5.23	Distribution of Voluntary Employee Contributions	108
	5.24	Distribution of Mandatory Employee Contributions	108
Article 6			109
Code §415 Limitations			109
	6.1	Maximum Annual Additions	109
	6.2	Adjustments to Maximum Annual Additions	109
	6.3	Multiple Plans and Multiple Employers	109
	6.4	Adjustment for Excess Annual Additions	109
Article 7			111
Loans, Insurance and Directed Investments			111
	7.1	Loans to Participants	111
	7.2	Insurance on Participants	112
	7.3	Key Man Insurance	113
	7.4	Directed Investment Accounts	114
Article 8			115
Duties of the Administrator			115
	8.1	Appointment, Resignation, Removal and Succession	115
	8.2	General Powers and Duties	115
	8.3	Functioning of the Committee	115
	8.4	Multiple Administrators	115
	8.5	Correcting Administrative Errors	115
	8.6	Promulgating Notices and Procedures	115
	8.7	Employment of Agents and Counsel	116
	8.8	Compensation and Expenses	116
	8.9	Claims Procedures	116
	8.10	Qualified Domestic Relations Orders	116
	8.11	Appointment of an Investment Manager	116
Article 9			117
Trustee Provisions			117
	9.1	Appointment, Resignation, Removal and Succession	117
	9.2	Powers and Duties of the Trustee	117
Article 10			118
Adopting Employers			118
	10.1	Plan Contributions	118
	10.2	Plan Amendments	118
	10.3	Plan Expenses	118
	10.4	Employee Transfers	118
	10.5	Multiple Employer Provisions Under Code §413(c)	118
	10.6	Termination of Adoption	119
Article 11			120
Amendment, Termination, Merger and Elective Transfers			120
	11.1	Plan Amendment	120

	11.2	Termination of the Plan	122
	11.3	Merger or Consolidation	122
	11.4	Plan-to-Plan Elective Transfers	123
Article 12			124
Miscellaneous Provisions			124
	12.1	No Contract of Employment	124
	12.2	Title to Assets	124
	12.3	Qualified Military Service	124
	12.4	Domestic Partner’s Rights	124
	12.5	Fiduciaries and Bonding	124
	12.6	Severability of Provisions	124
	12.7	Interpretation of the Plan and Trust	124
	12.8	Costs and Expenses of Legal Action	125
	12.9	Qualified Plan Status	125
	12.10	Mailing of Notices to Administrator, Employer or Trustee	125
	12.11	Participant Notices and Waivers of Notices	125
	12.12	Evidence Furnished Conclusive	125
	12.13	Release of Claims	125
	12.14	Deductible Employee Contributions	125
	12.15	No Duplication of Benefits	126
	12.16	Discontinued Contributions	126
	12.17	Multiple Copies of Plan, Trust and/or Adoption Agreement	126
	12.18	Loss of Prototype Status	126
	12.19	Limitation of Liability and Indemnification	126
	12.20	Written Elections and Forms	126
	12.21	Assignment and Alienation of Benefits	126
	12.22	Exclusive Benefit Rule	126
	12.23	Prior Provisions of Amended and Restated Plans	126
	12.24	Dual and Multiple Trusts	126

Charles Schwab Trust Company

Prototype Defined Contribution Retirement Plan

Preamble

This document is a basic Prototype Defined Contribution Retirement Plan. The sponsor of this prototype is Charles Schwab Trust Company or its successor (hereinafter sometimes referred to as the Prototype Sponsor). The Prototype Sponsor has designated this Prototype Defined Contribution Retirement Plan as Basic Plan Number 01. Basic Plan 01 and its companion Adoption Agreements include provisions for a money purchase plan, a profit sharing plan, and a 401(k) plan.

A Sponsoring Employer may adopt one or more plans by executing a completed Adoption Agreement for each type of plan adopted. A Sponsoring Employer may adopt one or more trusts to hold some or all retirement plan assets. The documents mentioned in this section, taken together, constitute the Charles Schwab Trust Company Prototype Defined Contribution Retirement Plan and Trust. In addition, additional Employers may adopt this Plan as an Adopting Employer by completing the Adopting Employer Addendum. To the extent an Adopting Employer is not an Affiliated Employer, the Plan will become a multiple employer plan as set forth in Code §413 and will cease to be a Prototype Plan.

The seven Adoption Agreements included with the Basic Plan permit a Sponsoring Employer to adopt provisions for one of the following types of plans on a standardized or non-standardized basis: profit sharing, money purchase pension, or 401(k) cash or deferred. The Adoption Agreements permit both integrated and non-integrated formulas, though these terms do not appear in the title of the Adoption Agreements. A defined contribution plan using an integrated formula for allocation of Employer contributions and/of forfeitures is “integrated.” The term “integrated” means a plan which relies on disparities permitted by Code §401(a)(5) and §401(l) to satisfy the non-discrimination requirements of Code §401(a)(4). The non-standardized Adoption Agreements includes provisions for cross-tested allocations.

It is contemplated that this prototype retirement program may be used to continue previously established plans. In this successor plan use, execution of an Adoption Agreement constitutes an amendment to the original plan.

1

Article 1

Definitions

1.1ACP Test. The term “ACP Test” means the Actual Contribution Percentage Test.

1.2ACP Safe Harbor Matching Contribution. The term “ACP Safe Harbor Matching Contribution” means an Employer contribution (including an ADP Safe Harbor Matching Contribution) made to this or any other defined contribution plan on behalf of a Participant on account of a Participant’s Elective Deferrals and/or a Participant’s Employee Contributions made by such Participant under a plan maintained by the Sponsoring Employer, which falls within the requirements of the ACP Safe Harbor as set forth in Code §401(m)(11) and Section 3.21 of the Basic Plan and which is intended  to automatically satisfy the requirements of the ACP Test for a Plan Year.

1.3ACP Safe Harbor Matching Contribution Account. The term “ACP Safe Harbor Matching Contribution Account” means the account to which a Participant’s ACP Safe Harbor Matching Contributions are credited.

1.4Actual Contribution Percentage. The term “Actual Contribution Percentage” means, for a specified group of Participants (either Highly Compensated Employees or Non-Highly Compensated Employees) for a Plan Year, the average of the Contribution Percentages of the “Eligible Participants” in a group. An Actual Contribution Percentage for a specified group of Participants will be calculated to the nearest hundredth of a percentage point. For purposes of this definition, the term “Eligible” Participant” means any Employee (either a Highly Compensated Employee or a Non-Highly Compensated Employee) who is eligible (a) to make a Voluntary Employee Contribution, (b) to make a Mandatory Employee Contribution, (c) to make an Elective Deferral (if the Sponsoring Employer takes such Elective Deferrals into account in the calculation of the Contribution Percentage), (d) to receive a Matching Contribution (including Forfeitures that are contingent upon the Participant making Elective Deferrals or Employee Contributions), or (e) to receive a Qualified Matching Contribution. If an Employee Contribution is required as a condition of participation in the Plan, then any Employee who would be a Participant if such Employee made such a contribution will be treated as an “Eligible Participant” on behalf of whom no Employee Contributions are made.

1.5Actual Contribution Percentage Test. The term “Actual Contribution Percentage Test” means the nondiscrimination test of Section 3.19 that is performed each Plan Year on a Non-Safe Harbor 401(m) Plan. In any Plan Year, if ACP Safe Harbor Matching Contributions (including, if applicable, ADP Safe Harbor Matching Contributions) satisfy the requirements of Section 3.21, then the Actual Contribution Percentage Test will be deemed to be satisfied with respect to such ACP Safe Harbor Matching Contributions of that Plan Year. Notwithstanding the foregoing, a Plan that makes ACP Safe Harbor Matching Contributions that satisfy the requirements of Section 3.21 is deemed to have elected the Current Year Testing Method, regardless of the testing method (Prior Year Testing or Current Year Testing) actually elected in the Adoption Agreement.

1.6Actual Deferral Percentage. The term “Actual Deferral Percentage” means, for a specified group of Participants (either Highly Compensated Employees or Non-Highly Compensated Employees) for a Plan Year, the average of the ratios (calculated separately to the nearest hundredth of a percentage point for each Participant in such group) of (a) the amount of Employer contributions actually paid over to the Trust on behalf of such Participant for the Plan Year to (b) the Code §414(s) Compensation of such Participant for such Plan Year. For purposes of computing Actual Deferral Percentages, an Employee who would be a Participant but for the failure to make Elective Deferrals will be treated as a Participant on whose behalf no Elective Deferrals are made and such Participant’s ratio will equal zero (0). An Actual Deferral Percentage for a specified group of Participants will be calculated to the nearest hundredth of a percentage point. Employer contributions actually paid over to the Trust on behalf of such Participant (either a HCE or a NHCE) for the Plan Year will include:

(a)Elective Deferrals. Any Elective Deferrals made pursuant to the Participant’s deferral election (including Excess Elective Deferrals of Highly Compensated Employees), but excluding the following:

(1)Excess Elective Deferrals of NHCEs. Excess Elective Deferrals of NHCEs that arise solely from Elective Deferrals made under this Plan or plans of this Sponsoring Employer;

(2)Elective Deferrals Treated as Catch-Up Contributions. Elective Deferrals that are treated as Catch-Up Contributions under Code §414(v) because the Elective Deferrals exceed a statutory limit or employer-provided limit (within the meaning of Regulation §1.414(v)–1(b)(1)) for the Plan Year for which the Elective Deferrals were made, or for any other Plan Year;

2

(3)Elective Deferrals in the ACP Test. Elective Deferrals that are taken into account in the Actual Contribution Percentage Test (provided the ADP Test is satisfied both with and without the exclusion of these Elective Deferrals); and

(4)Additional Elective Deferrals Pursuant to Code §414(u). Additional Elective Deferrals that are made pursuant to Code §414(u) by reason of a Participant’s qualified military service for the Plan Year for which the contributions are made, or for any other Plan Year.

(b)QNECs and QMACs. In the discretion of the Sponsoring Employer, Qualified Non-Elective Contributions and Qualified Matching Contributions.

1.7Actual Deferral Percentage Test. The term “Actual Deferral Percentage Test” means the nondiscrimination test of Section 3.18 that is performed each Plan Year on a Non-Safe Harbor 401(k) Plan. In any Plan Year, if ADP Safe Harbor Contributions satisfy the requirements of Section 3.20, then the Actual Deferral Percentage Test will be deemed to be satisfied with respect to any Elective Deferrals of that Plan Year. Notwithstanding the foregoing, a Plan that makes ADP Safe Harbor Matching Contributions that satisfy the requirements of Section 3.20 is deemed to have elected the Current Year Testing Method, regardless of the testing method (Prior Year Testing Method or Current Year Testing Method) actually elected in the Adoption Agreement.

1.8Administrator. The term “Administrator” means the Sponsoring Employer unless the Sponsoring Employer appoints another Administrator in the Adoption Agreement pursuant to Section 8.1 of the Basic Plan. The term “Administrator” also means a Qualified Termination Administrator (“QTA”) charged with the task of holding the assets of an orphan plan as permitted by the Department of Labor. A QTA will be an eligible custodian such as a bank, mutual fund house, or insurance company. Third party record-keepers cannot be QTAs. However, in the case of a one participant-owner only plan, the spouse of a deceased owner can continue to operate the Plan, pursuant to Revenue Procedure 2006-27.

1.9Adopting Employer. The term “Adopting Employer” means any entity which adopts this Plan with the consent of the Sponsoring Employer. In addition to all other terms and conditions in the Plan, Adopting Employers will be, and must comply with, the terms and conditions set forth in Article 10. If the Plan is utilizing a standardized Adoption Agreement, then any Affiliated Employer is automatically considered to be an Adopting Employer. If the Plan is utilizing a non-standardized Adoption Agreement, then an Affiliated Employer is not considered an Adopting Employer unless such Affiliated Employer has specifically adopted the Plan.

1.10ADP Safe Harbor Contribution. The term “ADP Safe Harbor Contribution” means an ADP Safe Harbor Matching Contribution and/or an ADP Safe Harbor Non-Elective Contribution.

1.11ADP Safe Harbor Matching Contribution. The term “ADP Safe Harbor Matching Contribution” means an Employer contribution made to this or any other defined contribution plan on behalf of a Participant (a) on account of Elective Deferrals made by such Participant under a plan maintained by the Sponsoring Employer, (b) in which a Participant will have a 100% Vested Interest at all times, and (c) which falls within the requirements of the ADP Safe Harbor as set forth in Code §401(k)(12) and Section 3.20 of the Basic Plan and which is intended to automatically satisfy the requirements of the ADP Test and the ACP Test for a Plan Year. ADP Safe Harbor Matching Contributions can be either “Basic” or “Enhanced” as elected in the Adoption Agreement. ADP Safe Harbor Matching Contributions can only be distributed upon the earliest to occur of the following dates: (a) a Participant Terminates Employment (separates from service, for Plan Years beginning before 2002) with the Employer; (b) a Participant dies; (c) a Participant suffers a Disability; (d) an event that is described in Code §401(k)(10) occurs; or (e) a Participant reaches Age 59½ (if on or before such date, a pre-retirement in-service withdrawal of ADP Safe Harbor Matching Contributions is elected in the Adoption Agreement). With respect to clause (d) of the prior sentence, ADP Safe Harbor Matching Contributions can be distributed (in a lump sum only) upon termination of the Plan, so long as the Sponsoring Employer (or an Affiliated Employer) does not maintain an alternative defined contribution plan at any time during the period beginning on the date of Plan termination and ending 12 months after all assets have been distributed from the terminated Plan. However, if at all times during the 24-month period beginning 12 months before the date of Plan’s termination, fewer than 2% of the Employees eligible to participate in the 401(k) Plan as of the date of the Plan’s termination are eligible to participate in the other defined contribution plan, then the other defined contribution plan is not an alternative defined contribution plan. In addition, a defined contribution plan is not an alternative defined contribution plan if it is an employee stock ownership plan as defined in Code §4975(e)(7) or Code §409(a), a simplified employee pension as defined in

3

Code §408(k), a SIMPLE IRA plan as defined in Code §408(p), a plan or contract that is described in Code §403(b), or a plan that is described in Code §457(b) or Code §457(f). For Plan Years beginning before 2002, ADP Safe Harbor Matching Contributions could also be distributed (in a lump sum only) upon (a) the disposition by a corporation to an unrelated corporation of substantially all of the assets (within the meaning of Code §409(d)(2)) used in a trade or business of such corporation if such corporation continues to maintain the Plan after the disposition, but only with respect to employees who continue employment with the corporation acquiring such assets; or (b) the disposition by a corporation to an unrelated entity of such corporation’s interest in a subsidiary (within the meaning of Code §409(d)(3)) if such corporation continues to maintain the Plan, but only with respect to employees who continue employment with such subsidiary.

1.12ADP Safe Harbor Matching Contribution Account. The term “ADP Safe Harbor Matching Contribution Account” means the account to which a Participant’s ADP Safe Harbor Matching Contributions are credited.

1.13ADP Safe Harbor Non-Elective Contribution. The term “ADP Safe Harbor Non-Elective Contribution” means a Non-Elective Contribution in which a Participant will have a 100% Vested Interest at all times, which falls within the requirements of the ADP Safe Harbor under Code §401(k)(12) and Section 3.20 of the Basic Plan, and which is intended to automatically satisfy the requirements of the ADP Test for a Plan Year. ADP Safe Harbor Non-Elective Contributions can only be distributed upon the earliest to occur of the following dates: (a) a Participant Terminates Employment (separates from service, for Plan Years beginning before 2002) with the Employer; (b) a Participant dies; (c) a Participant suffers a Disability; (d) an event that is described in Code §401(k)(10) occurs; or (e) a Participant reaches Age 59½ (if on or before such date, a pre-retirement in-service withdrawal of ADP Safe Harbor Non-Elective Contributions is elected in the Adoption Agreement). With respect to clause (d) of the prior sentence, ADP Safe Harbor Non-Elective Contributions can be distributed (in a lump sum only) upon termination of the Plan, so long as the Sponsoring Employer (or an Affiliated Employer) does not maintain an alternative defined contribution plan at any time during the period beginning on the date of Plan termination and ending 12 months after all assets have been distributed from the terminated Plan. However, if at all times during the 24-month period beginning 12 months before the date of Plan termination, fewer than 2% of the Employees who were eligible to participate in the 401(k) Plan as of the date of Plan termination are eligible to participate in the other defined contribution plan, then the other defined contribution plan is not an alternative defined contribution plan. Also, a defined contribution plan is not an alternative defined contribution plan if it is an employee stock ownership plan as defined in Code §4975(e)(7) or Code §409(a), a simplified employee pension as defined in Code §408(k), a SIMPLE IRA plan as defined in Code §408(p), a plan or contract  that is described in Code §403(b), or a plan that is described in Code §457(b) or §457(f). For Plan Years beginning before 2002, ADP Safe Harbor Non-Elective Contributions could also be distributed (in a lump sum only) upon (a) the disposition by a corporation to an unrelated corporation of substantially all of the assets (within the meaning of Code §409(d)(2)) used in a trade or business of such corporation if such corporation continues to maintain the Plan after the disposition, but only with respect to employees who continue employment with the corporation acquiring such assets; or (b) the disposition by a corporation to an unrelated entity of such corporation’s interest in a subsidiary (within the meaning of Code §409(d)(3)) if such corporation continues to maintain the Plan, but only with respect to employees who continue employment with such subsidiary.

1.14ADP Safe Harbor Non-Elective Contribution Account. The term “ADP Safe Harbor Non-Elective Contribution Account” means the account to which a Participant’s ADP Safe Harbor Non-Elective Contributions are credited.

1.15ADP Test. The term “ADP Test” means the Actual Deferral Percentage Test.

1.16Affiliated Employer. The term “Affiliated Employer” means any of the following: (1) a controlled group of corporations as defined in Code §414(b); (2) a trade or business (whether or not incorporated) under common control as described in Code §414(c); (3) any organization (whether or not incorporated) which is a member of an affiliated service group as described in Code §414(m); and (4) any other entity required to be aggregated as described in Code §414(o). Any Periods of Service or Years of Service with an Affiliated Employer will only be taken into account as otherwise provided under the Plan.

1.17Age. The term “Age” means actual attained age unless otherwise specified.

1.18Aggregate Normal Allocation Rate. The term “Aggregate Normal Allocation Rate” means the sum of the Employee’s Allocation Rate under the defined contribution plan(s) and the equivalent normal allocation rate under the defined benefit plan(s), determined in the following manner:

4

(a)Aggregate Allocation Rates. An Employee’s Aggregate Normal Allocation Rate is determined by treating all defined contribution plans that are part of the combination of defined benefit plan(s) and defined contribution plan(s) as a single plan, and all defined benefit plans that are part of the combination of defined benefit plan(s) and defined contribution plan(s) as a separate single plan. Furthermore, an equivalent normal allocation rate for the Employee is determined pursuant to Regulation §1.401(a)(4)–8(c)(2).

(b)Options Applied on an Aggregate Basis. The optional rules in Regulation §1.401(a)(4)–2(c)(2)(iv) (imputation of permitted disparity) and (v) (grouping of rates) may not be used to determine an Employee’s allocation or equivalent normal allocation rate, but may be applied to determine an Employee’s Aggregate Normal Allocation Rate by substituting the Aggregate Normal Allocation Rate (determined without regard to the option) for the Employee’s Allocation Rate in that Regulation section where appropriate.

(c)Consistency Rule. Aggregate Normal Allocation Rates must be determined in a consistent manner for all employees for the Plan Year. The same measurement periods and interest rates must be used, and any available options must be applied consistently, if at all, for the entire combination of defined benefit and defined contribution plan(s). Options that are not permitted to be used under Regulation §1.401(a)(4)–8 in cross-testing a defined contribution plan or a defined benefit plan (such as measurement periods that include future periods, non-standard interest rates, the option to disregard compensation adjustments described in §1.401(a)(4)–13(d), or the option to disregard Plan provisions providing for actuarial increases after normal retirement age under Regulation §1.401(a)(4)–3(f)(3)) may not be used in testing a combination of defined benefit and defined contribution plan(s) on either a benefits or contributions basis, because their use would inevitably result in inconsistent determinations under the defined contribution and defined benefit plan(s).

1.19Allocation Period. The term “Allocation Period” means a period of 12 consecutive months or less for which (a) an Employer contribution is made and allocated under the terms of the Plan; (b) Forfeitures are allocated under the terms of the Plan; and/or (c) earnings and losses are allocated under the terms of the Plan.

1.20Allocation Rate. The term “Allocation Rate” means the following:

(a)General Definition. Generally, the term “Allocation Rate” means, for a Participant for a Plan Year, the sum of the allocations to the Participant’s Account for the Plan Year, expressed as a percentage of Code §414(s) Compensation, subject to the following rules:

(1)Allocations Taken into Account. The allocations used to determine an Allocation Rate for a Plan Year include all Employer contributions and forfeitures that are allocated or treated as allocated to the Participant’s Account under the Plan for the Plan Year, other than amounts described in paragraph (a)(2). For this purpose, Employer contributions include Annual Additions described in Regulation §1.415-6(b)(2)(i) (regarding amounts arising from certain transactions between the Plan and the Employer). If this Plan is subject to Code §412, then an Employer contribution is used in the Plan Year for which the Employer contribution is required to be contributed and allocated to the Participant’s Account under the plan, even if all or part of the required contribution is not actually made.

(2)Allocations Not Taken into Account. Allocations of income, expenses, gains, and losses attributable to the balance in a Participant’s Account are not used to determine an Allocation Rate.

(b)Definition for Limitation of Allocation Rates for Non-Safe Harbor Non-Elective Contributions. For purposes of determining the limitation in the number of Allocation Rates that are permitted when the Sponsoring Employer elects in the Adoption Agreement to allocate Non-Safe Harbor Non-Elective Contributions using allocation groups, the term “Allocation Rate” means the amount of Non-Safe Harbor Non-Elective Contributions allocated to a Benefiting Participant for a Plan Year, expressed as a percentage of Code §414(s) Compensation. The number of eligible NHCEs to which a particular Allocation Rate applies must reflect a reasonable classification of Employees.

1.21Anniversary Date. The term “Anniversary Date” means the last day of the Plan Year unless another Anniversary Date is elected in the Adoption Agreement.

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1.22Annuity Starting Date. The term “Annuity Starting Date” means the first day of the first period for which a benefit is paid as an annuity, in the case of a benefit not payable as an annuity, the first day all events have occurred which entitle the Participant to the benefit. The first day of the first period for which a benefit is to be paid by reason of Disability will be treated as the Annuity Starting Date only if it is not an auxiliary benefit.

1.23Annual Additions. The term “Annual Additions” means the sum of the following amounts credited to a Participant’s Account for any Limitation Year: (a) Employer contributions; (b) Employee contributions; (c) Forfeitures; (d) amounts allocated to an individual medical account, as defined in Code §415(l)(2), which is part of a pension or annuity plan maintained by the Employer; and (e) amounts derived from contributions paid or accrued that are attributable to post-retirement medical benefits, allocated to the separate account of a Key Employee, as defined in Code §419A(d)(3), under a welfare fund, as defined in Code §419(e), maintained by the Employer. Notwithstanding the foregoing, a Participant’s Annual Additions do not include a Participant’s rollovers, loan repayments, Catch-up Contributions, repayments of either prior Plan distributions or prior distributions of Mandatory Employee Contributions, direct transfers of contributions from another plan to this Plan, deductible contributions to a simplified employee pension plan, or voluntary deductible contributions.

1.24Applicable Contribution Rate. The term “Applicable Contribution Rate,” for a Participant who is a Non-Highly Compensated Employee, means (a) for purposes of the ADP Test, the sum of the Qualified Matching Contributions used in the ADP Test for the Participant who is a Non-Highly Compensated Employee for the Plan Year and the Qualified Non-Elective Contributions made for the Participant who is a Non-Highly Compensated Employee for the Plan Year, divided by the Participant’s Code §414(s) Compensation for the Plan Year; and (b) for purposes of the ACP Test, the sum of the Matching Contributions used under the Contribution Percentage Amounts for the Participant who is a Non-Highly Compensated Employee for the Plan Year and the Qualified Non-Elective Contributions made for the Participant who is a Non-Highly Compensated Employee for the Plan Year, divided by the Participant’s Code §414(s) Compensation for the Plan Year.

1.25Applicable Plan Year. The term “Applicable Plan Year” means (a) for any Plan Year in which the Prior Year Testing Method is being used, the Plan Year prior to the Plan Year that is being tested; and (b) for any Plan Year in which the Current Year Testing Method is being used, the Plan Year that is being tested.

1.26Basic Plan. The term “Basic Plan” means this document and any amendment thereto including amendments made via page changes and/or Employer resolutions.

1.27Beneficiary. The term “Beneficiary” means the recipient designated by a Participant to receive the benefit payable upon the Participant’s death, or the recipient designated by a Beneficiary to receive any benefit which may be payable in the event of the Beneficiary’s death prior to receiving the entire death benefit to which the Beneficiary is entitled. All such Beneficiary designations will be made in accordance with the following:

(a)Beneficiary Designations By a Participant. Subject to the provisions of Section 5.8 regarding the rights of a Participant’s Spouse, each Participant may designate a Beneficiary in writing with the Administrator. If a Participant designates his or her Spouse and the Participant and his or her Spouse are legally divorced subsequent to the date of the designation, then the designation of such Spouse as a Beneficiary hereunder will be deemed null and void unless the Participant, subsequent to the legal divorce, reaffirms the designation in writing. In the absence of any other designation, the Participant will be deemed to have designated the following Beneficiaries in the following order, provided however, that with respect to clauses (1) and (2) following, such Beneficiaries are then living: (1) the Participant’s Spouse, (2) the Participant’s issue per stirpes; and (3) the Participant’s estate.

(b)Beneficiary Designations By a Beneficiary. In the absence of a Beneficiary designation or other directive from a Participant to the contrary, any Beneficiary may name his or her own Beneficiary under Section 5.2(d) of the Basic Plan to receive any benefits payable in the event of the Beneficiary’s death prior to the receipt of all the Participant’s death benefits to which the Beneficiary was entitled.

(c)Beneficiaries Considered Contingent Until the Death of the Participant. Notwithstanding any provision in this Section to the contrary, any Beneficiary named hereunder will be considered a contingent Beneficiary until the death of the Participant (or Beneficiary, as the case may be), and until such time will have no rights granted to Beneficiaries under the Plan.

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1.28Benefiting Participant. The term “Benefiting Participant” means a Participant who is eligible to receive an allocation of any type of Employer contributions or related Forfeitures as of the last day of an Allocation Period in accordance with the allocation conditions set forth in the Adoption Agreement. Whether a Participant is a Benefiting Participant for any Allocation Period is determined separately for each type of contribution. Notwithstanding the foregoing, a Participant on whose behalf Prevailing Wage Contributions are made during the Plan Year will be a Benefiting Participant for that Plan Year with respect to those contributions regardless of the number of Hours of Service the Participant completes in that Plan Year.

1.29Break in Service. The term “Break in Service” means the following:

(a)For Purposes of Counting of Hours Method. With respect to any provision of the Plan in which Service is determined by the Counting of Hours Method, the term “Break in Service” means a 12-consecutive month computation period (as elected in the Adoption Agreement) during which an Employee is not credited with more than 500 (or such lesser number as elected in the Adoption Agreement) Hours of Service. If any computation period is less than 12 consecutive months, then the Hours of Service threshold set forth in the preceding sentence will be proportionately reduced (if the Hours of Service threshold is greater than one).

(b)For Purposes of Elapsed Time Method. With respect to any provision of the Plan in which Service is determined by the Elapsed Time Method, the term “Break in Service” means a 1-Year Period of Severance.

(c)For 401(k) Purposes. With respect to the Elective Deferral component of a 401(k) Plan, a Participant who incurs a Break in Service but who does not Terminate Employment may continue to have Elective Deferrals made on their behalf to the Plan. However such Participant will not be eligible to receive an allocation of any Non-Safe Harbor Matching Contributions or Non-Safe Harbor Non-Elective Contributions (if any) unless such Participant is also a Benefiting Participant.

1.30Broadly Available Allocation Rates. The term “Broadly Available Allocation Rates” means, for Plan Years beginning on or after January 1, 2002, that each Allocation Rate is currently available during the Plan Year (within the meaning of Regulation §1.401(a)(4)-4(b)(2)) to a group of Employees that satisfies the requirements of Code §410(b) without regard to the average benefit percentage test of Regulation §1.410(b)-5. If two Allocation Rates could be permissively aggregated under Regulation §1.401(a)(4)-4(d)(4), assuming that the Allocation Rates were treated as benefits, rights, or features, then the Allocation Rates may be aggregated and treated as a single Allocation Rate. However, the disregarding of the age and service conditions as set forth in Regulation §1.401(a)(4)-4(b)(2)(ii)(A) does not apply for purposes of this definition. Furthermore, in determining whether the Plan has Broadly Available Allocation Rates, differences in Allocation Rates attributable solely to the use of permitted disparity as described in Regulation §1.401(1)-2 are disregarded.

1.31Broadly Available Separate Plans. The term “Broadly Available Separate Plans” means, for Plan Years beginning on or after January 1, 2002, a combination of defined benefit plan(s) and defined contribution plan(s) that would satisfy the requirements of Code §410(b) and the nondiscrimination in amount requirement of Regulation §1.401(a)(4)–1(b)(2) if each plan were tested separately and assuming that the average benefit percentage test of Regulation §1.410(b)–5 were satisfied. For this purpose, all defined contribution plans that are part of the combination of defined benefit and defined contribution plans are treated as a single defined contribution plan, and all defined benefit plans that are part of the combination of defined benefit and defined contribution plans are treated as a single defined benefit plan. In addition, if permitted disparity under Regulation §1.401(a)(4)–7 is used for a Participant for purposes of satisfying the separate testing requirement for plans of one type, then permitted disparity may not be used in satisfying the separate testing requirement for plans of the other type for the Participant.

1.32Cash or Deferred Contribution. The term “Cash or Deferred Contribution” means an Employer amount that the Participant can elect, subject to the provisions of Section 3.2(b), to have the Employer either (a) provide to the Participant as cash; or (b) contribute to the Plan as an Elective Deferral on behalf of the Participant, which contribution defers the receipt of Compensation by the Participant.

1.33Catch-Up Contribution. The term “Catch-Up Contribution” means Elective Deferrals made to the Plan that are in excess of an otherwise applicable Plan limit and that are made by Participants who are age 50 or over by the end of their taxable year. An otherwise applicable Plan limit is a limit in the Plan that applies to Elective Deferrals without regard to Catch-Up Contributions, such as (a) the limit on Annual Additions; (b) the dollar limit on Elective Deferrals under Code §402(g) (not counting Catch-Up Contributions); (c) the limit imposed by the ADP Test under § 401(k)(3); or (d) a Plan imposed limit set

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forth in a resolution properly executed by the Employer which is considered to be an amendment to the Plan. Catch-Up Contributions are not subject to the limit on Annual Additions, are not counted in the ADP Test, and are not counted in determining the Top Heavy Minimum Allocations under Code §416. However, Catch-Up Contributions made in prior years are counted in determining whether the Plan is Top-Heavy. Provisions in the Plan relating to Catch-Up Contributions apply to Elective Deferrals made to the Plan after 2001. The total amount of Catch-Up Contributions for any taxable year will not exceed the Catch-Up Contribution Limit

1.34Catch-Up Contribution Limit. The term “Catch-Up Contribution Limit” means the statutory limit on Catch-Up Contributions for a Participant for any taxable year. A Participant’s Catch-Up Contributions for a taxable year may not exceed (a) the dollar limit on Catch-Up Contributions under Code §414(v)(2)(B)(i) for the taxable year, or (b) when added to other Elective Deferrals, 100% of the Participant’s Compensation for the taxable year. The dollar limit on Catch-Up Contributions under Code §414(v)(2)(B)(i) is $1,000 for taxable years beginning in 2002, increasing by $1,000 for each year thereafter up to $5,000 for taxable years beginning in 2006 and later years. After 2006, the $5,000 limit will be adjusted by the Secretary of the Treasury for cost-of-living increases under Code §414(v)(2)(C). Any such adjustments will be in multiples of $500. Different limits apply to Catch-Up Contributions under SIMPLE 401(k) plans.

1.35Code. The term “Code” means the Internal Revenue Code of 1986, as amended, the Regulations, and rulings promulgated thereunder by the Internal Revenue Service. All citations to sections of the Code and Regulations are to such sections as they may from time to time be amended or renumbered.

1.36Code §3401 Compensation. The term “Code §3401 Compensation” means wages within the meaning of Code §3401(a) (for purposes of income tax withholding at the source), but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code §3401(a)(2)).

1.37Code §401(a)(17) Compensation Limit. The term “Code §401(a)(17) Compensation Limit” means, for any Plan Year and/or Limitation Year which begins on or after January 1, 2002, the statutory limit that applies to each Participant’s annual Compensation for a specific Compensation Determination Period which is taken into account under the Plan; such annual Compensation will not exceed $200,000. However, the $200,000 statutory limit on annual Compensation will be adjusted for cost-of-living increases in accordance with Code §401(a)(17)(B). The cost-of-living adjustment in effect for a calendar year applies to annual Compensation for the Compensation Determination Period that begins with or within such calendar year. If a Compensation Determination Period is less than 12 consecutive months, then the Code §401(a)(17) Compensation Limit will be multiplied by a fraction, the numerator of which is the number of months in the Compensation Determination Period, and the denominator of which is 12. If Compensation for any prior Compensation Determination Period is used in determining a Participant’s Plan benefits for the current Plan Year, then the annual Compensation for such prior Compensation Determination Period is subject to the applicable Code §401(a)(17) Compensation Limit as in effect for that prior Compensation Determination Period.

1.38Code §414(s) Compensation. The term “Code §414(s) Compensation” means, for testing purposes (including, but not limited to, the ADP Test and the ACP Test), any compensation that qualifies as a nondiscriminatory definition of compensation under Code §414(s) and the Regulations thereunder. The Administrator is not bound by any elections made in the Adoption Agreement in determining Code §414(s) Compensation. The Administrator may determine on an annual basis (and within its discretion) Code §414(s) Compensation, which will be applied consistently to all Participants for a Plan Year; to all applicable tests that are administered for such Plan Year; and to all plans (including this Plan) of the Sponsoring Employer and Adopting Employers for such Plan Year. Code §414(s) Compensation may be determined over the Plan Year for which the applicable test is being performed or the calendar year ending within such Plan Year. In determining Code §414(s) Compensation, the Administrator within its discretion may take into consideration only the Compensation received while the Employee is a Participant under the component of the Plan being tested,  and/or only the Compensation for the portion of the Plan Year during which the Plan was a 401(k) Plan.

1.39Code §415(c)(3) Compensation. The term “Code §415(c)(3) Compensation” means, for the specific purposes and as elected by the Sponsoring Employer in the Adoption Agreement, either Form W-2 Compensation, Code §3401 Compensation, Safe Harbor Code §415 Compensation, or Statutory Code §415 Compensation during the entire Compensation Determination Period that statutorily applies, subject to the following rules:

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(a)Exclusions to Compensation Do Not Apply. Code §415(c)(3) Compensation includes any amounts that may be elected to be excluded from Compensation in the Adoption Agreement.

(b)Inclusion of Certain Amounts. Code §415(c)(3) Compensation includes any elective deferral as defined in Code §402(g)(3) and any amount which is contributed or deferred by the Employer at the election of the Employee which are not includible in gross income by reason of Code §125 (and if elected in the Adoption Agreement, Deemed Code §125 Compensation), Code §132(f)(4), or Code §457.

(c)Imputed Compensation when Participant Becomes Disabled. If elected in the Adoption Agreement and a Participant becomes permanently and totally disabled (as defined in Code §22(e)(3)) then notwithstanding anything in this Section to the contrary, Code §415(c)(3) Compensation will be imputed during the time that the Participant is permanently and totally disabled. The rate that Code §415(c)(3) Compensation will be imputed to such Participant is equal to the rate of Code §415(c)(3) Compensation that was paid to the Participant immediately before becoming permanently and totally disabled. The total period in which Code §415(c)(3) Compensation will be imputed to a Participant who becomes permanently and totally disabled will be determined pursuant to a nondiscriminatory policy established by the Administrator; however, if Code §415(c)(3) Compensation is imputed to a Participant who is a Highly Compensated Employee pursuant to this paragraph, then the continuation of Non-Safe Harbor Non-Elective Contributions to such Participant will be for a fixed or determinable period pursuant to Code §415(c)(3)(C).

(d)Treatment of Post-Severance Compensation. Effective January 1, 2005, Code §415(c)(3) Compensation includes Post-Severance Compensation.

1.40Committee. The term “Committee” means the administrative/advisory group that the Sponsoring Employer may establish, to which the Sponsoring Employer may delegate certain of the Sponsoring Employer’s responsibilities as Administrator. The Sponsoring Employer is permitted to select another name for such administrative/advisory group. The Sponsoring Employer may appoint one or more members to the Committee. Members of the Committee need not be Participants or Beneficiaries, and officers and directors of the Sponsoring Employer are not precluded from serving as members of the Committee.

1.41Compensation. The term “Compensation” means, for each component or type of contribution under the Plan, an Employee’s Form W-2 Compensation, Code §3401 Compensation, or Safe Harbor Code §415 Compensation, as elected by the Sponsoring Employer in the Adoption Agreement, for the Compensation Determination Period as elected by the Sponsoring Employer in the Adoption Agreement, subject to the following provisions:

(a)Treatment of Elective Deferrals and Certain Other Amounts. Any elective deferral as defined in Code §402(g)(3) and any amount which is contributed or deferred by the Employer at the election of the Employee which are not includible in gross income by reason of Code §125 (and if elected in the Adoption Agreement, Deemed Code §125 Compensation), Code §132(f)(4), or Code §457 will be included in Compensation or will be excluded from Compensation, as elected in the Adoption Agreement.

(b)Compensation Prior to Becoming a Participant. If the Sponsoring Employer elects in the Adoption Agreement that Compensation received prior to becoming a Participant is not taken in account for allocation purposes, then the Entry Date of Section 2.2 to determine when an Eligible Employee becomes a Participant will be separately determined for each component or type of contribution under the Plan.

(c)Compensation of Self-Employed Individuals. For purposes of this Plan, the Compensation of a Self-Employed Individual will be equal to his or her Earned Income; however, such Compensation will not exceed the Code §401(a)(17) Compensation Limit.

(d)Code §401(a)(17) Compensation Limit. In determining Compensation for all purposes other than for Elective Deferral purposes under Code §402(g), a Participant’s Compensation for any Compensation Determination Period will not exceed the Code §401(a)(17) Compensation Limit.

(e)Prevailing Wage Compensation. With respect to Prevailing Wage Contribution, the term “Compensation” will be limited to Compensation paid for services performed under a Prevailing Wage Law.

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(f)Compensation for a Safe Harbor 401(k) Plan or Safe Harbor 401(m) Plan. The term “Compensation” means, for purposes of a Safe Harbor 401(k) Plan or Safe Harbor 401(m) Plan, Compensation as elected by the Sponsoring Employer in the Adoption Agreement, except that no dollar limit, other than the Code §401(a)(17) Limit, applies to the Compensation of a NHCE. Furthermore, Compensation for a Safe Harbor 401(k) Plan or Safe Harbor 401(m) Plan must qualify as a nondiscriminatory definition of compensation under Code §414(s) and the Regulations thereunder.

(g)Imputed Compensation when Participant Becomes Disabled. If elected in the Adoption Agreement and a Participant becomes permanently and totally disabled (as defined in Code §22(e)(3)) then notwithstanding anything in this Section to the contrary, Compensation will be imputed during the time that the Participant is permanently and totally disabled for purposes of determining and allocating Non-Safe Harbor Non-Elective Contributions. The rate that Compensation will be imputed to such Participant is equal to the rate of Compensation that was paid to the Participant immediately before becoming permanently and totally disabled. The total period in which Compensation will be imputed to a Participant who becomes permanently and totally disabled will be determined pursuant to a nondiscriminatory policy established by the Administrator; however, if Compensation is imputed to a Participant who is a Highly Compensated Employee pursuant to this paragraph, then the continuation of Non-Safe Harbor Non-Elective Contributions to such Participant will be for a fixed or determinable period pursuant to Code §415(c)(3)(C). Any Non-Safe Harbor Non-Elective Contributions that are made on behalf of a Participant with respect to imputed Compensation must be nonforfeitable when made.

(h)Compensation for Permitted Disparity Purposes. If a Non-Safe Harbor Non-Elective Contribution is determined and/or allocated according to the rules of permitted disparity under Code §401(l) and the Regulations thereunder, then Compensation for such purposes must qualify as a nondiscriminatory definition of compensation under Code §414(s) and the Regulations thereunder.

1.42Compensation Determination Period. The term “Compensation Determination Period” means, for each definition of Compensation as it relates to a particular component or type of contribution under the Plan, either the Plan Year, the Fiscal Year ending with or within the Plan Year, or the calendar year ending with or within the Plan Year, as elected in the Adoption Agreement. However, for purposes of a specific statutory determination (e.g. whether an Employee is a Highly Compensated Employee), the term “Compensation Determination Period” means the period that is stated in this Plan.

1.43Contribution Percentage. The term “Contribution Percentage” means the ratio (expressed as a percentage and calculated to the nearest hundredth of a percentage point) of the Participant’s Contribution Percentage Amounts to the Participant’s Code §414(s) Compensation for the Plan Year, subject to the following rules:

(a)Contribution Percentage for an HCE in Multiple 401(m) Plans of the Sponsoring Employer. The Contribution Percentage for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Contribution Percentage Amounts allocated to such Participant’s accounts under two or more Code §401(m) plans that are maintained by the Sponsoring Employer, will be determined as if the total of such Contribution Percentage Amounts was made under each 401(m) plan. If a Highly Compensated Employee participates in two or more Code §401(m) plans of the Sponsoring Employer that have different plan years, all Contribution Percentage Amounts made during the Plan Year under all such Code §401(m) plans will be aggregated. For Plan Years beginning prior to 2006 (or the year of such earlier effective date as may be provided in a separate amendment for implementing the final §401(m) Regulations and as permitted by such Regulations), all such Code §401(m) plans ending with or within the same calendar year will be treated as a single Code §401(m) plan. Notwithstanding the foregoing, certain plans will be treated as separate if mandatorily disaggregated under the Code §401(m) Regulations.

(b)Contribution Percentage for a Participant without Contributions. If no Employee Contributions, Matching Contributions, Elective Contributions, or Qualified Non-Elective Contributions are taken into account in the ACP Test with respect to a Participant for the Plan Year, then the Contribution Percentage of the Participant is zero (0).

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1.44Contribution Percentage Amounts. The term “Contribution Percentage Amounts” means the sum of the Employee Contributions, Non-Safe Harbor Matching Contributions, Qualified Matching Contributions, Elective Deferrals, and Qualified Non-Elective Contributions made under the Plan on behalf of the Participant for the Plan Year. The calculation of a Participant’s Contribution Percentage Amounts is subject to the following rules:

(a)Timing of Employee Contributions. An amount withheld from an Employee’s pay (or a payment by the Employee to an agent of the Plan) is treated as contributed as an Employee Contribution at the time of such withholding (or payment) if the paid funds are transmitted to the Trust within a reasonable period after the withholding (or payment).

(b)Recharacterized Elective Contributions Are Included. Excess Contributions which are recharacterized in accordance with Regulation §1.401(k)–2(b)(3) are taken into account as Employee Contributions for the Plan Year that includes the time at which the Excess Contribution is includible in the gross income of the Employee under Regulation §1.401(k)–2(b)(3)(ii).

(c)Matching Contributions That Are Included. A Matching Contribution is used in determining a Participant’s Contribution Percentage Amount for a Plan Year only if each of the following requirements is satisfied:

(1)Matching Contribution Allocated Within the Plan Year. The Matching Contribution is allocated to the Employee’s Matching Contribution Account under the terms of the Plan as of an allocation date within that Plan Year.

(2)Matching Contribution Relates to Deferrals or Employee Contributions for the Plan Year. The Matching Contribution is made on account of (or the Matching Contribution is allocated on the basis of) the Participant’s Elective Deferrals or Employee Contributions for that Plan Year.

(3)Matching Contribution Must Be Contributed within 12 Months. The Matching Contribution is actually paid to the Trust no later than the end of the 12-month period immediately following the Plan Year that contains the allocation date for the Matching Contribution.

(d)Elective Deferrals May Be Included in the Contribution Percentage Amounts. The Sponsoring Employer also may elect to use Elective Deferrals in the Contribution Percentage Amounts so long as (a) the ADP Test is met before the Elective Deferrals are used in the ACP Test, and (b) the ADP Test continues to be met following the exclusion of the Elective Deferrals used to meet the ACP Test, subject to the following rules:

(1)Elective Deferrals in a Safe Harbor 401(k) Plan Cannot Be Used. Elective Deferrals in a Safe Harbor 401(k) Plan described in Regulation §1.401(k)–3 cannot be used as Contribution Percentage Amounts.

(2)Plans Must Be Permitted to be Aggregated. The plan that provides for Employee Contributions and/or Matching Contributions and the plan to which the Elective Deferrals are made are plans that would be permitted to be aggregated under Regulation §1.401(m)–1(b)(4).

(3)Plan Year Change and Aggregation. If the Plan Year of the plan that provides for Employee Contributions and/or Matching Contributions is changed to satisfy the requirement under Regulation §1.410(b)–7(d)(5) that aggregated plans have the same Plan Year, then Elective Deferrals may be taken into account in the resulting short Plan Year, but only if such Elective Deferrals could have been taken into account under an ADP Test for a plan with that same short Plan Year.

(e)Qualified Non-Elective Contributions that may be used as Contribution Percentage Amounts. Qualified Non-Elective Contributions may be taken into account in determining a Participant’s Contribution Percentage Amounts for a Plan Year, but only to the extent that the Qualified Non-Elective Contributions satisfy the following requirements:

(1)Timing of Allocation. The Qualified Non-Elective Contribution is allocated to the Participant’s Account as of a date within that Plan Year (within the meaning of Regulation §1.401(k)–2(a)(4)(i)(A)). Consequently, under the Prior Year Testing Method, in order to be used in calculating the Contribution Percentage Amounts for a Participant who is a Non-Highly Compensated Employees for the Applicable Plan Year (the Plan Year prior to the Plan Year that is being tested), the Qualified Non-Elective Contribution must be contributed no later than the end of the 12-month period following the Applicable Year even though the Applicable Year is different than the Plan Year that is being tested.

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Furthermore, under the Current Year Testing Method, in order to be taken into account in calculating the Contribution Percentage Amounts for a Participant who is a Non-Highly Compensated Employees for the Applicable Plan Year (the Plan Year that is being tested), the Qualified Non-Elective Contribution must be contributed no later than the end of the 12-month period following the Plan Year that is being tested.

(2)Requirement that Qualified Non-Elective Contributions Satisfy Code §401(a)(4).The amount of Qualified Non-Elective Contributions satisfies the requirements of Code §401(a)(4) and Regulation §1.401(a)(4)—1(b)(2). If the Sponsoring Employer is applying the special rule for Employer-wide plans in Regulation §1.414(r)—1(c)(2)(ii) with respect to the Plan, then the determination of whether the Qualified Non-Elective Contributions satisfy the requirements of Code §401(a)(4) must be made on an Employer-wide basis, regardless of whether the plans to which the Qualified Non-Elective Contributions are made are satisfying the requirements of Code §410(b) on an Employer-wide basis. If the Sponsoring Employer is treated as operating qualified separate lines of business and does not apply the special rule for Employer-wide plans in Regulation §1.414(r)—1(c)(2)(ii) with respect to the Plan, then the determination of whether the Qualified Non-Elective Contributions satisfy the requirements of Code §401(a)(4) is not permitted to be made on an Employer-wide basis regardless of whether the plans to which the Qualified Non-Elective Contributions are made are satisfying the requirements of Code §410(b) on an Employer-wide basis.

(3)Aggregation Must Be Permitted.The plan that provides for Employee Contributions and/or Matching Contributions and the plan to which the Qualified Non-Elective Contributions are made, are plans that would be permitted to be aggregated under Regulation §1.401(m)—1(b)(4). If the Plan Year of the plan that provides for Employee Contributions and/or Matching Contributions is changed to satisfy the requirement under Regulation §1.410(b)—7(d)(5) that aggregated plans have the same Plan Year, then Qualified Non-Elective Contributions may be taken into account in the resulting short Plan Year, but only if such Qualified Non-Elective Contributions could have been taken into account under an ADP Test for a plan with that same short Plan Year.

(4)Limitation on Disproportionate QNECs.Qualified Non-Elective Contributions cannot be taken into account for purposes of the Contribution Percentage Amounts of a Plan Year for a Non-Highly Compensated Employee to the extent that the QNECs exceed the product of (i) that Non-Highly Compensated Employee’s Code §414(s) Compensation, multiplied by (i) the greater of (A) 5% (or 10% of a Non-Highly Compensated Employee’s Code §414(s) Compensation with respect to an Employer’s obligation to make Prevailing Wage Contributions to the Plan), or (B) two times the Plan’s Representative Contribution Rate. Any Qualified Non-Elective Contribution taken into account under an ADP Test under Regulation §1.401(k)—2(a)(6) (including the determination of the Representative Contribution Rate for purposes of Regulation §1.401(k)—2(a)(6)(iv)(B)), is not permitted to be taken into account for purposes of the ACP Test (including the determination of the Representative Contribution Rate for purposes of the ACP Test).

(5)Prohibition Against Double-Counting. Qualified Non-Elective Contributions cannot be taken into account for purposes of the Contribution Percentage Amounts to the extent such contributions are taken into account for purposes of satisfying any other ACP Test, any ADP Test, or the requirements of Regulation §1.401(k)—3, §1.401(m)—3 or §1.401(k)—4. Qualified Non-Elective Contributions that are made pursuant to Regulation §1.401(k)—3(b) cannot be taken into account under the ACP Test.

(6)Switching the Testing Method. If this Plan switches from the Current Year Testing Method to the Prior Year Testing Method pursuant to Regulation §1.401(m)—2(c)(1), Qualified Non-Elective Contributions that are taken into account under the Current Year Testing Method for a Plan Year may not be taken into account under the Prior Year Testing Method for the next Plan Year.

(f)Qualified Matching Contributions Used to Satisfy ADP Test Are Excluded.Qualified Matching Contributions that are taken into account for the ADP Test of Code §401(k)(3) under Regulation §1.401(k)—2(a)(6) are not taken into account in determining a Participant’s Contribution Percentage Amounts.

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(g)Forfeited Matching Contributions Are Excluded. Contribution Percentage Amounts will not include either the non-Vested portion of Matching Contributions that are forfeited to correct Excess Aggregate Contributions, or Matching Contributions (both the Vested and non-Vested portions) that are forfeited because they relate to Excess Deferrals, Excess Contributions, or Excess Aggregate Contributions.

(h)Additional Employee Contributions or Matching Contributions of Code §414(u) Are Excluded.Contribution Percentage Amounts will not include additional Employee Contributions and Matching Contributions that are made by reason of a Participant’s qualified military service under Code §414(u) for the Plan Year for which the contributions are made, or for any other Plan Year.

1.45Counting of Hours Method. The term “Counting of Hours Method” means a method for crediting service for eligibility, for Vesting, for determining a Participant’s allocation, and/or for applying the allocation conditions as elected in the Adoption Agreement. Under the Counting of Hours Method, an Employee is credited with the number of Hours of Service for which the Employee is paid or entitled to payment (or such other circumstances for which Hours of Service are credited), pursuant to the definition of Hour of Service.

1.46Current Year Testing Method. The term “Current Year Testing Method” means the nondiscrimination testing method in which (a) for purposes of the ADP Test, the ADP for Participants who are Highly Compensated Employees for the Plan Year that is being tested is compared to the ADP for Participants who are Non-Highly Compensated Employees for the Plan Year that is being tested; and (b) for purposes of the ACP Test, the ACP for Participants who are Highly Compensated Employees for the Plan Year that is being tested is compared to the ACP for Participants who are Non-Highly Compensated Employees for the Plan Year that is being tested.

1.47Deductible Employee Contribution. The term “Deductible Employee Contribution” means a contribution that was made by a Participant to this Plan or to a predecessor plan for any Plan Year beginning before January 1, 1987 and which was tax deductible by the Participant at the time it was made.

1.48Deductible Employee Contribution Account. The term “Deductible Employee Contribution Account” means the account to which a Participant’s Deductible Employee Contributions have been allocated.

1.49Deemed Aggregated Allocation Groups. The term “Deemed Aggregated Allocation Groups” means, for purposes of determining the limitation in the number of Allocation Rates that are permitted when the Sponsoring Employer elects in the Adoption Agreement to allocate Non-Safe Harbor Non-Elective Contributions using allocation groups, all of the separate allocation groups that have the same Allocation Rate. No Employee can be assigned to more than one Deemed Aggregated Allocation Group for a Plan Year.

1.50Deemed Code §125 Compensation. The term “Deemed §125 Compensation” means an amount that is excludable from the gross income of the Employee under Code §106 that is not available to the Employee in cash in lieu of group health coverage under a Code §125 arrangement solely because that Employee is not able to certify that he or she has other health coverage. Amounts are Deemed Code §125 Compensation only if the Employer does not otherwise request or collect information regarding the Employee’s other health coverage as part of the enrollment process for the health plan.

1.51Deemed IRA Contribution. The term “Deemed IRA Contribution” means an Individual Retirement Account contribution made to this Plan, as elected in the Adoption Agreement.

1.52Deemed IRA Contribution Account. The term “Deemed IRA Contribution Account” means the account to which a Participant’s Deemed IRA Contributions are allocated.

1.53Designated Beneficiary. The term “Designated Beneficiary” means, for purposes of required minimum distributions under Section 5.9, the individual who is designated as the Beneficiary pursuant to the provisions of the Plan and is the Designated Beneficiary under Code §401(a)(9), the previously final Regulation §1.401(a)(9)-1, Q&A-4, and the final Regulation §1.401(a)(9)-4.

1.54Determination Date. The term “Determination Date” means, for any Plan Year subsequent to the first Plan Year of the Plan, the last day of the preceding Plan Year. For the first Plan Year of the Plan, the term “Determination Date” means the last day of that first Plan Year.

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1.55Disability. The term “Disability” means the following, as elected by the Sponsoring Employer:

(a)Definition. The term “Disability” means a physical or mental impairment arising after an Employee has become a Participant which, as elected in the Adoption Agreement, either (1) in the opinion of a physician acceptable to the Administrator, totally and permanently prevents the Participant from engaging in any occupation for pay or profit; (2) in the opinion of a physician acceptable to the Administrator, totally and permanently prevents the Participant from performing his or her customary and usual duties for the Employer; (3) in the opinion of the Social Security Administration, qualifies the Participant for disability benefits under the Social Security Act in effect on the date that the Participant suffers the mental or physical impairment; or (4) in the opinion of the insurance company, qualifies the Participant for benefits under an Employer-sponsored long-term disability plan which is administered by an independent third party. With regard go clause (1) and clause (2) above, if a difference of opinion arises between the Participant and the Administrator as to whether the Participant has suffered a Disability, it will be settled by a majority decision of three physicians, one to be appointed by the Administrator, one to be appointed by the Participant, and the third to be appointed by the two physicians first appointed herein.

(b)Definition of Disability If No Long-Term Disability Plan In Place and/or In Force. If the definition (or one of the definitions) of Disability as elected by the Sponsoring Employer is the one in paragraph (a)(4) above (a mental or physical impairment which, in the opinion of the insurance company, qualifies the Participant for benefits under an Employer-sponsored long-term disability plan which is administered by an independent third party) and there is not an Employer-sponsored long-term disability plan in place and/or in force at any point while the election of this definition of Disability is in effect, then this definition of Disability will be replaced by the provisions of paragraph (a)(3) above (a mental or physical impairment which, in the opinion of the Social Security Administration, qualifies the Participant for disability benefits under the Social Security Act in effect on the date that the Participant suffers the mental or physical impairment) during the time that an Employer-sponsored long-term disability plan is not in place and/or in force.

(c)Exceptions.Notwithstanding the foregoing to the contrary, the term “Disability” will not include any physical or mental impairment that is the result of any of the following exceptions, if elected in the Adoption Agreement: (1) the excessive use of drugs, intoxicants, or other substances; (2) an intentionally self-inflicted injury or sickness; or (3) an injury suffered as a result of an unlawful or criminal act by the Participant.

1.56Distribution Calendar Year. The term “Distribution Calendar Year” means, for purposes of required minimum distributions under Section 5.9, a calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year that contains the Participant’s Required Beginning Date. If a Participant elects the Life Expectancy method, then for distributions beginning after the Participant’s death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin under Section 5.9(b)(2)(B). The required minimum distribution for the Participant’s first Distribution Calendar Year will be made on or before the Participant’s Required Beginning Date. The required minimum distribution for other Distribution Calendar Years, including the required minimum distribution for the Distribution Calendar Year in which the Participant’s Required Beginning Date occurs, will be made on or before December 31 of that Distribution Calendar Year.

1.57Domestic Partner. The term “Domestic Partner” means the individual who is recognized to be the domestic partner of the Participant through policies and procedures that are established by the Sponsoring Employer and that may reflect the law of a State or a Commonwealth (or a political subdivision of a State or a Commonwealth).

1.58Early Retirement Age. The term “Early Retirement Age” means the Early Retirement Age, if any, as elected by the Sponsoring Employer in the Adoption Agreement.

1.59Early Retirement Date. The term “Early Retirement Date” means the Early Retirement Date, if any, as elected by the Sponsoring Employer in the Adoption Agreement.

1.60Earned Income. The term “Earned Income” means the net earnings from self-employment in the trade or business with respect to which the Plan is established, for which personal services of the individual are a material income-producing factor. Net earnings will be determined without regard to items not included in gross income and the deductions allocable thereto. Net earnings will be reduced by deductible contributions by the Employer to a qualified retirement plan. Net earnings will be determined with regard to the deduction allowed to the Employer by Code §164(f) for taxable years beginning after December 31, 1989.

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1.61Elapsed Time Method. The term “Elapsed Time Method” means a method for crediting service for eligibility, for Vesting, for determining a Participant’s allocation, and/or for applying the allocation conditions as elected in the Adoption Agreement, pursuant to the definition of Period of Service.

1.62Elective Deferral. The term “Elective Deferral” means Employer contributions made to the Plan at the election of the Participant in lieu of cash Compensation, and will include contributions made pursuant to a salary deferral agreement or other deferral mechanism. In any taxable year, a Participant’s Elective Deferral is the sum of all Employer contributions made on behalf of such Participant pursuant to an election to defer under (a) any qualified cash or deferred arrangement under Code §401(k); (b) any salary reduction simplified employee pension described in Code §408(k)(6); (c) any SIMPLE IRA Plan described in Code §408(p); (d) any plan under Code §501(c)(18); and (e) any Employer contributions made on the behalf of a Participant for the purchase of an annuity contract under Code §403(b) pursuant to a Salary Deferral Agreement. For years beginning after 2005, the term “Elective Deferral” includes Pre-Tax Elective Deferrals and Roth Elective Deferrals. An Elective Deferral must relate to Compensation that either (a) would have been received by the Employee in the Plan Year but for the Employee’s election to defer; or (b) if elected by the Sponsoring Employer for purposes of the ADP Test, is attributable to services performed by the Employee in the Plan Year and, but for the Employee’s election to defer, would have been received by the Employee within 2½ months after the close of the Plan Year. If elected by the Sponsoring Employer for purposes of the ADP Test, then this Plan will provide for Elective Deferrals that relate to Compensation that would have been received after the close of a Plan Year to be considered for such prior Plan Year rather than the Plan Year in which the Compensation would have been received.

1.63Eligibility Computation Period. The term “Eligibility Computation Period” means a period of twelve (12) consecutive months, which is used for purposes of eligibility to participate in the Plan (or a component of the Plan). An Employee’s initial Eligibility Computation Period will begin on his or her Employment Commencement Date. As elected in the Adoption Agreement, either (a) each subsequent Eligibility Computation Period will begin on each anniversary of the Employee’s Employment Commencement Date; or (b) the second Eligibility Computation Period will begin on the first day of the Plan Year which begins prior to the first anniversary of the Employee’s Employment Commencement Date (regardless of whether the Employee is credited with a specific number of Hours of Service during the initial Eligibility Computation Period) and each subsequent Eligibility Computation Period will consist of each subsequent Plan Year.

1.64Eligible Employee. The term “Eligible Employee” means any Employee who is a member of an eligible class of Employees and who is not excluded from participating in the Plan (or a component of the Plan), as elected by the Sponsoring Employer in the Adoption Agreement. In addition, if the Plan utilizes the failsafe allocation provisions of Section 3.15, then the term “ Eligible Employee” means any Employee who receives a failsafe allocation, even if such Employee was previously excluded from participating in the Plan (or a component of the Plan). Furthermore, the Sponsoring Employer may elect at any time to reclassify any Employee that had been excluded from participating in the Plan (or a component of the Plan) to be an Eligible Employee through a Plan amendment that is retroactively applied for one or more prior Plan Years because the Plan (or a component of the Plan) failed to satisfy for such Plan Year one of the tests set forth in Code §410(b)(1)(A), (B) or (C), or for any other reason required to maintain the tax exempt status of the Plan.

1.65Employee. The term “Employee” means (a) any person who is reported on the payroll records of the Employer as an employee and who is deemed by the Employer to be a common law employee; (b) any person who is reported on the payroll records of an Affiliated Employer as an employee and who is deemed by the Affiliated Employer to be a common law employee (even if the Affiliated Employer is not an Adopting Employer), except for purposes of determining eligibility to participate in the Plan if the Sponsoring Employer utilizes a Non-Standardized Adoption Agreement; (c) any Self-Employed Individual who derives Earned Income from the Employer; and (d) any person who is considered a Leased Employee but who (1) is not covered by a plan described in Code §414(n)(5), or (2) is covered by a plan described in Code §414(n)(5) but Leased Employees constitute more than 20% of the Employer’s non-highly compensated workforce. However, the term “Employee” will not include an Independent Contractor. If an Independent Contractor is later determined by the Employer, a court, or governmental agency to be an Employee or to have been an Employee of the Employer or an Affiliated Employer, and so long as such individual is an Eligible Employee, then such individual will only be eligible to participate in the Plan in accordance with the requirements of the Employee Plans Compliance Resolution System (EPCRS) under Revenue Procedure 2006-27 and subsequent guidance.

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1.66Employee Contribution. The term “Employee Contribution” means any contribution made to the Plan by or on behalf of a Participant that is included in the Participant’s gross income in the year in which the contribution is made (other than Roth Elective Deferrals) and that is maintained under a separate account to which earnings and losses are allocated. Employee Contributions include Voluntary Employee Contributions and Mandatory Employee Contributions.

1.67Employer. The term “Employer” means the Sponsoring Employer and any Adopting Employer.

1.68Employment Commencement Date. The term “Employment Commencement Date” means the first day that an Employee is credited with an Hour of Service for an Employer or an Affiliated Employer.

1.69Equivalent Accrual Rate. The term “Equivalent Accrual Rate” means the annual benefit that is the result of normalizing the increase in the Participant’s Account balance during the measurement period, divided by the number of years in which the Participant benefited under the Plan during the measurement period, and expressed either as a dollar amount or as a percentage of the Participant’s average annual Code §414(s) Compensation. A measurement period that includes future years may not be used. For purposes of determining an Equivalent Accrual Rate, the following rules apply:

(a)Determination of Account Balance.The increase in the Participant’s Account balance during the measurement period taken into account does not include income, expenses, gains, or losses allocated during the measurement period that are attributable to the Participant’s Account balance as of the beginning of the measurement period, but does include any additional amounts that would have been included in the increase in the Participant’s Account balance but for the fact that the additional amounts were previously distributed (including a reasonable adjustment for interest). If the measurement period is the current Plan Year, the Sponsoring Employer may also elect to disregard the income, expenses, gains, and losses allocated during the current Plan Year that are attributable to the increase in the Participant’s Account balance since the beginning of the Plan Year, and thus determine the increase in Participant’s Account balance during the Plan Year taking into account only allocations described in Regulation §1.401(a)(4)-2(c)(2)(ii). In addition, the Sponsoring Employer may disregard distributions to a Non-Highly Compensated Employee as well as distributions to any Employee in Plan Years beginning before a selected date no later than January 1, 1986.

(b)Normalization.The Participant’s Account balance determined under paragraph (a) is normalized into a single-sum benefit that is immediately and unconditionally payable to the Employee. A standard interest rate, and a straight life annuity factor that is based on the same or a different standard interest rate and on a standard mortality table, must be used in normalizing this benefit. In addition, no mortality may be assumed prior to the Employee’s testing age.

(c)Options.Any of the optional rules in Regulation §1.401(a)(4)-3(d)(3) (e.g., imputation of permitted disparity) may be applied in determining an Employee’s Equivalent Accrual Rate by substituting the Employee’s Equivalent Accrual Rate (determined without regard to this option) for the Employee’s Normal Accrual Rate where appropriate. For this purpose, however, the last sentence of the fresh-start alternative in Regulation §1.401(a)(4)-3(d)(3)(iii)(A) (dealing with Compensation adjustments to the frozen accrued benefit) is not applicable. No other options are available in determining an Employee’s Equivalent Accrual Rate except those (e.g., selection of alternative measurement periods) specifically provided in this definition. None of the optional special rules in Regulation §1.401(a)(4)-3(f) (e.g., determination of benefits on other than a Plan Year basis under Regulation §1.401(a)(4)-3(f)(6)) is available.

(d)Consistency Rule.Equivalent Accrual Rates must be determined in a consistent manner for all Employees for the Plan Year. The same measurement periods and standard interest rates must be used, and any available options must be applied consistently if at all.

1.70ERISA. The term “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, the Department of Labor Regulations, and Advisory Opinions and other rulings promulgated by the Department of Labor (or any agency thereunder). All citations to sections of ERISA and the Department of Labor Regulations are to such sections as they may from time to time be amended or renumbered.

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1.71Excess Annual Additions. The term “Excess Annual Additions” means an amount of Annual Additions credited to a Participant’s Account that exceeds the maximum Annual Additions limitation set forth in Section 6.1 for any Limitation Year. If Excess Annual Additions are treated according to Section 6.4, then such Excess Annual Additions will not be deemed Annual Additions.

1.72Excess Aggregate Contributions. The term “Excess Aggregate Contributions” means, with respect to any Plan Year, the excess of (a) the aggregate Contribution Percentage Amounts used in computing the numerator of the Contribution Percentage actually made on behalf of Participants who are Highly Compensated Employees for such Plan Year, over (b) the maximum Contribution Percentage Amounts permitted by the ACP Test (determined by hypothetically reducing Contribution Percentage Amounts made on behalf of Participants who are Highly Compensated Employees in order of their Contribution Percentages beginning with the highest of such Contribution Percentages). Such determination will be made after first determining Excess Elective Deferrals and then determining Excess Contributions.

1.73Excess Compensation. The term “Excess Compensation” means the amount of a Benefiting Participant’s Compensation in excess of (a) the Taxable Wage Base in effect on the first day of the Plan Year, (b) a percentage (that is less than 100% percent) of the Taxable Wage Base in effect on the first day of the Plan Year, or (c) a stated dollar amount that is less than the Taxable Wage Base in effect on the first day of the Plan Year, as elected in the Adoption Agreement.

1.74Excess Contributions. The term “Excess Contributions” means, with respect to any Plan Year, the excess of (a) the aggregate amount of Employer contributions actually taken into account in computing the Actual Deferral Percentage of HCEs for such Plan Year, over (b) the maximum amount of such contributions permitted by the ADP Test (determined by hypothetically reducing contributions made on behalf of HCEs in the order of their Actual Deferral Percentages, beginning with the highest of such percentages).

1.75Excess Elective Deferrals. The term “Excess Elective Deferrals” means those Elective Deferrals of a Participant that either (a) are made during the Participant’s taxable year and exceed the dollar limitation under Code §402(g) (including, if applicable, the Catch-up Contribution Limit as defined in Code §414(v)) for such taxable year; or (b) are made during a calendar year and exceed the dollar limitation under Code §402(g) (including, if applicable, the Catch-Up Contribution Limit as defined in Code §414(v)) for the Participant’s taxable year beginning in such calendar year, counting only Elective Deferrals made under this Plan and any other plan, contract or arrangement maintained by the Sponsoring Employer.

1.76401(k) Plan. The term “401(k) Plan” means a plan which permits the plan’s participants to have Elective Deferrals made on their behalf to the plan.

1.77401(m) Plan. The term “401(m) Plan” means a plan which permits or requires the plan’s participants to make Employee Contributions to the plan, and/or which allocates Matching Contributions to participants in the plan.

1.78Fiscal Year. The term “Fiscal Year” means either (a) the Sponsoring Employer’s 12 consecutive month accounting year beginning and ending on the dates indicated in Adoption Agreement, or (b) the Sponsoring Employer’s 52-53 week accounting year that either begins or ends on the date indicated in Adoption Agreement (unless there is a short Fiscal Year as elected in the Adoption Agreement). If the Fiscal Year is changed, a short Fiscal Year is established beginning the day after the last day of the Fiscal Year in effect before this change and ending on the last day of the new Fiscal Year.

1.79Forfeiture. The term “Forfeiture” means generally the amount by which a Participant’s Account balance attributable to Employer contributions exceeds his or her Vested Interest in the Participant’s Account balance attributable to Employer contributions upon the date the Sponsoring Employer elects in the Adoption Agreement. Furthermore, the term “Forfeiture” means the non-Vested portion of Matching Contributions that are removed from a Participant’s Account to correct Excess Aggregate Contributions, and Matching Contributions (both the Vested and non-Vested portions) removed from a Participant’s Account because such Matching Contributions relate to Excess Deferrals, Excess Contributions, or Excess Aggregate Contributions. Lastly, the term “Forfeiture” means any amount that is removed from a Participant’s Account pursuant to any Employee Plans Compliance Resolution System (EPCRS) program or any other correction guidance that is issued by the Internal Revenue Service. No Forfeitures will occur solely because (a) a Participant withdrawals Employee Contributions from the Plan; (b) a Participant withdrawals Elective Deferrals from the Plan; or (c) a Participant transfers employment from the Sponsoring Employer to an Affiliated Employer or Adopting Employer (or vice versa).

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1.80Forfeiture Account. The term “Forfeiture Account” means the notational bookkeeping account into which all Forfeitures are placed pending allocation (or other use) pursuant to Section 3.13(b).

1.81Form W-2 Compensation. The term “Form W-2 Compensation” means wages within the meaning of Code §3401(a) and all other payments of compensation to an Employee by the Employer (in the course of the Employer’s trade or business) which is actually paid or made available and is included in the Employee’s gross income for which the Employer is required to furnish the Employee a Form W-2 under Code §6041(d), §6051(a)(3) and §6052. Form W-2 Compensation must be determined without regard to any rules under Code §3401(a) that limit remuneration included in wages based on the nature or location of the employment or services performed (such as the exception for agricultural labor in Code §3401(a)(2)).

1.82Gradually Increasing Age or Service Schedule. The term “Gradually Increasing Age or Service Schedule” means, for Plan Years beginning on or after January 1, 2002, that the allocation formula for all Participants under the Plan provides for a single schedule of Allocation Rates under which:

(a)Series of Bands.The schedule defines a series of bands based on Age, Years of Service (or Periods of Service), or the number of points representing the sum of Age and Years of Service (or Periods of Service) with respect to age and service points, under which the same Allocation Rate applies to all employees whose Age, Years of Service (or Periods of Service), or Age and service points are within each band; and

(b)Smoothly Increasing at Regular Intervals.The Allocation Rates under the schedule increase smoothly at regular intervals, within the following meanings:

(1)Smoothly Increasing Schedule of Allocation Rates.A schedule of Allocation Rates increases smoothly if the Allocation Rate for each band within the schedule is greater than the Allocation Rate for the immediately preceding band (i.e., the band with the next lower number of years of Age, Years of Service (or Periods of Service), or Age and service points) by no more than 5 percentage (5%). However, a schedule of Allocation Rates will not be treated as increasing smoothly if the ratio of the allocation rate for any band to the rate for the immediately preceding band is more than 2.0 or if it exceeds the ratio of Allocation Rates between the two immediately preceding bands.

(2)Regular Intervals.A schedule of Allocation Rates has regular intervals of Age, Years of Service (or Periods of Service), or Age and service points, if each band, other than the band associated with the highest Age, Years of Service (or Periods of Service), or Age and service points, is the same length. For this purpose, if the schedule is based on Age, the first band is deemed to be of the same length as the other bands if it ends at or before age 25. If the first age band ends after Age 25, then, in determining whether the length of the first band is the same as the length of other bands, the starting age for the first age band is permitted to be treated as Age 25 or any Age earlier than 25. For a schedule of allocation rates based on Age and service points, the rules of the preceding two sentences are applied by substituting 25 Age and service points for age 25. For a schedule of allocation rates based on service, the starting service for the first service band is permitted to be treated as one Year of Service (or Period of Service) or any lesser amount of service.

(c)Minimum Allocation Rates Permitted.A schedule of Allocation Rates under the Plan is considered to increase smoothly at regular intervals if a minimum uniform Allocation Rate is provided for all Participants or the Top Heavy Minimum Allocation described in Code §416(c)(2) is provided for all Non-Key Employees (either because the Plan is Top Heavy or without regard to whether the Plan is Top Heavy) if the schedule satisfies one of the following conditions:

(1)Hypothetical Schedule.The Allocation Rates under the Plan that are greater than the minimum Allocation Rate can be included in a hypothetical schedule of Allocation Rates that increases smoothly at regular intervals, where the hypothetical schedule has a lowest allocation rate no lower than 1% of Code §414(s) Compensation; or

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(2)Schedule of Allocation Rates based on Age.If the Plan is using a schedule of Allocation Rates based on Age, for each Age band in the schedule that provides an Allocation Rate greater than the minimum Allocation Rate, then there could be a Participant in that Age band with an Equivalent Accrual Rate that is less than or equal to the Equivalent Accrual Rate that would apply to a Participant whose Age is the highest Age for which the Allocation Rate equals the minimum Allocation Rate.

1.83HCE. The term “HCE” means a Highly Compensated Employee.

1.84Highly Compensated Employee. The term “Highly Compensated Employee” means any Employee who (a) was a 5% owner as defined in Code §416(i)(1)(B)(i) at any time during the Plan Year or during the look-back year. In determining whether an Employee is a Highly Compensated Employee based on his or her status as a 5% owner, the look-back year will be the 12-month period immediately preceding the Plan Year for which the determination is being made; or (b) for the look-back year, had Code §415(c)(3) Compensation in excess of $80,000 as adjusted  under Code §415(d) (except that the base period will be the calendar quarter ending September 30, 1996). In determining if an Employee is a Highly Compensated Employee based on Code §415(c)(3) Compensation, the look-back year will be the 12-month period immediately preceding the Plan Year for which the determination is being made, unless the Sponsoring Employer elects in the Adoption Agreement for any Plan Year that the look-back year will be the calendar year beginning with or within the look-back year; and the top paid group election set forth in Code §414(q)(3) will not be applied to this Plan unless otherwise elected for any Plan Year by the Sponsoring Employer in the Adoption Agreement. In determining if an individual is a highly compensated former Employee, the rules for determining which Employees are Highly Compensated Employees for the Plan Year for which the determination is being made (in accordance with Temporary Regulation §1.414(q)-1T, A-4 and Notice 97-45) will be applied. If the Employer maintains more than one qualified retirement plan, the terms of this Section will be applied in a uniform, consistent manner to all such plans.

1.85Hour of Service. The term “Hour of Service” means, with respect to any Plan provision in which Service is determined by the Elapsed Time Method, each hour for which an Employee is paid, or is entitled to payment, by the Employer or an Affiliated Employer for the performance of duties. With respect to any Plan provision in which Service is determined by the Counting of Hours Method, the term “Hour of Service” means the following:

(a)Determination of Hours.The term “Hour of Service” means (1) each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer or an Affiliated Employer, which will be credited to the Employee for the computation period in which the duties are performed; (2) each hour for which an Employee is paid, or entitled to payment, by the Employer or an Affiliated Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence, except that no more than 501 Hours of Service will be credited under this clause (2) for any single continuous period (regardless of whether such period occurs in a single computation period); and (3) each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer or an Affiliated Employer, except that the same Hours of Service will not be credited both under clause (1) or clause (2), as the case may be, and under this clause (3), and these Hours of Service will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. Hours of Service under this paragraph will be calculated and credited pursuant to Department of Labor Regulation §2530.200b-2, which is incorporated herein by reference. Furthermore, Hours of Service will be credited for any individual who is considered to be an Employee under Code §414(n) for purposes of this Plan.

(b)Maternity/Paternity Leave.Solely for purposes of determining whether a Break in Service has occurred in a computation period for purposes of an Employee’s eligibility for Plan participation, Vesting, and benefit accrual/allocation, an individual on Maternity or Paternity Leave will receive credit for up to 501 Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, eight (8) Hours of Service per day of such absence. The Hours of Service credited for a Maternity or Paternity Leave will be credited in the computation period in which the absence begins if the crediting is necessary to prevent a Break in Service in that computation period, or in all other cases, in the following computation period.

(c)Use of Equivalencies.Notwithstanding paragraph (a), the Administrator may elect for all Employees or for one or more different classifications of Employees (provided such classifications are reasonable, are consistently applied, and are nondiscriminatory) to apply one or more of the following equivalency methods in determining an Employee’s Hours of

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Service. Under such equivalency methods, an Employee will be credited with (1) 190 Hours of Service for each month that he or she would credited with at least one Hour of Service during that month; (2) 95 Hours of Service for each semi-monthly period that he or she would credited with at least one Hour of Service during that semi-monthly period; (3) 45 Hours of Service for each week that he or she would credited with at least one Hour of Service during that week; and/or (4) 10 Hours of Service for each day that he or she would credited with at least one Hour of Service during that day.

1.86Hypothetical Entry Date. The term “Hypothetical Entry Date” means, with respect to a Plan (or a component of a Plan) that provides that Otherwise Excludable Participants are eligible to participate in the Plan (or component of the Plan), the date that an Otherwise Excludable Participant would hypothetically enter the Plan (or component of the Plan) and would no longer be considered an Otherwise Excludable Participant had the Plan (or component of the Plan) utilized the statutory minimum age and service requirements under Code §410(a)(1)(A) as the eligibility requirements for the Plan (or component of the Plan), as elected in the Adoption Agreement.

1.87Immediately Distributable. The term “Immediately Distributable” means any part of the Participant’s benefit that could be distributed to the Participant (or the Participant’s surviving Spouse) before the Participant reaches (or would have reached if not deceased) the later of his or her Normal Retirement Age or Age 62.

1.88Independent Contractor. The term “Independent Contractor” means an individual who is not reported on the payroll records of the Employer or an Affiliated Employer as a common law employee. The determination of whether an individual is an Independent Contractor will be based upon the facts and circumstances and upon the guidance of Revenue Ruling 87-41.

1.89Key Employee. The term “Key Employee” means, in determining whether the Plan is Top Heavy for Plan Years beginning on or after January 1, 2002, any Employee, former Employee or deceased Employee who at any time during the Plan Year that includes the Determination Date is (a) an officer of the Employer having annual Code §415(c)(3) Compensation greater than $130,000 (as adjusted under Code §416(i)(1)(A) for Plan Years beginning after December 31, 2002); (b) a 5% owner as defined in Code §416(i)(1)(B)(i); or (c) a 1% owner as defined in Code §416(i)(1)(B)(ii) whose annual Code §415(c)(3) Compensation is more than $150,000. The determination of who is a Key Employee will be made in accordance with Code §416(i)(1), the applicable Regulations, and other guidance issued thereunder. With respect to Employees who are treated as Key Employees by reason of being officers pursuant to clause (a), the following rules apply:

(a)Definition of Officer.The term “officer” means generally an administrative executive who is in regular and continued service (a continuity of service), and excludes an individual who is employed for a special and single transaction. Whether an individual is an officer will be determined upon the basis of all the facts and circumstances, including the source of the individual’s authority, the term for which the individual is elected or appointed, and the nature and extent of the individual’s duties. An Employee who merely has the title of an officer but not the authority of an officer is not an officer for purposes of determining whether the Employee is a Key Employee. Similarly, an Employee who does not have the title of an officer but has the authority of an officer is an officer for purposes of determining whether the Employee is a Key Employee.

(b)Number of Officers Taken Into Account. There is no minimum number of officers that must be taken into account. After aggregating all Employees (including Leased Employees) of the Sponsoring Employer and Affiliated Employers, there is a maximum limit to the number of officers that are to be taken into account as officers for the entire group consisting of the Sponsoring Employer and Affiliated Employers. The number of Employees that the Sponsoring Employer and Affiliated Employers has for the Plan Year containing the Determination Date is the greatest number of Employees the Sponsoring Employer and Affiliated Employers had during that Plan Year, and Employees include only those individuals who perform services for the Sponsoring Employer and Affiliated Employers during that Plan Year. However, in determining the number of officers taken into account, Employees described in Code §414(q)(5) will be excluded. If the number of Employees (including part-time Employees) of the Sponsoring Employer and Affiliated Employers is less than or equal to 30 Employees, then no more than 3 Employees will be treated as Key Employees for the Plan Year containing the Determination Date by reason of being officers. If the number of Employees of the Sponsoring Employer and Affiliated Employers is greater than 30 but less than or equal to 500, then no more than 10% of the number of Employees will be treated as Key Employees by reason of being officers. If 10% of the number of Employees is not an integer, then the maximum number of individuals to be treated as Key Employees by reason of being officers will be increased to the next integer. If the number of Employees of the Sponsoring Employer and Affiliated Employers exceeds 500, then no more than 50 Employees will be treated as Key Employees for the Plan Year containing the Determination Date by reason of being

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officers. This limited number of officers is comprised of the individual officers, selected from the group of all individuals who are officers in the Plan Year containing the Determination Date, who have annual Code §415(c)(3) Compensation during the Plan Year containing the Determination Date greater than $130,000 (as adjusted under Code §416(i)(1) for Plan Years beginning after December 31, 2002), and who had the largest annual Code §415(c)(3) Compensation during the Plan Year containing the Determination Date.

1.90Leased Employee. The term “Leased Employee” means any person (other than an Employee of the recipient-Employer) who pursuant to an agreement between the recipient-Employer and other person (known as the “Leasing Organization”) has performed services for the recipient-Employer (or for the recipient-Employer and related persons determined in accordance with Code §414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are performed under primary direction or control by the recipient-Employer. Contributions or benefits provided to a Leased Employee by the Leasing Organization which are attributable to services performed for the recipient-Employer will be treated as provided by the recipient-Employer. A Leased Employee will not be considered an Employee of the recipient-Employer if (a) such Leased Employee is covered by a money purchase plan providing (1) a non-integrated Employer contribution rate of at least 10% of the Leased Employee’s Code §415(c)(3) Compensation; (2) immediate participation in such plan; and (3) full and immediate vesting; and (b) Leased Employees do not constitute more than 20% of the recipient-Employer’s non-highly compensated work force.

1.91Life Expectancy. The term “Life Expectancy” means, for purposes of required minimum distributions under Section 5.9, life expectancy as computed by use of the Single Life Table in Regulation §1.401(a)(9)-9, Q&A 1.

1.92Limitation Year. The term “Limitation Year” means the 12-consecutive month period elected in the Adoption Agreement. If the Limitation Year is amended to a different 12-consecutive month period, then the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made.

1.93Mandatory Employee Contribution. The term “Mandatory Employee Contribution” means an Employee Contribution that equals the specified percentage of a Participant’s Compensation which the Participant must contribute to the Plan in order to receive an allocation of Employer contributions and Forfeitures for the Allocation Period.

1.94Mandatory Employee Contribution Account. The term “Mandatory Employee Contribution Account” means the account to which a Participant’s Mandatory Employee Contribution” are allocated.

1.95Matching Contribution. The term “Matching Contribution” means either (a) an ADP Safe Harbor Matching Contribution, (b) an ACP Safe Harbor Matching Contribution, (c) a Qualified Matching Contribution, or (d) a Non-Safe Harbor Matching Contribution, depending on the context in which the term is used in either the Basic Plan or in the Adoption Agreement.

1.96Matching Contribution Account. The term “Matching Contribution Account” means the sub-account to which a Participant’s Matching Contributions are allocated.

1.97Matching Rate. The term “Matching Rate” means:

(a)Matching Contributions With Respect to Elective Deferrals.If the Plan provides a Matching Contribution with respect to a Participant’s Elective Deferrals (but not Employee Contributions), then generally the Non-Safe Harbor Matching Contributions made for a Participant divided by the Participant’s Elective Deferrals for the Plan Year. If the Matching Rate is not the same for all levels of Elective Deferrals for a Participant, the Participant’s Matching Rate is determined by assuming that a Participant’s Elective Deferrals are equal to 6% of such Participant’s Code §414(s) Compensation.

(b)Matching Contributions With Respect to Elective Deferrals and Employee Contributions. If the Plan provides a Matching Contribution with respect to a Participant’s Employee Contributions and Elective Deferrals, then generally the Non-Safe Harbor Matching Contributions made for a Participant divided by the sum of the Participant’s Employee Contributions and Elective Deferrals for the Plan Year. If the Matching Rate is not the same for all levels of Employee Contributions and Elective Deferrals for a Participant, the Participant’s Matching Rate is determined by assuming that the sum of a Participant’s Employee Contributions and Elective Deferrals is equal to 6% of the Participant’s Code §414(s) Compensation.

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(c)Matching Contributions With Respect to Employee Contributions. If the Plan provides a Matching Contribution with respect to a Participant’s Employee Contributions (but not Elective Deferrals), then generally the Non-Safe Harbor Matching Contributions made for a Participant divided by the Participant’s Employee Contributions for the Plan Year. If the Matching Rate is not the same for all levels of Employee Contributions for a Participant, the Participant’s Matching Rate is determined by assuming that a Participant’s Employee Contributions are equal to 6% of such Participant’s Code §414(s) Compensation.

1.98Maternity or Paternity Leave. The term “Maternity or Paternity Leave” means an Employee’s absence from work because of (a) the Employee’s pregnancy; (b) the birth of the Employee’s child; (c) the placement of a child with the Employee in connection with the adoption of such child by the Employee; or (d) the need to care for such child for a period beginning immediately following the child’s birth or placement as set forth above.

1.99Maximum Excess Percentage. The term “Maximum Excess Percentage” means the percentage derived by dividing the Employer’s contribution by the sum of the total Compensation of all Benefiting Participants plus the total Excess Compensation of all Benefiting Participants.

1.100Minimum Aggregate Allocation Gateway. The term “Minimum Aggregate Allocation Gateway” means, for Plan Years beginning on or after January 1, 2002, in the case where this Plan (or any other defined contribution plan that is aggregated with this Plan) is aggregated with any defined benefit plan for purposes of applying the general test for non-discrimination based upon Equivalent Accrual Rates for the defined contribution plan(s), a minimum Aggregate Normal Allocation Rate that must be provided to each Non-Highly Compensated Employee. Notwithstanding the above, in determining the Benefiting Participants for purposes of the Minimum Aggregate Allocation Gateway, the permissive disaggregation rules under Regulation §1.410(b)-6(b)(3)(ii) and §1.410(b)-7(c)(3) will be applied. The Minimum Aggregate Allocation Gateway is subject to the following rules:

(a)Minimum Aggregate Allocation Gateway Amount.The amount of the Minimum Aggregate Allocation Gateway is equal to the lesser of :

(1)7.5% of Code §415(c)(3) Compensation; or

(2)An Aggregate Normal Allocation Rate based upon the following formulae:

(A)One-Third Formula. If the Aggregate Normal Allocation Rate of the HCE with the highest aggregate allocation rate is less than 15%, then the Aggregate Normal Allocation Rate for each NHCE must be at least one-third (1/3) of the Aggregate Normal Allocation Rate of the HCE with the highest Aggregate Normal Allocation Rate;

(B)5% Formula. If the Aggregate Normal Allocation Rate of the HCE with the highest Aggregate Normal Allocation Rate is between 15% and 25%, then the Aggregate Normal Allocation Rate for each NHCE must be at least 5% of Code §415(c)(3) Compensation; or

(C)5% Plus Formula. If the Aggregate Normal Allocation Rate of the HCE with the highest Aggregate Normal Allocation Rate exceeds 25%, then the Aggregate Normal Allocation Rate for each NHCE must be at least 5% plus one percentage point for each five percentage point increment (or portion thereof) by which the Aggregate Normal Allocation Rate of the HCE with the highest Aggregate Normal Allocation Rate exceeds 25% (e.g., if the Aggregate Normal Allocation Rate of the HCE with the highest Aggregate Normal Allocation Rate exceeds 25% but not 30%, then the Aggregate Normal Allocation Rate for each NHCE must be at least 6%; if the Aggregate Normal Allocation Rate of the HCE with the highest Aggregate Normal Allocation Rate exceeds 30% but not 35%, then the Aggregate Normal Allocation Rate for each NHCE must be at least 7%).

(b)Averaging of Equivalent Allocation Rates for NHCEs.For purposes of this definition, the Plan is permitted to treat each Non-Highly Compensated Employee who benefits under the defined benefit plan as having an equivalent normal allocation rate equal to the average of the equivalent normal allocation rates under the defined benefit plan for all Non-Highly Compensated Employees benefiting under that plan.

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(c)No Permitted Disparity.For purposes of this definition, the Aggregate Normal Allocation Rate must not take into account the imputation of permitted disparity under Regulation §1.401(a)(4)-7.

(d)Compensation Limited to Compensation after Entry Date.For purposes of determining if the Minimum Aggregate Allocation Gateway of paragraph (a) has been satisfied, Code §415(c)(3) Compensation will be limited to the Participant’s Code §415(c)(3) Compensation on and after a Participant’s Entry Date of the Plan’s component subject to the Minimum Aggregate Allocation Gateway.

(e)Treatment of Otherwise Excludable Participants.For purposes of the Minimum Aggregate Allocation Gateway, Otherwise Excludable Participants will not be considered.

1.101Minimum Allocation Gateway. The term “Minimum Allocation Gateway” means, for Plan Years beginning on or after January 1, 2002, a minimum allocation that must be provided to each Non-Highly Compensated Employee who receives an allocation of any Non-Elective Contribution (including any ADP Safe Harbor Non-Elective Contribution) or any Qualified Non-Elective Contribution under this Plan (or any other defined contribution plan that is aggregated with this Plan) that performs the general test for non-discrimination based upon Equivalent Accrual Rates as set forth in Regulation §1.401(a)(4)-8. Notwithstanding the above, in determining the Benefiting Participants for purposes of the Minimum Allocation Gateway, the permissive disaggregation rules under Regulation §1.410(b)-6(b)(3)(ii) and §1.410(b)-7(c)(3) will be applied. The Minimum Allocation Gateway is subject to the following rules:

(a)Minimum Allocation Gateway Satisfied So Long As this Plan Is Not Aggregated with any Defined Benefit Plan.The Minimum Allocation Gateway can be utilized so long as neither this Plan nor any other defined contribution plan (that is aggregated with this Plan) is aggregated with any defined benefit plan in applying the general test for non-discrimination based upon Equivalent Accrual Rates for the defined contribution plan(s). If this Plan or any other defined contribution plan (that is aggregated with this Plan) is aggregated with any defined benefit plan for purposes of applying the general test for non-discrimination based upon Equivalent Accrual Rates for the defined contribution plan(s), then the Minimum Allocation Gateway pursuant to this definition will not satisfy the requirements of Regulation §1.401(a)(4)-9.

(b)Minimum Allocation Gateway Amount.The amount of the Minimum Allocation Gateway is equal to the lesser of (1) five percent (5%) of the Participant’s Code §415(c)(3) Compensation; or (2) one-third of the Allocation Rate of the Highly Compensated Employee with the highest Allocation Rate.

(c)Satisfaction of Minimum Allocation Gateway.The Minimum Allocation Gateway may be satisfied with any Non-Elective Contributions (including any ADP Safe Harbor Non-Elective Contributions) or any Qualified Non-Elective Contributions.

(d)No Permitted Disparity.For purposes of this definition, allocations and Allocation Rates must not take into account the imputation of permitted disparity under §1.401(a)(4)-7.

(e)Compensation Limited to Compensation after Entry Date.For purposes of determining if the Minimum Allocation Gateway of paragraph (b) has been satisfied, Code §415(c)(3) Compensation will be limited to the Participant’s Code §415(c)(3) Compensation on and after a Participant’s Entry Date of the Plan’s component subject to the Minimum Allocation Gateway.

(f)Treatment of Otherwise Excludable Participants.For purposes of the Minimum Allocation Gateway, Otherwise Excludable Participants will not be considered.

1.102Named Fiduciary. The term “Named Fiduciary” means the Administrator or other fiduciary named by the Administrator to control and manage the operation and administration of the Plan. To the extent authorized by the Administrator, a Named Fiduciary may delegate its responsibilities to a third party or parties. The Employer is also a Named Fiduciary.

1.103NHCE. The term “NHCE” means a Non-Highly Compensated Employee.

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1.104Non-Elective Contribution. The term “Non-Elective Contribution” means an ADP Safe Harbor Non-Elective Contribution, a Non-Safe Harbor Non-Elective Contribution, and/or a Prevailing Wage Contribution that is not used to offset any Matching Contribution or is not treated as a Qualified Non-Elective Contribution or a Qualified Matching Contribution, depending on the context in which the term is used in the Basic Plan or the Adoption Agreement. Furthermore, the term “Non-Elective Contribution” means any Top Heavy Minimum Allocation that may be required under the terms of the Plan.

1.105Non-Highly Compensated Employee. The term “Non-Highly Compensated Employee” means any Employee who is not a Highly Compensated Employee.

1.106Non-Key Employee. The term “Non-Key Employee” means any Employee who is not a Key Employee. A former Key Employee (a Key Employee during any Plan Year prior to the Plan Year that includes the Determination Date) is a Non-Key Employee for purposes of determining whether such former Key Employee is required to receive a Top Heavy Minimum Allocation; however, a former Key Employee is ignored for purposes of determining whether the Plan is Top Heavy.

1.107Non-Safe Harbor 401(k) Plan. The term “Non-Safe Harbor 401(k) Plan” means a 401(k) Plan which does not automatically satisfy the ADP Test under Code §401(k).

1.108Non-Safe Harbor 401(m) Plan. The term “Non-Safe Harbor 401(k) Plan” means a 401(m) Plan which does not automatically satisfy the ACP Test under Code §401(m).

1.109Non-Safe Harbor Matching Contribution. The term “Non-Safe Harbor Matching Contribution” means an Employer contribution made to this or any other defined contribution plan on behalf of a Participant on account of a Participant’s Elective Deferrals and/or a Participant’s Voluntary Employee Contributions made by such Participant under a plan maintained by the Sponsoring Employer. Non-Safe Harbor Matching Contributions are not intended to automatically satisfy the ACP Test.

1.110Non-Safe Harbor Matching Contribution Account. The term “Non-Safe Harbor Matching Contribution Account” means the account to which a Participant’s Non-Safe Harbor Matching Contributions are allocated.

1.111Non-Safe Harbor Non-Elective Contribution. The term “Non-Safe Harbor Non-Elective Contribution” means an Employer contribution that (a) is allocated to a Participant’s Non-Safe Harbor Non-Elective Contribution Account, (b) the Participant may not elect to receive in cash until such contributions are distributed from the Plan; and (c) is not intended to be used to automatically satisfy the ADP Test. In the case of a profit sharing or money purchase plan that does not have Matching Contributions, the term “Non-Safe Harbor Non-Elective Contribution” means the Employer contribution.

1.112Non-Safe Harbor Non-Elective Contribution Account. The term “Non-Safe Harbor Non-Elective Contribution Account” means the account to which a Participant’s Non-Safe Harbor Non-Elective Contributions are allocated.

1.113Normal Accrual Rate. The term “Normal Accrual Rate” means, for a Participant for a Plan Year, the increase in the Participant’s accrued benefit (within the meaning of Code §411(a)(7)(A)(i)) during the measurement period, divided by the Participant’s testing service during the measurement period, and expressed either as a dollar amount or as a percentage of the Participant’s average annual Code §414(s) Compensation.

1.114Normal Form of Distribution. The term “Normal Form of Distribution” means the form in which a Participant’s benefit will be distributed absent an election to the contrary, as elected in the Adoption Agreement.

1.115Normal Retirement Age. The term “Normal Retirement Age” means the Normal Retirement Age as elected by the Sponsoring Employer in the Adoption Agreement. There is no mandatory retirement Age.

1.116Normal Retirement Date. The term “Normal Retirement Date” means the Normal Retirement Date as elected by the Sponsoring Employer in the Adoption Agreement.

1.117OASI Percentage. The term “OASI Percentage” means the portion of the rate of tax in effect at the beginning of the Plan Year pursuant to Code §3111(a) which is attributable to old-age insurance.

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1.118One Year Holdout Rule. The term “One Year Holdout Rule” means a rule that applies to an Employee who Terminates Employment with the Employer and the Employee is subsequently reemployed by the Employer after incurring a Break in Service. Pursuant to the One Year Holdout Rule, an Employee’s Year(s) of Service or Periods of Service that were completed prior to the Break in Service will be recognized only after the Employee has completed one (1) Year of Service or 1-Year Period of Service, as applicable, after the Employee’s Reemployment Commencement Date. In the case of the Counting of Hours Method, such prior Year(s) of Service will be recognized retroactively as of the first day of the computation period in which the Employee completes one (1) Year of Service. In the case of the Elapsed Time Method, such prior Periods of Service will be recognized retroactively as of the Employee’s Reemployment Commencement Date.

1.119Otherwise Excludable Participant. The term “Otherwise Excludable Participant” means a Participant in the Plan (or a component of the Plan) who (a) has not satisfied the statutory minimum age and service requirements set forth in Code §410(a)(1)(A), and (b) has not reached such Participant’s Hypothetical Entry Date.

1.120Optional Form of Distribution. The term “Optional Form of Distribution” means a form of distribution other than the Normal Form of Distribution, as elected in the Adoption Agreement.

1.121Participant. The term “Participant” means any Eligible Employee who has met the eligibility and participation requirements of the Plan. In addition, if the Plan utilizes the failsafe allocation provisions of Section 3.15, then the term “Participant” means any Employee who receives a failsafe allocation, even if such Employee is not an Eligible Employee and/or has not satisfied the eligibility and participation requirements of the Plan. Furthermore, the Sponsoring Employer may elect at any time to reclassify any Employee that had been excluded from participating in the Plan (or a component of the Plan) to be a Participant through a Plan amendment that is retroactively applied for one or more prior Plan Years because the Plan (or a component of the Plan) failed to satisfy for such Plan Year one of the tests set forth in Code §410(b)(1)(A), (B) or (C), or for any other reason required to maintain the tax exempt status of the Plan. However, an individual who is no longer an Employee will cease to be a Participant if his or her entire Plan benefit (a) is fully guaranteed by an insurance company and legally enforceable at the sole choice of such individual against such insurance company, provided that a contract, Policy, or certificate describing the individual’s Plan benefits has been issued to such individual; (b) is paid in a lump sum distribution which represents such individual’s entire interest in the Plan; or (c) is paid in some other form of distribution and the final payment thereunder has been made.

1.122Participant’s Account. The term “Participant’s Account” means the account to which is allocated a Participant’s share of Employer contributions and Employee Contributions; earnings or losses; and, if applicable, Forfeitures. A Participant’s Account will also include the proceeds of any Policies purchased on the Participant’s life under Section 7.2. Each Participant’s Account will be divided (where applicable) into the following sub-accounts for accounting purposes: the Pre-Tax Elective Deferral Account; the Roth Elective Deferral Account; the Non-Safe Harbor Matching Contribution Account; the Non-Safe Harbor Non-Elective Contribution Account; the Qualified Matching Contribution Account; the Qualified Non-Elective Contribution Account; the ADP Safe Harbor Matching Contribution Account; the ADP Safe Harbor Non-Elective Contribution Account; the ACP Safe Harbor Matching Contribution Account; the Voluntary Employee Contribution Account; the Mandatory Employee Contribution Account; the Deemed IRA Contribution Account; the Rollover Contribution Account; the Transfer Account; and any other sub-accounts the Administrator may determine necessary from time to time.

1.123Participant’s Account Balance. The term “Participant’s Account Balance” means, for purposes of required minimum distributions under Section 5.9, the balance of the Participant’s Account as of the last Valuation Date in the Valuation Calendar Year, increased by any contributions made and allocated or forfeitures allocated to the Account as of dates in the Valuation Calendar Year after the Valuation Date and decreased by distributions made in the Valuation Calendar Year after the Valuation Date. The Participant’s Account Balance for the Valuation Calendar Year includes any amounts rolled over or transferred to the Plan either in the Valuation Calendar Year or in the Distribution Calendar Year if distributed or transferred in the Valuation Calendar Year.

1.124Period of Service. The term “Period of Service” means, with respect to any provision of the Plan in which service is determined by the Elapsed Time Method, a period of time during which the Employee is employed with the Employer or an Affiliated Employer (or any business entity which was an Adopting Employer) commencing on an Employee’s Employment Commencement Date or Reemployment Commencement Date and ending on the date that the Employee’s Period of Severance begins, and a 1-Year Period of Service and all other Periods of Service will be determined in accordance with the following provisions:.

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(a)Definition of Period of Severance and 1-Year Period of Severance.The term “Period of Severance” means a continuous period of time during which the Employee is not employed by the Employer. A Period of Severance begins on the earlier of: (1) the date on which an Employee retires, dies, quits or is discharged from employment by the Employer or an Affiliated Employer, or (2) the first anniversary of the first date on which an Employee remains absent from service with the Employer or an Affiliated Employer (with or without pay) for any reason other than the Employee retiring, dying, quitting or being discharged from employment by the Employer or an Affiliated Employer, such as for vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. However, in the case of an Employee who is absent from work for Maternity or Paternity Leave, the 12-consecutive month period beginning on the first anniversary of the first date of such absence under clause (2) of the previous sentence will not constitute a Period of Severance. A Period of Severance ends as of an Employee’s Reemployment Commencement Date. The term “1-Year Period of Severance” means a 12-consecutive month Period of Severance during which an Employee fails to perform an Hour of Service.

(b)Hours of Service During a Period of Severance.If an Employee performs an Hour of Service during a period which would otherwise be considered a Period of Severance under paragraph (a), then the Plan must count such period as a Period of Service and the Employee will receive credit for such Period of Service.

(c)Definition of 1-Year Period of Service.The term “1-Year Period of Service” means a 12-consecutive month Period of Service. An Employee will receive credit for Periods of Service of less than 12-consecutive months by aggregating (subject to the limitations below) all non-successive Periods of Service and all Periods of Service which are fractional years or which do not constitute a whole 1-Year Period of Service, regardless of whether consecutive. Fractional periods of a year are expressed in terms of days, on the basis that a day of service is credited if an Employee is credited with an Hour of Service during such day, and on the basis that 12 months of service (30 days being deemed to be a month of service in the case of the aggregation of fractional months of service) or 365 days of service equals a 1-Year Period of Service. An Employee will also be credited for all purposes, as applicable, with a fractional Period of Service for any Period of Severance that is less than a 1-Year Period of Severance.

(d)Prior Service Credit.If the Employer maintains (or has ever maintained) any plan of a predecessor employer, then service during the existence of such predecessor plan with such predecessor employer will be credited as Periods of Service with the Employer. In addition, if elected in Section 2.2 of the Adoption Agreement, then predecessor service with the entity or entities named in the Adoption Agreement will be credited as Periods of Service with the Employer for the purposes elected in the Adoption Agreement. For purposes of the prior sentence, the following rules will apply: If the Employer does not maintain (and has never maintained) a plan of a predecessor employer and if predecessor service of that predecessor employer is credited in a standardized Adoption Agreement, then such service will be limited to five 1-Year Periods of Service pursuant to Regulation §1.401(a)(4)-5(a)(3). If the Employer does not maintain (and has never maintained) a plan of a predecessor employer, if predecessor service of that predecessor employer is credited in a non-standardized Adoption Agreement and if such predecessor service exceeds five 1-Year Periods of Service, the crediting of such service must comply with the requirements of Regulation §1.401(a)(4)-11(d).

(e)Reemployment of an Employee Before a Break In Service and Before Eligibility Requirements Are Satisfied.For any Plan Year in which the eligibility requirements in Section 2.1 are based on the Elapsed Time Method, if an Employee Terminates Employment with the Employer prior to satisfying the eligibility requirements in Section 2.1 and the Employee is subsequently reemployed by the Employer before incurring a Break in Service, then the Employee’s pre-termination Period of Service will be counted in determining the satisfaction of such eligibility requirements and for all other purposes, as applicable. Furthermore, the Employee will also be credited for all purposes, as applicable, with a fractional Period of Service for any Period of Severance that is less than a 1-Year Period of Severance. If the Employee has satisfied the eligibility requirements in Section 2.1 when such fractional Period of Service of the previous sentence is added to such Employee’s pre-termination Period of Service, then the Employee will become a Participant in the Plan as of the later of (1) the date that the Employee would enter the Plan had the Employee not Terminated Employment with the Employer, or (2) the Employee’s Reemployment Commencement Date.

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(f)Reemployment of an Employee Before a Break In Service and After Eligibility Requirements Are Satisfied.For any Plan Year in which the eligibility requirements in Section 2.1 are based on the Elapsed Time Method, if an Employee Terminates Employment prior to the Employee’s Entry Date in Section 2.2, the Employee had satisfied the eligibility requirements in Section 2.1 as of the Employee’s Termination of Employment, and the Employee is subsequently reemployed by the Employer before incurring a Break in Service, then (1) the Employee will become a Participant as of the later of (A) the date the Employee would enter the Plan had the Employee not Terminated Employment with the Employer, or (B) the Employee’s Reemployment Commencement Date, and (2) the Employee’s pre-termination Period of Service will be counted for all purposes. The Employee will also be credited for all purposes, as applicable, with a fractional Period of Service for any Period of Severance less than a 1-Year Period of Severance.

(g)Reemployment of a Participant Before a Break In Service. For any Plan Year in which the eligibility requirements in Section 2.1 are based on the Elapsed Time Method, if an Employee Terminates Employment after becoming a Participant and is subsequently reemployed by the Employer before incurring a Break in Service, then (1) the reemployed Employee will reenter the Plan as of the Employee’s Reemployment Commencement Date, and (2) the Employee’s pre-termination Period of Service will be counted for all purposes, as applicable. Furthermore, the Employee will also be credited for all purposes, as applicable, with a fractional Period of Service for any Period of Severance that is less than a 1-Year Period of Severance.

(h)Reemployment of an Employee After a Break In Service and Before Entry Date.For any Plan Year in which the eligibility requirements in Section 2.1 are based on the Elapsed Time Method, if an Employee Terminates Employment with the Employer either prior to or after satisfying the eligibility requirements in Section 2.1 (but before the Employee’s Entry Date in Section 2.2) and the Employee is subsequently reemployed by the Employer after incurring a Break in Service, then the Employee’s Period of Service that was completed prior to the Break in Service will be recognized, subject to the following provisions:

(1)Determination of Period of Service for Eligibility Purposes. The following provisions apply to determining any Period of Service for eligibility purposes:

(A)One Year Holdout Rule. If the Sponsoring Employer elects the One Year Holdout Rule in the Adoption Agreement, any Period of Service that was completed prior to an Employee’s Break(s) in Service will not be counted in determining an Employee’s eligibility to participate in the Plan until the Employee satisfies the One Year Holdout Rule. If the Employee has not satisfied the eligibility requirements as set forth in Section 2.1 as of the Employee’s Reemployment Commencement Date and then satisfies the One Year Holdout Rule, then the Employee will become a Participant in the Plan as of the Entry Date in Section 2.2 after the Employee has satisfied the eligibility requirements in Section 2.1 (including, if applicable, an Entry Date that may occur during the One Year Holdout Rule period after the Employee’s Reemployment Commencement Date). If the Employee has satisfied the eligibility requirements in Section 2.1 as of the Employee’s Reemployment Commencement Date and then satisfies the One Year Holdout Rule, the reemployed Employee will enter the Plan retroactively as of his or her Reemployment Commencement Date. If the Sponsoring Employer has elected the Rule of Parity in the Adoption Agreement (in addition to the One Year Holdout Rule), then the recognition of any Period of Service completed prior to an Employee’s Break(s) in Service will be subject to both the One Year Holdout Rule and the Rule of Parity.

(B)Rule of Parity. If the Sponsoring Employer elects the Rule of Parity in the Adoption Agreement, then any Period of Service that was completed prior to an Employee’s Break(s) in Service will not be counted in determining an Employee’s eligibility to participate in the Plan if that Period of Service is disregarded pursuant to the Rule of Parity. If such former Employee’s Period of Service is disregarded under the Rule of Parity, then the reemployed Employee will be treated as a new Employee for purposes of Section 2.1 as of the Employee’s Reemployment Commencement Date. If the Employee has not satisfied the eligibility requirements in Section 2.1 as of the Employee’s Reemployment Commencement Date and such former Employee’s Period of Service is not disregarded under the Rule of Parity, then the Employee will become a Participant in the Plan as of the Entry Date in Section 2.2 after the Employee has satisfied the eligibility requirements in Section 2.1. If the Employee has satisfied the eligibility requirements in Section 2.1 as of the Employee’s Reemployment Commencement Date and such former Employee’s Period of Service is not disregarded under the Rule of Parity, then the reemployed Employee will enter the Plan as of the Employee’s Reemployment Commencement Date.

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(2)Determination of Period of Service for Vesting Purposes.The following provisions apply to determining any Period of Service for Vesting purposes:

(A)One Year Holdout Rule. If the Sponsoring Employer elects the One Year Holdout Rule in the Adoption Agreement, any Period of Service completed prior to an Employee’s Break(s) in Service will not be counted in determining an Employee’s Vesting Interest in the Participant’s Account balance until the Employee satisfies the One Year Holdout Rule. If the Employee satisfies the One Year Holdout Rule, the Employee’s Period of Service for Vesting purposes will include the Period of Service that was completed prior to an Employee’s Break(s) in Service, retroactively to the Employee’s Reemployment Commencement Date. Furthermore, if the Sponsoring Employer has elected the Rule of Parity in the Adoption Agreement (in addition to the One Year Holdout Rule), then the recognition of any Period of Service that was completed prior to an Employee’s Break(s) in Service will be subject to both the One Year Holdout Rule and the Rule of Parity.

(B)Rule of Parity. If the Sponsoring Employer elects the Rule of Parity in the Adoption Agreement, any Period of Service completed prior to an Employee’s Break(s) in Service will not be counted for purposes of determining an Employee’s Vesting Interest in the Participant’s Account balance if that Period of Service is disregarded pursuant to the Rule of Parity. If such former Employee’s Period of Service is disregarded under the Rule of Parity, then the reemployed Employee will be treated as a new Employee for purposes of determining an Employee’s Vesting Interest in the Participant’s Account balance as of the Employee’s Reemployment Commencement Date.

(3)       Determination of Period of Service for Benefit Accrual/Allocation Purposes.The following provisions apply to determining any Period of Service for benefit accrual or allocation purposes:

(A)One Year Holdout Rule. If the Sponsoring Employer elects the One Year Holdout Rule in the Adoption Agreement, any Period of Service completed prior to an Employee’s Break(s) in Service will not be counted for benefit accrual or allocation purposes until the Employee satisfies the One Year Holdout Rule. If the Employee satisfies the One Year Holdout Rule, then the Employee’s Period of Service for benefit accrual or allocation purposes will include the Period of Service that was completed prior to an Employee’s Break(s) in Service, retroactively to the Employee’s Reemployment Commencement Date. Furthermore, if the Sponsoring Employer has elected the Rule of Parity in the Adoption Agreement (in addition to the One Year Holdout Rule), then the recognition of any Period of Service that was completed prior to an Employee’s Break(s) in Service will be subject to both the One Year Holdout Rule and the Rule of Parity.

(B)Rule of Parity. If the Sponsoring Employer elects the Rule of Parity in the Adoption Agreement, any Period of Service completed prior to an Employee’s Break(s) in Service will not be counted for benefit accrual or allocation purposes if that Period of Service is disregarded pursuant to the Rule of Parity. If such former Employee’s Period of Service is disregarded under the Rule of Parity, then the reemployed Employee will be treated as a new Employee for benefit accrual or allocation purposes as of the Employee’s Reemployment Commencement Date.

(i)Reemployment of a Participant After a Break In Service.With respect to any provision of the Plan in which service is determined by the Elapsed Time Method, if an Employee (1) was a Participant in the Plan, (2) Terminates Employment with the Employer, and (3) is subsequently reemployed by the Employer after incurring a Break in Service, then the Employee’s Period of Service that was completed prior to the Break in Service will be recognized, subject to the following provisions:

(1)Determination of Period of Service for Eligibility Purposes. The following provisions apply to determining any Period of Service for eligibility purposes:

(A)One Year Holdout Rule. If the Sponsoring Employer elects the One Year Holdout Rule in the Adoption Agreement, any Period of Service completed prior to an Employee’s Break(s) in Service will not be counted for purposes of determining an Employee’s eligibility to participate in the Plan until the Employee satisfies the One Year Holdout Rule. If the Employee satisfies the One Year Holdout Rule, then the reemployed Employee will enter the Plan retroactively as of the Employee’s Reemployment Commencement Date. Furthermore, if the Sponsoring Employer has elected the Rule of Parity in the Adoption Agreement (in

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addition to the One Year Holdout Rule), then the recognition of any Period of Service that was completed prior to an Employee’s Break(s) in Service will be subject to both the One Year Holdout Rule and the Rule of Parity.

(B)Rule of Parity. If the Sponsoring Employer elects the Rule of Parity in the Adoption Agreement, any Period of Service completed prior to an Employee’s Break(s) in Service will not be counted in determining an Employee’s eligibility to participate in the Plan if that Period of Service is disregarded under the Rule of Parity. If such former Employee’s Period of Service is disregarded under the Rule of Parity, then the reemployed Employee will be treated as a new Employee for purposes of Section 2.1 as of the Employee’s Reemployment Commencement Date. If such former Employee’s Period of Service is not disregarded under the Rule of Parity, then the reemployed Employee will reenter the Plan as of the Employee’s Reemployment Commencement Date.

(2)Determination of Period of Service for Vesting Purposes.The following provisions apply to determining any Period of Service for Vesting purposes:

(A)One Year Holdout Rule. If the Sponsoring Employer elects the One Year Holdout Rule in the Adoption Agreement, any Period of Service completed prior to an Employee’s Break(s) in Service will not be counted in determining an Employee’s Vesting Interest in the Participant’s Account balance until the Employee satisfies the One Year Holdout Rule. If the Employee satisfies the One Year Holdout Rule, then the Employee’s Period of Service for Vesting purposes will include the Period of Service that was completed prior to an Employee’s Break(s) in Service, retroactively to the Employee’s Reemployment Commencement Date. Furthermore, if the Sponsoring Employer has elected the Rule of Parity in the Adoption Agreement (in addition to the One Year Holdout Rule), then the recognition of any Period of Service that was completed prior to an Employee’s Break(s) in Service will be subject to both the One Year Holdout Rule and the Rule of Parity.

(B)Rule of Parity. If the Sponsoring Employer elects the Rule of Parity in the Adoption Agreement, any Period of Service completed prior to an Employee’s Break(s) in Service will not be counted in determining an Employee’s Vesting Interest in the Participant’s Account balance if that Period of Service is disregarded pursuant to the Rule of Parity. If such former Employee’s Period of Service is disregarded under the Rule of Parity, then the reemployed Employee will be treated as a new Employee for purposes of determining an Employee’s Vesting Interest in the Participant’s Account balance as of the Employee’s Reemployment Commencement Date.

(3)Determination of Period of Service for Benefit Accrual/Allocation Purposes.The following provisions apply to determining any Period of Service for benefit accrual or allocation purposes:

(A)One Year Holdout Rule. If the Sponsoring Employer elects the One Year Holdout Rule in the Adoption Agreement, any Period of Service completed prior to an Employee’s Break(s) in Service will not be counted for benefit accrual or allocation purposes until the Employee satisfies the One Year Holdout Rule. If the Employee satisfies the One Year Holdout Rule, then the Employee’s Period of Service for benefit accrual or allocation purposes will include the Period of Service that was completed prior to an Employee’s Break(s) in Service, retroactively to the Employee’s Reemployment Commencement Date. Furthermore, if the Sponsoring Employer has elected the Rule of Parity in the Adoption Agreement (in addition to the One Year Holdout Rule), then the recognition of any Period of Service that was completed prior to an Employee’s Break(s) in Service will be subject to both the One Year Holdout Rule and the Rule of Parity.

(B)Rule of Parity. If the Sponsoring Employer elects the Rule of Parity in the Adoption Agreement, any Period of Service completed prior to an Employee’s Break(s) in Service will not be counted for benefit accrual or allocation purposes if that Period of Service is disregarded pursuant to the Rule of Parity. If such former Employee’s Period of Service is disregarded under the Rule of Parity, then the reemployed Employee will be treated as a new Employee for benefit accrual or allocation purposes as of the Employee’s Reemployment Commencement Date.

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(j)Ignoring Service for Eligibility If Service Requirement Is More Than 1-Year Period Of Service.Notwithstanding anything in the Plan to the contrary, if this Plan (or a component of the Plan) provides in the Adoption Agreement that (1) an Employee must complete more than either a 1-Year Period of Service or a 12-month Period of Service for eligibility purposes, and (2) such Employee will have a 100% Vested Interest in the Participant’s Account (or the sub-Account that relates to such component) upon becoming a Participant in the Plan, then with respect to an Employee who incurs a Break in Service before satisfying such eligibility requirement, the Employee’s Period of Service that was completed prior to the Employee’s Break(s) in Service will not be counted for eligibility purposes.

1.125Period of Severance. See the definition of Period of Service in Section 1.124 above.

1.126Permissive Aggregation Group. The term “Permissive Aggregation Group” means a group consisting of the Required Aggregation Group plus any other plan or plans of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Code §401(a)(4) and §410.

1.127Plan. The term “Plan” means the retirement plan program established by a Sponsoring Employer using the Basic Plan together with an Adoption Agreement and Trust or Custodial Agreement, as amended from time to time.

1.128Plan Year. The term “Plan Year” means the Plan’s 12 consecutive month accounting year as elected in the Adoption Agreement (unless there is a short Plan Year as elected in the Adoption Agreement). If the Plan Year is changed, a short Plan Year is established beginning the day after the last day of the Plan Year in effect before this change and ending on the last day of the new Plan Year.

1.129Policy. The term “Policy” means a life insurance policy or annuity contract purchased pursuant to the provisions of Section 7.2 of the Basic Plan.

1.130Post-Severance Compensation. (1) The term “Post-Severance Compensation” means the following amounts that are paid within 2½ months after an Employee’s Termination of Employment: (a) payments that, absent a Termination of Employment, would have been paid to the Employee while the Employee continued in employment with the Employer and are regular compensation for services during the Employee’s regular working hours, compensation for services outside the employee’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar compensation; and (b) payments for accrued bona fide sick, vacation, or other leave, but only if the Employee would have been able to use the leave if employment had continued. Any other payment that is not described in clauses (a) and (b) above is not considered Post-Severance Compensation if paid after Termination of Employment, even if it is paid within 2½ months following Termination of Employment; for example, Post-Severance Compensation does not include amounts paid after Termination of Employment that are severance pay, unfunded nonqualified deferred compensation, or parachute payments within the meaning of Code §280G(b)(2). However, the rule of the prior sentence does not apply to payments to an individual who does not currently perform services for the Employer by reason of qualified military service (as that term is used in Code §414(u)(1)) to the extent those payments do not exceed the amounts the individual would have received if the individual had continued to perform services for the Employer rather than entering qualified military service; those payments are considered Compensation.

1.131Pre-Tax Elective Deferral. The term “Pre-Tax Elective Deferral” means an Elective Deferral that is not includible in gross income at the time deferred.

1.132Pre-Tax Elective Deferral Account. The term “Pre-Tax Elective Deferral Account” means the sub-account of a Participant’s Account to which his or her Pre-Tax Elective Deferrals are allocated.

1.133Prevailing Wage Account. The term “Prevailing Wage Account” means the sub-account to which a Participant’s Prevailing Wage contributions are allocated.

1.134Prevailing Wage Contribution. The term “Prevailing Wage Contribution” means an Employer contribution made to the Plan under a Prevailing Wage Law on behalf of a Prevailing Wage Employee.

1.135Prevailing Wage Employee. The term “Prevailing Wage Employee” means any hourly paid Employee who is an Eligible Employee and performs services for the Employer under a contract covered by a Prevailing Wage Law.

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1.136Prevailing Wage Law. The term “Prevailing Wage Law” means any statute or ordinance that requires the Employer to pay its Employees working on public contracts at wage rates not less than those determined pursuant to that statute or ordinance to be the prevailing wages for comparable classes of workers in the geographical area where that contract is performed, including the Davis-Bacon Act as set forth in 40 U.S.C. §276(a) et. seq., as amended from time to time, and any similar federal, state or municipal prevailing wage statutes.

1.137Primarily Defined Benefit in Character. The term “Primarily Defined Benefit in Character” means, for Plan Years beginning on or after January 1, 2002, a combination of defined benefit plan(s) and defined contribution plan(s) in which, for more than 50% of Non-Highly Compensated Employees benefiting under the combination of defined benefit and defined contribution plans, the Normal Accrual Rate for the Non-Highly Compensated Employees attributable to benefits provided by the defined benefit plan(s) that are part of the combination exceeds the Equivalent Accrual Rate for the Non-Highly Compensated Employees attributable to contributions under the defined contribution plan(s) that are part of the combination.

1.138Prior Year Testing Method. The term “Prior Year Testing Method” means the nondiscrimination testing method in which (a) for purposes of the ADP Test, the ADP for Participants who are HCEs for the Plan Year being tested is compared to the ADP for Participants who are NHCEs for the Plan Year prior to the Plan Year being tested; and (b) for purposes of the ACP Test, the ACP for Participants who are HCEs for the Plan Year being tested is compared to the ACP for Participants who are NHCEs for the Plan Year prior to the Plan Year being tested.

1.139QJSA. The term “QJSA” means a Qualified Joint and Survivor Annuity.

1.140QMAC. The term “QMAC” means a Qualified Matching Contribution.

1.141QMAC Account. The term “QMAC Account” means a Qualified Matching Contribution Account.

1.142QNEC. The term “QNEC” means a Qualified Non-Elective Contribution.

1.143QNEC Account. The term “QNEC Account” means a Qualified Non-Elective Contribution Account.

1.144QPSA. The term “QPSA” means a Qualified Pre-Retirement Survivor Annuity.

1.145Qualified Joint and Survivor Annuity. The term “Qualified Joint and Survivor Annuity” means, with respect to a Participant who is married on the Annuity Starting Date and has not died before such date, an immediate annuity for the life of the Participant with a survivor benefit for the life of the Participant’s surviving Spouse which is not less than 50% nor more than 100% of the annuity that is payable during the joint lives of the Participant and his or her Spouse and which is the amount of benefit which can be purchased with the Participant’s Vested Aggregate Account balance. The survivor benefit will be 50% unless a higher percentage is elected by the Participant at the time that the Qualified Joint and Survivor Annuity is to be distributed. With respect to a Participant who is not married on the Annuity Starting Date and has not died before such date, the term “Qualified Joint and Survivor Annuity” means an immediate annuity for his or her life.

1.146Qualified Matching Contribution. The term “Qualified Matching Contribution” means an Employer contribution made to this or any other defined contribution plan on behalf of a Participant on account of Elective Deferrals, Voluntary Employee Contributions, and/or Mandatory Employee Contributions made by such Participant under a plan maintained by the Sponsoring Employer, that is subject to the distribution (but financial hardship distributions are not permitted) and nonforfeitability requirements of Code §401(k) when made to the Plan.Qualified Matching Contributions are available for either the ADP Test or the ACP Test. Qualified Matching Contributions may be used to satisfy the Top Heavy Minimum Allocation requirement pursuant to Section 3.14(e). Qualified Matching Contributions can only be distributed upon the earliest to occur of the following dates: (a) a Participant Terminates Employment (separates from service, for Plan Years beginning before 2002) with the Employer; (b) a Participant dies; (c) a Participant suffers a Disability; (d) an event that is described in Code §401(k)(10) occurs; or (e) a Participant reaches Age 59½ (if on or before such date, a pre-retirement in-service withdrawal of Qualified Matching Contributions is elected in the Adoption Agreement). With respect to clause (d) of the prior sentence, Qualified Matching Contributions can be distributed (in a lump sum only) upon termination of the Plan, so long as the Sponsoring Employer (or an Affiliated Employer) does not maintain an alternative defined contribution plan at any time during the period beginning on the date of Plan termination and ending 12 months after all assets have been distributed from the terminated Plan. However, if at all times during the 24-month period beginning 12 months before the date of Plan’s termination, fewer than 2% of the Employees who were eligible to participate in the 401(k) Plan as of the date of Plan termination are eligible to participate

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in the other defined contribution plan, then the other defined contribution plan is not an alternative defined contribution plan. In addition, a defined contribution plan is not an alternative defined contribution plan if the defined contribution plan is an employee stock ownership plan as defined in Code §4975(e)(7) or Code §409(a), a simplified employee pension as defined in Code §408(k), a SIMPLE IRA plan as defined in Code §408(p), a plan or contract that is described in Code §403(b), or a plan that is described in Code §457(b) or Code §457(f).

1.147Qualified Matching Contribution Account. The term “Qualified Matching Contribution Account” means the sub-account of a Participant’s Account to which his or her Qualified Matching Contributions are allocated.

1.148Qualified Non-Elective Contribution. The term “Qualified Non-Elective Contribution” means an Employer contribution (other than a Matching Contribution or a Qualified Matching Contribution) that is allocated to Participant’s Account and that satisfies the following requirements: (a) a Qualified Non-Elective Contribution may be used for the purpose of satisfying either the ADP Test or the ACP Test; (b) a Participant may not elect to receive a Qualified Non-Elective Contribution in cash until distributed from the Plan; (c) a Qualified Non-Elective Contribution is subject to the distribution (but financial hardship distributions are not permitted) and nonforfeitability requirements of Code §401(k) when made to the Plan. Qualified Non-Elective Contributions may be used to satisfy the Top Heavy Minimum Allocation requirement pursuant to Section 3.14(e). Any allocation formula for a Qualified Non-Elective Contribution must satisfy the additional requirements specified in Regulation §1.401(k)-2(a)(6) in order to be used in the ADP Test and Regulation §1.401(m)-2(a)(6) in order to be used in the ACP Test. Qualified Non-Elective Contributions can only be distributed upon the earliest to occur of the following dates: (a) a Participant Terminates Employment (separates from service, for Plan Years beginning before 2002) with the Employer; (b) a Participant dies; (c) a Participant suffers a Disability; (d) an event that is described in Code §401(k)(10) occurs; or (e) a Participant reaches Age 59½ (if on or before such date, a pre-retirement in-service withdrawal of Qualified Non-Elective Contributions is elected in the Adoption Agreement). With respect to clause (d) of the prior sentence, Qualified Non-Elective Contributions can be distributed (in a lump sum only) upon termination of the Plan, so long as the Sponsoring Employer (or an Affiliated Employer) does not maintain an alternative defined contribution plan at any time during the period beginning on the date of Plan termination and ending 12 months after all assets have been distributed from the terminated Plan. However, if at all times during the 24-month period beginning 12 months before the date of Plan’s termination, fewer than 2% of the Employees who were eligible to participate in the 401(k) Plan as of the date of the Plan’s termination are eligible to participate in the other defined contribution plan, then the other defined contribution plan is not an alternative defined contribution plan. In addition, a defined contribution plan is not an alternative defined contribution plan if the defined contribution plan is an employee stock ownership plan as defined in Code §4975(e)(7) or Code §409(a), a simplified employee pension as defined in Code §408(k), a SIMPLE IRA plan as defined in Code §408(p), a plan or contract that is described in Code §403(b), or a plan described in Code §457(b) or §457(f).

1.149Qualified Non-Elective Contribution Account. The term “Qualified Non-Elective Contribution Account” means the sub-account of a Participant’s Account to which Qualified Non-Elective Contributions are allocated.

1.150Qualified Pre-Retirement Survivor Annuity. The term “Qualified Pre-Retirement Survivor Annuity” means a survivor annuity for the life of a deceased Participant’s surviving Spouse which is equal to the amount of benefit which can be purchased by such percentage as elected in the Adoption Agreement (but not less than 50%) of the deceased Participant’s Vested Aggregate Account determined at the date of death. In determining a Participant’s Vested Aggregate Account hereunder, any security interest held by the Plan because of a loan outstanding to the Participant will be taken into consideration and, if applicable, the Participant’s own deductible contributions made for Plan Years prior to January 1, 1989 will be disregarded.

1.151Reemployment Commencement Date. The term “Reemployment Commencement Date” means the first day on which an Employee performs an Hour of Service for an Employer or an Affiliated Employer following the Employee’s Termination of Employment.

1.152Regulation. The term “Regulation” means any regulation as promulgated by the Secretary of the Treasury or delegates of the Treasury Department, as amended and/or renumbered from time to time. If this Plan references a regulation that is promulgated by any other Department, Agency, Commission, or other federal entity, then the name of such Department, Agency, Commission, or other federal entity will be referenced with such regulation.

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1.153Representative Contribution Rate. The term “Representative Contribution Rate” means the lowest Applicable Contribution Rate of any Participant who is a NHCE among a group of Participants who are NHCEs that consists of half of all Participants who are NHCEs for the Plan Year (or, if greater, the lowest Applicable Contribution Rate of any Participant who is a NHCE in the group of all Participants who are NHCEs for the Plan Year and who is employed by the Sponsoring Employer on the last day of the Plan Year).

1.154Representative Matching Rate. The term “Representative Matching Rate” means the following:

(a)Matching Contributions With Respect to Elective Deferrals.If the Plan provides a Matching Contribution with respect to a Participant’s Elective Deferrals, then the lowest Matching Rate for any Participant who is a NHCE among a group of Participants who are NHCEs that consists of half of all Participants who are NHCEs in the Plan for the Plan Year who make Elective Deferrals for the Plan Year (or, if greater, the lowest Matching Rate for all Participants who are NHCEs in the Plan who are employed by the Sponsoring Employer on the last day of the Plan Year and who make Elective Deferrals for the Plan Year).

(b)Matching Contributions With Respect to Elective Deferrals and Employee Contributions.If the Plan provides a Matching Contribution with respect to the sum of a Participant’s Employee Contributions and Elective Deferrals, then the lowest Matching Rate for any Participant who is a NHCE among a group of Participants who are NHCEs that consists of half of all Participants who are NHCEs in the Plan for the Plan Year who make either Employee Contributions or Elective Deferrals for the Plan Year (or, if greater, the lowest Matching Rate for all Participants who are NHCEs in the Plan who are employed by the Sponsoring Employer on the last day of the Plan Year and who make either Employee Contributions or Elective Deferrals for the Plan Year).

(c)Matching Contributions With Respect to Employee Contributions.If the Plan provides a Matching Contribution with respect to a Participant’s Employee Contributions (but not Elective Deferrals), then the lowest Matching Rate for any Participant who is a NHCE among a group of Participants who are NHCEs that consists of half of all Participants who are NHCEs in the Plan for the Plan Year who make Employee Contributions for the Plan Year (or, if greater, the lowest Matching Rate for all Participants who are NHCEs in the Plan who are employed by the Sponsoring Employer on the last day of the Plan Year and who make Employee Contributions for the Plan Year).

1.155Required Aggregation Group. The term “Required Aggregation Group” means a group consisting of (a) each qualified plan of the Employer in which at least one Key Employee participates or participated at any time during the Plan Year containing the Determination Date or any of the four preceding Plan Years (regardless of whether the plan has terminated); and (b) any other qualified plan of the Employer which enables a plan described in clause (a) to satisfy the requirements of Code §401(a)(4) or §410.

1.156Required Beginning Date. The term “Required Beginning Date” means, with respect to a Participant who is a 5% owner as defined in Code §416(i)(1)(B)(i), April 1st of the calendar year following the calendar year in which the Participant reaches Age 70½. With respect to Participants who are not 5% owners, the term “Required Beginning Date” means the date elected by the Sponsoring Employer in Section 15.11(a) of the Adoption Agreement, subject to paragraphs (a), (b) and (c) below.

(a)Election to Defer Distribution.If Section 15.11(a)(2) of the Adoption Agreement is elected and this is an amended Plan, then any Participant (other than a 5% owner) who attains Age 70½ in years after 1995 may elect by April 1 of the calendar year following the calendar year in which the Participant attains Age 70½ (or by December 31, 1997 in the case of a Participant who attains Age 70½ in 1996), to defer distributions until April 1 of the calendar year following the calendar year in which the Participant retires. If no such election is made, then the Participant will begin receiving distributions by April 1 of the calendar year following the calendar year in which such Participant attains Age 70½.

(b)Election to Suspend Distribution.If Section 15.11(a)(2) of the Adoption Agreement is elected and this is an amended Plan, then any Participant (other than a 5% owner) who attains Age 70½ in years prior to 1997 may elect to cease distributions and recommence distributions by April 1 of the calendar year following the calendar year in which the Participant retires. In such an event, the Administrator may, on a uniform non-discriminatory basis, elect that a new Annuity Starting Date will occur upon the distribution recommencement date.

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(c)Elimination of Pre-Retirement Age 70½ Distribution Option.If Section 15.11(a)(2) of the Adoption Agreement is elected and this is an amended Plan, then the pre-retirement Age 70½ distribution option will only be eliminated for Employees who reach Age 70½ in or after a calendar year that begins after the later of December 31, 1998 or the adoption date of the GUST restatement of this Plan. The pre-retirement Age 70½ distribution option is an optional form of benefit under which benefits payable in a particular distribution form (including any modifications that may be elected after benefit commencement) begin at a time during the period that begins on or after January 1st of the calendar year in which an Employee reaches Age 70½ and ends April 1 of the immediately following calendar year.

1.157Rollover. The term “Rollover” means a Rollover Contribution.

1.158Rollover Contribution. The term “Rollover Contribution” means an amount which is eligible for tax free rollover treatment and is transferred to this Plan from one or more of the plans the Sponsoring Employer elects in the Adoption Agreement, which plans, effective as of January 1, 2002 (or such later date pursuant to written procedures established and adopted by the Administrator), may include: a qualified plan under Code §401(a); a qualified annuity plan under Code §403(a); a qualified annuity under Code §403(b); an individual retirement account under Code §408(a), without regard to whether the individual retirement account is a “conduit individual retirement account”; an individual retirement annuity under Code §408(b), without regard to whether the individual retirement annuity is a “conduit individual retirement annuity”; and an eligible plan under Code §457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state. If this Plan accepts a Rollover Contribution of Roth Elective Deferrals, this Plan will separately account for the Roth Elective Deferrals and for any prior (and subsequent) earnings or losses attributable to such Roth Elective Deferrals. A direct or indirect transfer as defined in Code §401(a)(11) of assets from a defined benefit plan, a money purchase plan, a target benefit plan, a stock bonus plan, or a profit sharing plan that provided for a life annuity form of payment to the Participant will not be considered a Rollover Contribution, but will be considered a Transfer Contribution. Similarly, any Elective Deferrals (including QNECs, QMACs, and ADP Safe Harbor Contributions) which are transferred to this Plan in a direct or indirect trustee-to-trustee transfer from another qualified plan and which are subject to the limitations in Regulation §1.401(k)-1(d) will not be considered a Rollover Contribution, but will be considered a Transfer Contribution.

1.159Rollover Contribution Account. The term “Rollover Contribution Account” means the account to which a Participant’s Rollover Contributions, if any, are allocated.

1.160Rollover Participant. The term “Rollover Participant” means an Employee who has made a Rollover Contribution into the Plan but who is not eligible to participate in any other component of the Plan.

1.161Roth Elective Deferral. The term “Roth Elective Deferral” means a Participant’s Elective Deferral that (a) is includible in the Participant’s gross income at the time that the Elective Deferral is deferred, and (b) has been irrevocably designated as a Roth Elective Deferral by the Participant in his or her deferral election. A Participant’s Roth Elective Deferrals will be allocated to the Participant’s Roth Elective Deferral Account.

1.162Roth Elective Deferral Account. The term “Roth Elective Deferral Account” means the account into which a Participant’s Roth Elective Deferrals are allocated and deposited. No contributions other than Roth Elective Deferrals and properly attributable earnings will be credited to each Participant’s Roth Elective Deferral Account; and gains, losses and other credits or charges will be allocated on a reasonable and consistent basis to such Roth Elective Deferral Account. The Plan will maintain a record of the amount of Roth Elective Deferrals in each Participant’s Roth Elective Deferral Account. Distributions from a Participant’s Roth Elective Deferral Account (other than corrective distributions) are not includible in the Participant’s gross income if the distribution is made after 5 years and after the Participant’s death, disability, or age 59½. Earnings on corrective distributions of Roth Elective Deferrals are includible in the Participant’s gross income in the same manner as earnings on corrective distributions of Pre-tax Elective Deferrals; however, corrective distributions of Roth Elective Deferrals are not includible in the Participant’s gross income.

1.163Rule of Parity. The term “Rule of Parity” means a rule that is used for purposes of determining an Employee’s eligibility to participate in the Plan, Vesting, and benefit accrual/allocation (if applicable) to determine the Year(s) of Service or 1-Year Period(s) of Service of a non-Vested Employee who Terminates Employment and is subsequently reemployed by the Employer after incurring a Break in Service, determined as follows: Year(s) of Service or 1-Year Period(s) of Service, as applicable, completed prior to the Employee’s Break(s) in Service will not be counted if the Employee’s total number of consecutive Break(s) in Service equals or exceeds the greater of (a) five, or (b) the Employee’s aggregate number of Year(s) of Service or

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1-Year Period(s) of Service, as applicable, credited prior to incurring the Break(s) in Service. In computing an Employee’s aggregate number of Year(s) of Service or 1-Year Period(s) of Service under this Section, Year(s) of Service or 1-Year Period(s) of Service, as applicable, previously disregarded under prior applications of the Rule of Parity will not be counted.

1.164Safe Harbor Code §415 Compensation. The term “Safe Harbor Code §415 Compensation” means an Employee’s compensation as determined under Regulation §1.415-2(d)(10), to wit: Earned Income, wages, salaries, fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Sponsoring Employer maintaining the Plan to the extent that the amounts are includable in gross income (including, but not limited to, commissions paid salespersons, compensation for services based on a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements, or other expense allowances under a non-accountable plan as described in Regulation §1.62-2(c)). Safe Harbor Code §415 Compensation includes amounts paid or made available to the Employee. An Employee’s Safe Harbor Code §415 Compensation will be determined in accordance with the following provisions:

(a)Exclusion of Certain Amounts. Safe Harbor Code §415 Compensation does not include the following: (1) Employer contributions made by the Employer to a plan of deferred compensation to the extent that, before the application of the Code §415 limitations to that plan, the contributions are not includible in the Employee’s gross income for the taxable year in which contributed; Employer contributions made on behalf of an Employee to a simplified employee pension described in Code §408(k) for the taxable year in which contributed;  and any distributions from a plan of deferred compensation for Code §415 purposes, regardless of whether such amounts are includible in the Employee’s gross income when distributed; (2) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (3) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (4) Other amounts which receive special tax benefits, such as premiums for group-term life insurance (but only to the extent that the premiums are not includible in the gross income of the employee), or contributions made by an Employer (whether or not under a salary deferral agreement) towards the purchase of an annuity described in Code §403(b) (regardless of whether such the contributions are excludible from an Employee’s gross income).

(b)Inclusion of Certain Amounts.Safe Harbor Code §415 Compensation includes any elective deferral as defined in Code §402(g)(3) and any amount which is contributed or deferred by the Employer at the election of the Employee which are not includible in gross income by reason of Code §125 (and if elected in the Adoption Agreement, Deemed Code §125 Compensation), Code §132(f)(4), or Code §457.

(c)Imputed Compensation when Participant Becomes Disabled. If elected in the Adoption Agreement and a Participant becomes permanently and totally disabled (as defined in Code §22(e)(3)) then notwithstanding anything in this Section to the contrary, Safe Harbor Code §415 Compensation will be imputed during the time that the Participant is permanently and totally disabled for purposes of determining and allocating Non-Safe Harbor Non-Elective Contributions. The rate that Safe Harbor Code §415 Compensation will be imputed to such Participant is equal to the rate of Safe Harbor Code §415 Compensation that was paid to the Participant immediately before becoming permanently and totally disabled. The total period in which Safe Harbor Code §415 Compensation will be imputed to a Participant who becomes permanently and totally disabled will be determined pursuant to a nondiscriminatory policy established by the Administrator; however, if Safe Harbor Code §415 Compensation is imputed to a Participant who is a Highly Compensated -Employee pursuant to this paragraph, then the continuation of Non-Safe Harbor Non-Elective Contributions to such Participant will be for a fixed or determinable period pursuant to Code §415(c)(3)(C). Any Non-Safe Harbor Non-Elective Contributions that are made on behalf of a Participant with respect to imputed Safe Harbor Code §415 Compensation must be nonforfeitable when made.

(d)Treatment of Post-Severance Compensation.Effective January 1, 2005, Safe Harbor Code §415 Compensation includes Post-Severance Compensation.

1.165Safe Harbor 401(k) Contribution. The term “Safe Harbor 401(k) Contribution” means, collectively or separately, depending on the context in which the term is used, an ACP Safe Harbor Matching Contribution, an ADP Safe Harbor Matching Contribution, and/or an ADP Safe Harbor Non-Elective Contribution.

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1.166Safe Harbor 401(k) Plan. The term “Safe Harbor 401(k) Plan” means a 401(k) Plan which automatically satisfies the ADP Test under Code §401(k), pursuant to Section 3.20.

1.167Safe Harbor 401(m) Plan. The term “Safe Harbor 401(m) Plan” means a 401(m) Plan which automatically satisfies the ACP Test under Code §401(m) , pursuant to Section 3.21.

1.168Safe Harbor Notice. The term “Safe Harbor Notice” means a written notice provided by the Employer to all Eligible Employees in accordance with Regulation §1.401(k)-3(d) and/or §1.401(m)-3(e) and complies with the requirements of Section 3.20 and/or 3.21. In addition to any other election periods that may be provided under the Plan, each Eligible Employee may make an initial Elective Deferral election or modify a prior Elective Deferral election during the 30-day period immediately following his or her receipt of a Safe Harbor Notice.

1.169Safe Harbor Participant. The term “Safe Harbor Participant” means each Employee who satisfies all of the following conditions: (a) the Employee is an Eligible Employee for Safe Harbor 401(k) Contribution purposes under Sections 3.1(b) and/or (c) of the Adoption Agreement; (b) the Employee has satisfied the age and/or service requirements for Safe Harbor 401(k) Contribution purposes under Sections 3.2(b) and/or (c) of the Adoption Agreement (unless such requirements have been waived with respect to the Employee under Sections 3.4(b) and/or (c) of the Adoption Agreement; (c) the Employee has entered the Plan as a Participant for Safe Harbor 401(k) Contribution purposes under Sections 3.3(b) and/or (c) of the Adoption Agreement; and (d) the Employee is eligible to make an Elective Deferral to the Plan at any time during the Plan Year or would be eligible to make Elective Deferrals but for a suspension due to a financial hardship distribution or a statutory limitation (such as the limits of Code §402(g) or §415).

1.170Self-Employed Individual. The term “Self-Employed Individual” means an individual who owns an interest in the Employer (other than a stock interest) and has Earned Income for the taxable year from the trade or business for which the Plan is established or would have had Earned Income but for the fact that the trade or business had no net profits for the taxable year.

1.171Service. The term “Service” means (a) Years of Service when the Counting of Hours Method is being used and (b) Periods of Service when the Elapsed Time Method is being used.

1.172Sponsoring Employer. The term “Sponsoring Employer” means the business entity named in Section 1.2 of the Adoption Agreement that sponsors the Plan under the terms of the Adoption Agreement (and any successor thereto that elects to assume sponsorship of this Plan).

1.173Spousal. The term “Spousal” means of, or related to, a Spouse.

1.174Spouse. The term “Spouse” means the person to whom a Participant is legally married, and, if elected in the Adoption Agreement, the Participant must be married to such person throughout the one year period ending on the earlier of the Annuity Starting Date or the Participant’s death in order for the person to be considered the Participant’s Spouse. Furthermore, a former Spouse will be treated as the Participant’s Spouse or surviving Spouse to the extent provided under a qualified domestic relations order as described in Code §414(p).

1.175Statutory Code §415 Compensation. The term “Statutory Code §415 Compensation” means, in applying the Code §415 limits, an Employee’s compensation as determined under Regulation §1.415-2(d)(2) and (3), to wit:

(a)Amounts includable as Statutory Code §415 Compensation.Statutory Code §415 Compensation  includes all of the following: (1) wages, salaries, fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Sponsoring Employer maintaining the Plan to the extent that the amounts are includable in gross income (including, but not limited to, commissions paid salespersons, compensation for services based on a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements, or other expense allowances under a non-accountable plan as described in Regulation §1.62-2(c)); (2) in the case of a Self-Employed Individual, Earned Income; (3) amounts described in Code §104(a)(3), §105(a) and 105(h), but only to the extent these amounts are includible in the gross income of the Employee; (4) amounts paid or reimbursed by the Employer for moving expenses incurred by the Employee, but only to the extent that at the time of the payment it is reasonable to believe that these amounts are not deductible by the Employee under Code §217; (5) the value of a non-qualified stock option granted to an Employee by the Employer, but only to the extent that the value of the option is includible in the gross income of the Employee for the taxable year in which granted;

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and (6) the amount includible in the gross income of an Employee upon making the election described in Code §83(b). Clauses (1) and (2) above include foreign earned income (as defined in Code §911(b)), regardless of whether excludible from gross income under Code §911. Compensation determined under clause (1) above is to be determined without regard to the exclusions from gross income in Code §931 and §933. Similar principles are to be applied with respect to income subject to Code §931 and §933 in determining compensation described in clause (2). Statutory Code §415 Compensation includes amounts paid or made available to the Employee.

(b)Exclusion of Certain Amounts.Statutory Code §415 Compensation does not include (1) Employer contributions made by the Employer to a plan of deferred compensation to the extent that, before the application of the Code §415 limitations to that plan, the contributions are not includible in the Employee’s gross income for the taxable year in which contributed; Employer contributions made on behalf of an Employee to a simplified employee pension described in Code §408(k) for the taxable year in which contributed;  and any distributions from a plan of deferred compensation for Code §415 purposes, regardless of whether such amounts are includible in the Employee’s gross income when distributed; (2) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (3) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (4) other amounts which receive special tax benefits, such as premiums for group-term life insurance (but only to the extent that the premiums are not includible in the gross income of the employee), or contributions made by an Employer (whether or not under a salary deferral agreement) towards the purchase of an annuity described in Code §403(b) (regardless of whether such the contributions are excludible from an Employee’s gross income).

(c)Inclusion of Certain Amounts.Statutory Code §415 Compensation includes any elective deferral as defined in Code §402(g)(3) and any amount which is contributed or deferred by the Employer at the election of the Employee which are not includible in gross income by reason of Code §125 (and if elected in the Adoption Agreement, Deemed Code §125 Compensation), Code §132(f)(4), or Code §457.

(d)Imputed Compensation when Participant Becomes Disabled. If elected in the Adoption Agreement and a Participant becomes permanently and totally disabled (as defined in Code §22(e)(3)) then notwithstanding anything in this Section to the contrary, Statutory Code §415 Compensation will be imputed during the time that the Participant is permanently and totally disabled. The rate that Statutory Code §415 Compensation will be imputed to such Participant is equal to the rate of Statutory Code §415 Compensation that was paid to the Participant immediately before becoming permanently and totally disabled. The total period in which Statutory Code §415 Compensation will be imputed to a Participant who becomes permanently and totally disabled will be determined pursuant to a nondiscriminatory policy established by the Administrator; however, if Statutory Code §415 Compensation is imputed to a Participant who is a Highly Compensated Employee pursuant to this paragraph, then the continuation of Non-Safe Harbor Non-Elective Contributions to such Participant will be for a fixed or determinable period pursuant to Code §415(c)(3)(C).

(e)Treatment of Post-Severance Compensation.Effective January 1, 2005, Statutory Code §415 Compensation includes Post-Severance Compensation.

1.176Substantially Equal.The term “Substantially Equal” means a series of installment payments in which a single installment payment is equal to the Participant’s Account balance as of the most recent Valuation Date divided by the remaining duration of the installment payments; or such other method to determine a series of installment payments that are substantially equal that may be established by the Administrator.

1.177Taxable Wage Base. The term “Taxable Wage Base” means the contribution and benefit base under Social Security Act §230 (42 U.S.C. §430) in effect as of the beginning of the Plan Year.

1.178Terminated (or Terminates) Employment. The terms “Terminated Employment” and “Terminates Employment” mean that a person has incurred a Termination of Employment.

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1.179Termination of Employment. The term “Termination of Employment” means that a person ceases to be an Employee with the Employer or an Affiliated Employer, taking into account the following: (1) the existence of a controlled group; (2) the existence of an affiliated service group; (3) whether the person has gone to work for an Adopting Employer; (4) whether the person’s new employer has been substituted as the sponsor of the Plan (or a spun-off portion of the Plan); and (5) whether there has been a transfer of Plan assets and liabilities of the person’s benefits from this Plan to a plan sponsored by the person’s new employer.

1.180Terminated Participant. The term “Terminated Participant” means a Participant who has Terminated Employment for reasons other than retirement, death or Disability.

1.181Third-Step Integration Percentage. The term “Third-Step Integration Percentage” means (a) 2.7% if the Sponsoring Employer elects an integration percentage of 5.7% in the Adoption Agreement; (b) 2.4% if the Sponsoring Employer elects an integration percentage of 5.4% in the Adoption Agreement; and (c) 1.3% if the Sponsoring Employer elects an integration percentage of 4.3% in the Adoption Agreement.

1.182Top Heavy. The term “Top Heavy” means for the Plan Year containing the Determination Date that (a) the Top Heavy Ratio for this Plan exceeds 60% and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group; or (b) this Plan is a part of a Required Aggregation Group but not part of a Permissive Aggregation Group and the Top Heavy Ratio for the Required Aggregation Group exceeds 60%; or (c) this Plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group and the Top Heavy Ratio for the Permissive Aggregation Group exceeds 60%.

1.183Top Heavy Minimum Allocation. The term “Top Heavy Minimum Allocation” means an amount of Employer contributions and Forfeitures that is subject to the following rules:

(a)DB Plan not Part of Required Aggregation Group or Permissive Aggregation Group with This Plan.If a defined benefit plan is not part of a Required Aggregation Group or a Permissive Aggregation Group with this Plan, then the Top Heavy Minimum Allocation equals an Employee’s Code §415(c)(3) Compensation multiplied by the lesser of (1) three percent (3%), or (2) the largest percentage of Employer contributions (including any Elective Deferrals made on behalf of a Key Employee to a 401(k) Plan maintained by the Employer) and Forfeitures that are allocated to the Participant’s Account of a Key Employee for that Plan Year, expressed as a percentage of such Key Employee’s Code §415(c)(3) Compensation.

(b)Certain Contributions Cannot Be Used to Satisfy Top Heavy Minimum Allocation.Elective Deferrals that are made on behalf of a Participant to a 401(k) Plan (and, for Plan Years beginning before 2002, Matching Contributions) cannot be used to satisfy the Top Heavy Minimum Allocation.

(c)Social Security Contribution Disregarded.The Top Heavy Minimum Allocation is determined without regard to any Social Security contribution.

(d)Forfeiture of Top Heavy Minimum Allocation.The Top Heavy Minimum Allocation (to the extent required to be nonforfeitable under Code §416(b)) may not be forfeited under Code §411(a)(3)(B) or §411(a)(3)(D).

1.184Top Heavy Ratio. The term “Top Heavy Ratio” means for Plan Years beginning on or after January 1, 2002, in determining if this Plan is Top Heavy, a ratio that is calculated in accordance with the following provisions:

(a)Employer Only Maintains DC Plans. If the Employer maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Employer has not maintained any defined benefit plan which during the 5-year period ending on the Determination Date(s) has or has had accrued benefits, then the Top Heavy Ratio for this Plan alone, for the Required Aggregation Group, or for the Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the Participant’s Account balances of all Key Employees as of the Determination Date(s) (including any part of any Participant’s Account balance distributed during the 1-year period ending on the Determination Date(s); however, including any part of any Participant’s Account balance distributed during the 5-year period ending on the Determination Date in the case of a distribution made for a reason other than Termination of Employment, death, or Disability), and the denominator of which is the sum of all Participant’s Account balances (including any part of any Participant’s Account balance distributed in the 1-year period ending on the Determination Date(s); however, including any part of any Participant’s Account balance distributed during the 5-year period ending on the Determination Date in the case of a distribution made for a reason other than Termination of Employment, death, or Disability), both computed in

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accordance with Code §416 and the Regulations thereunder. Both the numerator and denominator of the Top Heavy Ratio are increased to reflect any contribution that is not actually made as of the Determination Date, but which is required to be taken into account on that Determination Date under Code §416 and the Regulations thereunder.

(b)Employer Maintains Both DC and DB Plans.If the Employer maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Employer maintains or has maintained one or more defined benefit plans which during the 5-year period ending on the Determination Date(s) has or has had any accrued benefits, then the Top Heavy Ratio for any Required Aggregation Group or for any Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the Participant’s Account balances under the aggregated defined contribution plan or plans for all Key Employees, determined in accordance with paragraph (a) above, and the present value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the Participant’s Account balances under the aggregated defined contribution plan or plans for all Participants, determined in accordance with paragraph (a) above, and the present value of accrued benefits under the defined benefit plan or plans for all Participants as of the Determination Date(s), all determined in accordance with Code §416 and the Regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator and denominator of the Top Heavy Ratio are increased for any distribution of an accrued benefit made in the 1-year period ending on the Determination Date (or the 5-year period ending on the Determination Date in the case of a distribution made for a reason other than Termination of Employment, death, or Disability).

(c)Value of Participant’s Account Balances and the Present Value of Accrued Benefits.For purposes of paragraphs (a) and (b), the value of the Participant’s Account balances and the present value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in Code §416 and the Regulations for the first and second Plan Years of a defined benefit plan. The Participant’s Account balances and accrued benefits will be disregarded for a Participant (1) who is not a Key Employee during the 12-month period ending on the Determination Date but was a Key Employee in a prior year, or (2) who has not been credited with at least one Hour of Service with any Employer maintaining the Plan at any time during the 1-year period ending on the Determination Date. The calculation of the Top Heavy Ratio and the extent to which distributions, Rollover Contributions, and Transfer Contributions are taken into account will be made in accordance with Code §416 and the Regulations thereunder. Deductible employee contributions will not be taken into account in computing the Top Heavy Ratio. When aggregating plans, the value of the Participant’s Account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. The accrued benefit of a Participant other than a Key Employee will be determined under (1) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer, or (2) if there is no such method, then as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Code §411(b)(1)(C).

(d)Computing Present Values.In establishing the present value of accrued benefits to compute the Top Heavy Ratio, benefits not in pay status are handled on the basis that retirement occurs on the automatic vesting date or, if later, the date of reference. Benefits are discounted only for interest and mortality. Unless otherwise elected in the Adoption Agreement, the following factors apply: (1) with respect to the interest assumption: (i) pre-retirement: 6% interest, and (ii) post-retirement: 5% interest; and (2) with respect to the mortality assumption: (i) pre-retirement: no mortality assumption, and (ii)  post-retirement: the mortality assumption will be the 1994 Group Annuity Reserving Mortality Table projected to 2002 based on a fixed blend of 50% of the unloaded Male mortality rates and 50% of the unloaded Female mortality rates (the 1994 GAR Mortality Table) as set forth in Revenue Ruling 2001-62.

1.185Transfer Contribution. The term “Transfer Contribution” means a non-taxable transfer of a Participant’s benefit directly or indirectly from another qualified plan to this Plan. Transfer Contributions include assets transferred to this Plan from another plan as a result of a merger or similar transaction involving this Plan and the other plan. Any direct or indirect transfer as defined in Code §401(a)(11) of assets from a defined benefit plan, a money purchase plan, a target benefit plan, a stock bonus plan, or a profit sharing plan that provided for a life annuity form of payment to the Participant will be considered a Transfer Contribution. Elective Deferrals (including QNECs, QMACs, and ADP Safe Harbor Contributions) which are transferred to

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this Plan in a direct or indirect trustee-to-trustee transfer from another qualified plan and which remain subject to the limitations in Regulation §1.401(k)-1(d) will be considered a Transfer Contribution. The assets that are transferred from another qualified plan in a plan-to-plan elective transfer pursuant to Section 11.4 will also be considered a Transfer Contribution.

1.186Transfer Contribution Account. The term “Transfer Contribution Account” means the account to which a Participant’s Transfer Contributions, if any, are allocated.

1.187Trustee. The term “Trustee” means the persons or entity named as trustee or trustees of the Trust.

1.188Trust (or Trust Fund). The term “Trust” or “Trust Fund” means the assets of the Plan.

1.189Valuation Calendar Year. The term “Valuation Calendar Year” means, for purposes of required minimum distributions under Section 5.9, the calendar year immediately preceding a Distribution Calendar Year.

1.190Valuation Date. The term “Valuation Date” means the date when the Trustee determines the value of the Trust Fund. A Valuation Date of the Trust Fund must occur as of the last day of each Plan Year. However, the Administrator can value all or any portion of the assets of the Trust Fund more frequently, including, but not limited to, semi-annually, quarterly, monthly, or daily; the Administrator may implement any additional Valuation Dates for any reason. For purposes of calculating the Top Heavy Ratio, the term “Valuation Date” means the date when the Participant’s Account balances or accrued benefits are valued.

1.191Vested Aggregate Account. The term “Vested Aggregate Account” means a Participant’s Vested Interest in the aggregate value of his or her Participant’s Account and any accounts attributable to the Participant’s own Plan contributions (including the Participant’s Rollover Contribution Account and Transfer Contribution Account).

1.192Vested, Vested Interest and Vesting. The terms “Vested,” “Vested Interest” and “Vesting” mean a Participant’s nonforfeitable percentage in an account maintained on his or her behalf under the Plan. A Participant’s Vested Interest in his or her Participant’s Account will be determined in accordance with Section 4.6.

1.193Vesting Computation Period. The term “Vesting Computation Period” means a period of twelve (12) consecutive months, which is used for purposes of determining a Participant’s Vested Interest in the Plan (or a component of the Plan). As elected in the Adoption Agreement, either (a) each Vesting Computation Period will consist of each Plan Year; or (b) an Employee’s initial Vesting Computation Period will begin on the Employee’s Employment Commencement Date, and each subsequent Vesting Computation Period will begin on each anniversary of the Employee’s Employment Commencement Date.

1.194Voluntary Employee Contribution. The term “Voluntary Employee Contribution” means an Employee Contribution which is made voluntarily to the Plan by a Participant.

1.195Voluntary Employee Contribution Account. The term “Voluntary Employee Contribution Account” means the sub-account to which a Participant’s Voluntary Employee Contributions, if any, are allocated.

1.196Year of Service. The term “Year of Service” means, with respect to any provision of the Plan in which service is determined by the Counting of Hours Method, a 12-consecutive month computation period during which an Employee is credited with the specified number of Hours of Service as elected in the Adoption Agreement with the Employer or an Affiliated Employer (or any business entity which was an Adopting Employer), determined in accordance with the following provisions:

(a)Year of Service for Eligibility.For any Plan Year in which the eligibility requirements under Section 2.1 are based on Years of Service, then a Year of Service is an Eligibility Computation Period during which an Employee is credited with at least the number of Hours of Service (but not more than 1,000 Hours of Service) as elected in the Adoption Agreement. If the Employee is credited with 1,000 Hours of Service (or such lesser number of Hours of Service as elected in the Adoption Agreement) in both the initial Eligibility Computation Period and the second Eligibility Computation Period, then the Employee will be credited with two Years of Service for eligibility purposes. If any Eligibility Computation Period is less than 12 months, then the Hours of Service requirement set forth herein will be proportionately reduced (if the Hours of Service requirement is greater than one Hour of Service) for purposes of determining whether an Employee is credited with a Year of Service during such short Eligibility Computation Period. As elected in the Adoption Agreement, in

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determining the eligibility requirements under Section 2.1 and the applicable Entry Date under Section 2.2, an Employee will be deemed to have completed a Year of Service on either (1) the last day of the applicable Eligibility Computation Period during which the Employee is credited with the required Hours of Service; or (2) the same date that the Employee is credited with the applicable Hours of Service requirement, even if such date occurs before the last day of the Eligibility Computation Period.

(b)Year of Service for Vesting.For any Plan Year in which a Participant’s Vested Interest under Section 4.6 is based on Years of Service, then a Year of Service is a Vesting Computation Period during which an Employee is credited with at least the number of Hours of Service (but not more than 1,000 Hours of Service) as elected in the Adoption Agreement. If any Vesting Computation Period is less than 12 months, then the Hours of Service requirement set forth herein will be proportionately reduced (if the Hours of Service requirement is greater than one Hour of Service) for purposes of determining whether an Employee is credited with a Year of Service during such short Vesting Computation Period. Alternatively, with respect to a short Vesting Computation Period, an Employee will be credited with a Year of Service pursuant to Department of Labor Regulation §2530.203-2(c).

(c)Year of Service for Benefit Accrual/Allocation Purposes.For any Plan Year in which a Participant’s benefit accrual and/or allocations are based on Years of Service, a Year of Service is a 12-consecutive month benefit accrual computation period during which an Employee is credited with at least the number of Hours of Service (but not more than 1,000 Hours of Service) as elected in the Adoption Agreement. The benefit accrual computation period will be the Plan Year. If any benefit accrual computation period is less than 12 months, then the Hours of Service requirement set forth herein will be proportionately reduced (if the Hours of Service requirement is greater than one (1) Hour of Service) for purposes of determining whether an Employee is credited with a Year of Service during such short benefit accrual computation period.

(d)Prior Service Credit.If the Employer maintains (or has ever maintained) any plan of a predecessor employer, service during the existence of such predecessor plan with such predecessor employer will be credited as Years of Service with the Employer. In addition, if elected in Section 2.2 of the Adoption Agreement, predecessor service with the entity or entities named in the Adoption Agreement will be credited as Years of Service with the Employer for the purposes elected in the Adoption Agreement. For purposes of the prior sentence, the following rules will apply: (1) if the Employer does not maintain (and has never maintained) any plan of a predecessor employer and if predecessor service of that predecessor employer is credited in a standardized Adoption Agreement, then such service will be limited to five Years of Service pursuant to Regulation §1.401(a)(4)-5(a)(3); and (2) if the Employer does not maintain (and has never maintained) any plan of a predecessor employer, if predecessor service of that predecessor employer is credited in a non-standardized Adoption Agreement and if such predecessor service exceeds five Years of Service, the crediting of such service must comply with the requirements of Regulation §1.401(a)(4)-11(d).

(e)Reemployment of an Employee Before a Break In Service and Before Eligibility Requirements Are Satisfied.For any Plan Year in which the eligibility requirements under Section 2.1 are based on Years of Service, if an Employee Terminates Employment with the Employer prior to satisfying the eligibility requirements in Section 2.1 and the Employee is subsequently reemployed by the Employer before incurring a Break in Service, then (1) the Employee’s pre-termination Year(s)  of Service (and Hours of Service during any computation period) will be counted in determining the satisfaction of such eligibility requirements, and for all other purposes, as applicable, and (2) the Eligibility Computation Period, Vesting Computation Period, and/or benefit accrual computation period, as applicable, will remain unchanged.

(f)Reemployment of an Employee Before a Break In Service and After Eligibility Requirements Are Satisfied.For any Plan Year in which the eligibility requirements under Section 2.1 are based on Years of Service, if an Employee Terminates Employment with the Employer prior to the Employee’s Entry Date in Section 2.2, the Employee had satisfied the eligibility requirements in Section 2.1 as of the Employee’s Termination of Employment, and the Employee is subsequently reemployed by the Employer before incurring a Break in Service, then (1) the Employee will become a Participant as of the later of (A) the date that the Employee would enter the Plan had he or she not Terminated Employment with the Employer, or (B) the Employee’s Reemployment Commencement Date, (2) the Employee’s pre-termination Year(s) of Service (and Hours of Service during any computation period) will be counted for all purposes, and (3) the Vesting Computation Period and/or benefit accrual computation period, as applicable, will remain unchanged.

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(g)Reemployment of a Participant Before a Break In Service.For any Plan Year in which the eligibility requirements under Section 2.1 are based on Years of Service, if an Employee Terminates Employment after becoming a Participant and is subsequently reemployed by the Employer before incurring a Break in Service, then (1) the reemployed Employee will reenter the Plan as of the Employee’s Reemployment Commencement Date, (2) the Employee’s pre-termination Year(s) of Service (and Hours of Service during any computation period) will be counted for all purposes, as applicable, and (3) the Vesting Computation Period and/or benefit accrual computation period, as applicable, will remain unchanged.

(h)Reemployment of an Employee After a Break In Service and Before Entry Date. For any Plan Year in which the eligibility requirements under Section 2.1 are based on Years of Service, if an Employee Terminates Employment with the Employer either prior to or after satisfying the eligibility requirements in Section 2.1 (but before the Employee’s Entry Date in Section 2.2) and the Employee is subsequently reemployed by the Employer after incurring a Break in Service, then the Employee’s Year(s) of Service that were completed prior to the Break in Service will be recognized, subject to the following provisions:

(1)Determination of Years of Service for Eligibility Purposes. The following provisions apply to determining Year(s) of Service for eligibility purposes:

(A)One Year Holdout Rule.If the Sponsoring Employer elects the One Year Holdout Rule in the Adoption Agreement, any Year(s) of Service completed prior to an Employee’s Break(s) in Service will not be counted in determining an Employee’s eligibility to participate in the Plan until the Employee satisfies the One Year Holdout Rule. If the Employee has not satisfied the eligibility requirements in Section 2.1 as of the Employee’s Reemployment Commencement Date and then satisfies the One Year Holdout Rule, then the Employee will become a Participant in the Plan as of the Entry Date in Section 2.2 after the Employee has satisfied the eligibility requirements in Section 2.1 (including, if applicable, an Entry Date that may occur during the One Year Holdout Rule period after the Employee’s Reemployment Commencement Date). If the Employee has satisfied the eligibility requirements in Section 2.1 as of the Employee’s Reemployment Commencement Date and then satisfies the One Year Holdout Rule, then the reemployed Employee will enter the Plan as of the first day of the Eligibility Computation Period in which the Employee completes one Year of Service. Furthermore, if the Sponsoring Employer has elected the Rule of Parity in the Adoption Agreement (in addition to the One Year Holdout Rule), then the recognition of any Year(s) of Service that were completed prior to an Employee’s Break(s) in Service will be subject to both the One Year Holdout Rule and the Rule of Parity.

(B)Rule of Parity. If the Sponsoring Employer elects the Rule of Parity in the Adoption Agreement, any Year(s) of Service completed prior to an Employee’s Break(s) in Service will not be counted in determining an Employee’s eligibility to participate in the Plan if those Year(s) of Service are disregarded pursuant to the Rule of Parity. If such former Employee’s Year(s) of Service are disregarded under the Rule of Parity, then (A) the reemployed Employee will be treated as a new Employee for purposes of Section 2.1 and (B) the Employee’s Eligibility Computation Period will commence on the Employee’s Reemployment Commencement Date and subsequent Eligibility Computation Periods will be based upon the provisions of the definition of Eligibility Computation Period (with the Reemployment Commencement Date substituted for the Employment Commencement Date, if applicable). If the Employee has not satisfied the eligibility requirements in Section 2.1 as of the Employee’s Reemployment Commencement Date and such former Employee’s Year(s) of Service are not disregarded under the Rule of Parity, then the Eligibility Computation Periods will remain unchanged. If the Employee has satisfied the eligibility requirements in Section 2.1 as of the Employee’s Reemployment Commencement Date and such former Employee’s Year(s) of Service are not disregarded under the Rule of Parity, the reemployed Employee will enter the Plan as of the Employee’s Reemployment Commencement Date.

(2)Determination of Years of Service for Vesting Purposes. The following provisions apply to determining Year(s) of Service for Vesting purposes:

(A)One Year Holdout Rule. If the Sponsoring Employer elects the One Year Holdout Rule in the Adoption Agreement, any Year(s) of Service completed prior to an Employee’s Break(s) in Service will not be counted in determining an Employee’s Vesting Interest in the Participant’s Account balance until the Employee satisfies the One Year Holdout Rule. If the Employee satisfies the One Year Holdout Rule, then the Employee’s Year(s) of

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Service for Vesting purposes will include Year(s) of Service that were completed prior to an Employee’s Break(s) in Service, retroactively to the first day of the Vesting Computation Period in which the Employee completes one (1) Year of Service. Furthermore, if the Sponsoring Employer has elected the Rule of Parity in the Adoption Agreement (in addition to the One Year Holdout Rule), then the recognition of any Year(s) of Service that were completed prior to an Employee’s Break(s) in Service will be subject to both the One Year Holdout Rule and the Rule of Parity.

(B)Rule of Parity. If the Sponsoring Employer elects the Rule of Parity in the Adoption Agreement, any Year(s) of Service completed prior to an Employee’s Break(s) in Service will not be counted in determining an Employee’s Vesting Interest in the Participant’s Account balance if those Year(s) of Service are disregarded pursuant to the Rule of Parity. If such former Employee’s Year(s) of Service are disregarded under the Rule of Parity and the Sponsoring Employer elects in the Adoption Agreement that the Vesting Computation Period is based on an Employee’s 12-month employment year, then the Employee’s Vesting Computation Period will commence on the Employee’s Reemployment Commencement Date (and subsequent Vesting Computation Periods will commence on anniversaries of the Employee’s Reemployment Commencement Date). If such former Employee’s Year(s) of Service are not disregarded under the Rule of Parity, then the Vesting Computation Periods will remain unchanged.

(3)Determination of Years of Service for Benefit Accrual/Allocation Purposes. The following provisions apply to determining Year(s) of Service for benefit accrual or allocation purposes:

(A)One Year Holdout Rule. If the Sponsoring Employer elects the One Year Holdout Rule in the Adoption Agreement, any Year(s) of Service completed prior to an Employee’s Break(s) in Service will not be counted for benefit accrual or allocation purposes until the Employee satisfies the One Year Holdout Rule. If the Employee satisfies the One Year Holdout Rule, the Employee’s Year(s) of Service for benefit accrual or allocation purposes will include Year(s) of Service that were completed prior to an Employee’s Break(s) in Service, retroactively to the first day of the Plan Year in which the Employee completes one Year of Service. Furthermore, if the Sponsoring Employer has elected the Rule of Parity in the Adoption Agreement (in addition to the One Year Holdout Rule), then the recognition of any Year(s) of Service that were completed prior to an Employee’s Break(s) in Service will be subject to both the One Year Holdout Rule and the Rule of Parity.

(B)Rule of Parity. If the Sponsoring Employer elects the Rule of Parity in the Adoption Agreement, then any Year(s) of Service completed prior to an Employee’s Break(s) in Service will not be counted for benefit accrual or allocation purposes if those Year(s) of Service are disregarded pursuant to the Rule of Parity.

(i)Reemployment of a Participant After a Break In Service. For any Plan Year in which the eligibility requirements under Section 2.1 are based on Years of Service, if an Employee (1) was a Participant in the Plan, (2) Terminates Employment with the Employer, and (3) is subsequently reemployed by the Employer after incurring a Break in Service, then the Employee’s Year(s) of Service that were completed prior to the Break in Service will be recognized, subject to the following provisions:

(1)Determination of Years of Service for Eligibility Purposes. The following provisions apply to determining Year(s) of Service for eligibility purposes:

(A)One Year Holdout Rule. If the Sponsoring Employer elects the One Year Holdout Rule in the Adoption Agreement, any Year(s) of Service completed prior to an Employee’s Break(s) in Service will not be counted in determining an Employee’s eligibility to participate in the Plan until the Employee satisfies the One Year Holdout Rule. If the Employee satisfies the One Year Holdout Rule, then the reemployed Employee will reenter the Plan as of the first day of the Eligibility Computation Period in which the Employee completes one Year of Service. If the Sponsoring Employer has elected the Rule of Parity in the Adoption Agreement (in addition to the One Year Holdout Rule), the recognition of any Year(s) of Service completed prior to an Employee’s Break(s) in Service will be subject to both the One Year Holdout Rule and the Rule of Parity.

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(B)Rule of Parity. If the Sponsoring Employer elects the Rule of Parity in the Adoption Agreement, any Year(s) of Service completed prior to an Employee’s Break(s) in Service will not be counted in determining an Employee’s eligibility to participate in the Plan if those Year(s) of Service are disregarded pursuant to the Rule of Parity. If such former Employee’s Year(s) of Service are disregarded under the Rule of Parity, then (A) the reemployed Employee will be treated as a new Employee for purposes of Section 2.1 and (B) the Employee’s Eligibility Computation Period will commence on the Employee’s Reemployment Commencement Date and subsequent Eligibility Computation Periods will be based upon the provisions of the definition of Eligibility Computation Period (with the Reemployment Commencement Date substituted for the Employment Commencement Date, if applicable). If such former Employee’s Year(s) of Service are not disregarded under the Rule of Parity, then the reemployed Employee will reenter the Plan as of the Employee’s Reemployment Commencement Date.

(2)Determination of Years of Service for Vesting Purposes. The following provisions apply to determining Year(s) of Service for Vesting purposes:

(A)One Year Holdout Rule. If the Sponsoring Employer elects the One Year Holdout Rule in the Adoption Agreement, any Year(s) of Service completed prior to an Employee’s Break(s) in Service will not be counted in determining an Employee’s Vesting Interest in the Participant’s Account balance until the Employee satisfies the One Year Holdout Rule. If the Employee satisfies the One Year Holdout Rule, then the Employee’s Year(s) of Service for Vesting purposes will include Year(s) of Service that were completed prior to an Employee’s Break(s) in Service, retroactively to the first day of the Vesting Computation Period in which the Employee completes one (1) Year of Service. Furthermore, if the Sponsoring Employer has elected the Rule of Parity in the Adoption Agreement (in addition to the One Year Holdout Rule), then the recognition of any Year(s) of Service that were completed prior to an Employee’s Break(s) in Service will be subject to both the One Year Holdout Rule and the Rule of Parity.

(B)Rule of Parity. If the Sponsoring Employer elects the Rule of Parity in the Adoption Agreement, then any Year(s) of Service that were completed prior to an Employee’s Break(s) in Service will not be counted for purposes of determining an Employee’s Vesting Interest in the Participant’s Account balance if those Year(s) of Service are disregarded pursuant to the Rule of Parity. If such former Employee’s Year(s) of Service are disregarded under the Rule of Parity and the Sponsoring Employer elects in the Adoption Agreement that the Vesting Computation Period is based on an Employee’s 12-month employment year, then the Employee’s Vesting Computation Period will commence on the Employee’s Reemployment Commencement Date (and subsequent Vesting Computation Periods will commence on anniversaries of the Employee’s Reemployment Commencement Date). If such former Employee’s Year(s) of Service are not disregarded under the Rule of Parity, then the Vesting Computation Periods will remain unchanged.

(3)Determination of Years of Service for Benefit Accrual/Allocation Purposes. The following provisions apply to determining Year(s) of Service for benefit accrual or allocation purposes:

(A)One Year Holdout Rule. If the Sponsoring Employer elects the One Year Holdout Rule in the Adoption Agreement, any Year(s) of Service completed prior to an Employee’s Break(s) in Service will not be counted for benefit accrual or allocation purposes until the Employee satisfies the One Year Holdout Rule. If the Employee satisfies the One Year Holdout Rule, the Employee’s Year(s) of Service for benefit accrual or allocation purposes will include Year(s) of Service that were completed prior to an Employee’s Break(s) in Service, retroactively to the first day of the Plan Year in which the Employee completes one Year of Service. Furthermore, if the Sponsoring Employer has elected the Rule of Parity in the Adoption Agreement (in addition to the One Year Holdout Rule), then the recognition of any Year(s) of Service that were completed prior to an Employee’s Break(s) in Service will be subject to both the One Year Holdout Rule and the Rule of Parity.

(B)Rule of Parity. If the Sponsoring Employer elects the Rule of Parity in the Adoption Agreement, then any Year(s) of Service that were completed prior to an Employee’s Break(s) in Service will not be counted for benefit accrual or allocation purposes if those Year(s) of Service are disregarded pursuant to the Rule of Parity.

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(j)Ignoring Service For Eligibility If Service Requirement Is More Than 1 Year Of Service. Notwithstanding anything in the Plan to the contrary, if this Plan (or a component of the Plan) provides in the Adoption Agreement that an Employee must complete more than one (1) Year of Service for eligibility purposes, and such Employee will have a 100% Vested Interest in the Participant’s Account (or the sub-Account that relates to such component) upon becoming a Participant in the Plan, then with respect to an Employee who incurs a Break in Service before satisfying such eligibility requirement (1) the Employee’s Year(s) of Service (and Hours of Service) that were completed prior to the Employee’s Break(s) in Service will not be counted for eligibility purposes, and (2) the Employee’s Eligibility Computation Period will commence on the Employee’s Reemployment Commencement Date and subsequent Eligibility Computation Periods will be based upon the provisions of the definition of Eligibility Computation Period (with the Reemployment Commencement Date substituted for the Employment Commencement Date, if applicable).

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Article 2

Plan Participation

2.1Eligibility Requirements. If this is an amended Plan, any Eligible Employee who is a Participant on the day before the effective date in the Adoption Agreement will continue to participate in the Plan. Otherwise, an Eligible Employee will be eligible to become a Participant in the Plan upon satisfying the eligibility requirements as elected in the Adoption Agreement, subject to the following provisions:

(a)Age and Service Requirements. An Eligible Employee must satisfy any age and/or service requirements indicated in the Adoption Agreement for each applicable type of contribution. If the Sponsoring Employer elects in the Adoption Agreement that the service requirement for participation with respect to one or more components of the Plan is the lesser of 1 Year of Service or a stated number of consecutive months, weeks, or days of employment, then an Employee will only be deemed to have completed a month, week, or day of employment for any calendar month, week, or day during which the Employee (1) is continuously employed with the Employer or an Affiliated Employer without interruption for that entire calendar month, week, or day except for those interruptions that are described in the definition of Hour of Service, and (2) if elected in the Adoption Agreement, is credited with the number of Hours of Service for that month, week, or day as indicated in the Adoption Agreement. For purposes of the prior sentence, the determination of whether an Eligible Employee has satisfied the stated number of consecutive months, weeks, or days of employment will be made on the basis of an Eligibility Computation Period; if an Eligible Employee does not satisfy the stated number of consecutive months, weeks, or days of employment during an Eligibility Computation Period, then such Eligible Employee has not satisfied the stated number of consecutive months, weeks, or days of employment, until satisfied during a subsequent Eligibility Computation Period.

(b)Eligible Employees. All Eligible Employees will be eligible to participate in the Plan (or a component of the Plan);  however, the following Employees are not Eligible Employees in the Plan (or a component of the Plan), if elected in the Adoption Agreement:

(1)Union Employees. Employees whose employment is governed by a collective bargaining agreement between Employee representatives and the Employer in which retirement benefits were the subject of good faith bargaining unless such collective bargaining agreement expressly provides for the inclusion of such Employees as Participants in the Plan.

(2)Non-Resident Aliens. Employees who are non-resident aliens who do not receive earned income (within the meaning of Code §911(d)(2)) from the Employer which constitutes income from sources within the United States (within the meaning of Code §861(a)(3)).

(3)“Merger and Acquisition” Employees. Persons who became Employees as the result of a “Code §410(b)(6)(C) transaction”. These Employees will be excluded during the period beginning on the date of the transaction and ending on the last day of the first Plan Year beginning after the date of the transaction. A “Code §410(b)(6)(C)” transaction” is an asset or stock acquisition, merger, or similar transaction involving a change in the employer of the employees of a trade or business.

(4)Highly Compensated Employees. Employees who are Highly Compensated Employees (or any subgroup of Employees who are Highly Compensated Employees).

(5)Leased Employees. For non-standardized plans only, any person who is considered a Leased Employee but who (1) is not covered by a plan described in Code §414(n)(5), or (2) is covered by a plan described in Code §414(n)(5) but Leased Employees constitute more than 20% of the Employer’s non-highly compensated workforce.

(6)Employees of Non-Adopting Affiliated Employers. For non-standardized plans only, Employees who are employed by an Affiliated Employer which is not an Adopting Employer.

(7)Key Employees. For non-standardized plans only, Employees who are Key Employees.

(8)Employees Who Are Paid By Salary. For non-standardized plans only, Employees whose Compensation is primarily in the form of a salary.

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(9)Employees Who Are Paid By the Hour. For non-standardized plans only, Employees whose Compensation is primarily paid on an hourly basis.

(10)Employees Who Are Paid In Commissions. For non-standardized plans only, Employees whose Compensation is primarily in the form of commissions.

(11)Other. For non-standardized plans only, any other Employees who are not Eligible Employees as elected and specified in the Adoption Agreement.

(c)Participation By Employees Whose Status Changes. If an Employee who is not an Eligible Employee with respect to a particular type of contribution (or a component of the Plan) becomes an Eligible Employee for such contribution (or component), then the Employee will participate in the Plan immediately with respect to that type of contribution (or component), so long as (1) the Employee has satisfied the minimum age and service requirements for that type of contribution (or component) and (2) the Employee would have previously become a Participant with respect to that type of contribution (or component) had the Employee always been an Eligible Employee for that type of contribution (or component). The participation of a Participant who is no longer an Eligible Employee with respect to a particular type of contribution (or component) will be suspended and such Participant will be entitled to an allocation of that type of contribution (and any applicable Forfeitures) for the Allocation Period only to the extent of any applicable Hours of Service or Periods of Service completed while an Eligible Employee for that type of contribution (or component). In addition to satisfying any other conditions, the Sponsoring Employer may elect in the Adoption Agreement that the Employee must be an Eligible Employee on the last day of the Allocation Period in which such participation is suspended. Upon again becoming an Eligible Employee with respect to that type of contribution (or component), a suspended Participant will immediately resume eligibility with respect to that type of contribution. Years of Service or Periods of Service while an Employee is not an Eligible Employee will be recognized for purposes of determining the Vested Interest of such Employee with respect to a particular type of contribution (or component) in accordance with Section 4.6.

2.2Entry Date. An Eligible Employee who has satisfied the eligibility requirements as elected in the Adoption Agreement will enter the Plan as a Participant on the “Entry Date” that is elected in the Adoption Agreement. Furthermore, if the Sponsoring Employer elects in the Adoption Agreement to waive the age and/or service requirements for the Plan (or a component of the Plan) as of a specified date, then an Eligible Employee will enter the Plan (or that component of the Plan) as of such specified date. Notwithstanding the foregoing, an Eligible Employee who is also a Prevailing Wage Employee will enter the Plan as a Participant with respect to Compensation received under a Prevailing Wage Law on the date the Employee first receives such Compensation; however, if the Sponsor Employer elects in the Adoption Agreement a later Entry Date with respect to Prevailing Wage Contributions, then such later Entry Date will apply.

2.3Waiver of Participation. A waiver of participation is not permitted except to the extent a valid waiver was made under the terms of the prior Plan. If this is an amendment and restatement of this Plan, then all prior irrevocable waivers will remain in effect after the adoption date of this amendment and restatement. If a prior Plan document permitted revocable waivers of participation, then any Eligible Employee who had previously waived participation on a revocable basis may revoke such waiver and participate in the Plan; however, such Eligible Employee may not waive participation again on or after the adoption date of this amendment and restatement.

2.4Reemployment. If an Employee Terminates Employment and is subsequently reemployed by the Employer or an Affiliated Employer, such Employee’s Years of Service and/or Periods of Service for purposes of eligibility (as well as the time such Employee enters or reenters the Plan as a Participant) will be determined in accordance with the rules described in the definition of Years of Service and/or Periods of Service, as applicable.

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Article 3

Contributions and Allocations

3.1General Contribution and Allocation Provisions. The Employer intends to make contributions to the Plan, unless the Plan is a frozen Plan, subject to the following provisions:

(a)Types and Amount of Contributions. The types (and, if applicable, the amount) of contributions that may be made to the Plan are those that are elected in the Adoption Agreement. The type and the amount of the contribution will be determined by the Employer, and such determination by the Employer will be binding on the Trustee, Administrator and all Participants and may not be reviewed in any manner.

(b)No Guarantee. The Employer does not guarantee either the making of Employer contributions or the payment of benefits under the Plan. The Employer reserves the right to reduce, suspend or discontinue contributions for any reason at any time; however, if the Plan is deemed to be terminated as a result of such reduction, suspension or discontinuance, then the provisions of Article 9 will become effective.

(c)Taxable Wage Base. If a contribution and/or allocation utilize the Taxable Wage Base, then the Taxable Wage Base that is used for a Plan Year will be determined as of the beginning of the Plan Year.

(d)Effect of Waiver of Funding. If the Plan is a money purchase Plan and the Employer amends the Plan because of a waiver of the minimum funding requirement under Code §412(d), then such Plan will be considered to be an individually designed plan and will no longer be considered a prototype plan.

(e)Limitations on Contributions. Notwithstanding any provision of this Article, (1) no Employer contribution will be made for any Participant who is not a Benefiting Participant for an Allocation Period unless otherwise required by the Top Heavy Minimum Allocation provisions in Section 3.14; and (2) if the Plan provides contributions or benefits for Employees some or all of whom are owner-employees as defined in Code §401(c)(3), such contributions or benefits can only be provided with respect to the Earned Income of such owner-employees derived from the trade or business with respect to which the Plan is established.

(f)Frequency of Contributions and Allocations. Any Employer contribution that is made under the terms of the Plan may, at the election of the Administrator, be contributed (1) each payroll period; (2) each month; (3) each Plan quarter; (4) on an annual basis; or (5) on any Allocation Period as determined by the Employer, provided that such Allocation Period does not discriminate in favor of Highly Compensated Employees. The Employer may elect a different Allocation Period for each type of Employer contribution. Employer contributions will be allocated based on the applicable Allocation Period.

(g)Form of Contribution. If the Plan is not subject to Code §412, the contribution is not used to reduce an obligation or liability of an Employer to the Plan, and the contribution is unencumbered and discretionary, then the contribution (if any) may consist of (1) cash; (2) cash equivalencies (3) qualifying employer real property and/or qualifying employer securities as defined in ERISA §407(d)(4) and ERISA §407(d)(5), provided the acquisition of such qualifying employer real property and/or qualifying employer securities satisfies the requirements of ERISA §408(e); or (4) any other property that is not prohibited under Code §4975 and that is acceptable to the Trustee under the terms of the Trust agreement. If the Plan is subject to Code §412, the contribution is used to reduce an obligation or liability of an Employer, or the contribution is encumbered and not discretionary, then the contribution will consist of (1) cash; or (2) cash equivalencies; such Employer’s contribution will not consist of any non-cash or non-cash equivalency assets to the Trust.

(h)Refund of Contributions. Contributions that are made to the Plan by the Employer can only be returned to the Employer in accordance with the following provisions:

(1)Failure of Plan to Initially Qualify. If the Plan fails to initially satisfy the requirements of Code §401(a) and the Employer declines to amend the Plan to satisfy such requirements, then contributions that were made prior to the date such qualification is denied must be returned to the Employer within one year of the date of such denial, but only if the application for the qualification is made by the time prescribed by law for filing the Employer’s tax return for the taxable year in which the Plan is adopted, or by such later date as the Secretary of the Treasury may prescribe.

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(2)Contributions Made Under a Mistake of Fact. If a contribution is attributable in whole or in part to a good faith mistake of fact, including a good faith mistake in determining the deductibility of the contribution under Code §404, an amount may be returned to the Employer equal to the excess of the amount that had been contributed over the amount that would have been contributed if the mistake of fact had not occurred (which excess will hereafter be known as a “Mistaken Contribution”). Earnings attributable to a Mistaken Contribution will not be returned, but losses attributable to the Mistaken Contribution will reduce the amount so returned. The Mistaken Contribution will be returned within one year of the date the Mistaken Contribution was made or the deduction disallowed, as the case may be.

(3)Nondeductible Contributions. Except to the extent that an Employer may intentionally make a nondeductible contribution, for example, to correct an administrative error or restore a Forfeiture, Employer contributions are conditioned on deductibility and will otherwise be returned to the Employer.

(4)Prevailing Wage Contributions. Notwithstanding the foregoing, Prevailing Wage Contributions that would otherwise be returned to the Employer for the reasons described in paragraphs (1) or (2) above will instead be distributed to the affected Participants.

3.2Elective Deferrals. If the Plan is a 401(k) Plan, then the Employer will contribute each Participant’s Elective Deferrals to the Plan, determined in accordance with and subject to the following provisions:

(a)Amount of Elective Deferrals. Each Participant may enter into and submit to the Administrator at any time a Salary Deferral Agreement authorizing the Employer to withhold all or a portion of the Participant’s Compensation, specifying the amount (either in whole percentage increments of Compensation or in whole dollar amounts as designated by the Participant; but the Administrator will have the right to direct that such increments of Compensation be rounded to the next highest or lowest dollar or percentage) and type (either Roth Elective Deferrals (if permitted by the Plan), Pre-Tax Elective Deferrals, or a specific combination of Roth Elective Deferrals (if permitted by the Plan) and Pre-Tax Elective Deferrals). The amount withheld will be deemed an Elective Deferral that the Employer will contribute to the Plan on behalf of the Participant. Such Salary Deferral Agreement will be effective as soon as administratively feasible after receipt of the Salary Deferral Agreement, unless a later pay period is specified by the Participant. A Participant’s Salary Deferral Agreement will remain in effect until superseded by another Salary Deferral Agreement (subject to the Automatic Enrollment provisions of paragraph (g) below). The Administrator, pursuant to an administrative policy regarding Elective Deferrals that is promulgated under Section 8.6, will designate the effective date of such elections that are submitted to the Administrator, and the frequency of such elections (and the frequency of modifications to such elections) but not less frequently than once per Plan Year. In addition, other Elective Deferral provisions may be set forth in such administrative policy, including, but not limited to, provisions that (1) set the maximum Elective Deferral percentage for Participants who are Highly Compensated Employees (if such percentage is less than the maximum percentage set forth above); (2) describe a program of automatic increases to a Participants’ Elective Deferral percentage as elected by the Administrator and/or the Participant; and (3) permit a Participant to identify separate components of the Participant’s Compensation (such as base salary, bonuses, etc.) and to specify that a different Elective Deferral percentage (or dollar amount) apply to each such component.

(b)Cash or Deferred Option. For any Plan Year, the Employer may declare a Cash or Deferred Contribution. In such event, the Employer will provide each Participant who is entitled to this Cash or Deferred Contribution the right to elect to receive as cash some or all of such Participant’s Cash or Deferred Contribution. Any amount that a Participant elects not to receive as cash will be deemed an Elective Deferral of the Participant, will be contributed to the Plan within 2½ months after the end of the Plan Year, and will be allocated to the Participant’s Elective Deferral Account.

(c)Roth Elective Deferrals. If elected in the Adoption Agreement, a Participant may elect to classify all or a portion of an Elective Deferral as a Roth Elective Deferral.

(d)Reclassification Not Permitted. An Elective Deferral contributed to the Plan as one type of Elective Deferral (either a Roth Elective Deferral or a Pre-Tax Elective Deferral) may not later be reclassified as the other type of Elective Deferral.

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(e)Catch-Up Contributions. If elected in the Adoption Agreement, Catch-Up Contributions are permitted and Participants who are age 50 or over by the end of their taxable years will be eligible. If this Plan is a Safe Harbor 401(k) Plan, Catch-Up Contributions will be treated as Elective Deferrals and will be matched in accordance with the Safe Harbor Matching Contribution formula(s) elected in the Adoption Agreement. If this is a Non-Safe Harbor 401(k) Plan, Catch-Up Contributions will be matched in accordance with the Non-Safe Harbor Matching Contribution formula (if any) elected in the Adoption Agreement unless the Sponsoring Employer elects not to match Catch-Up Contributions in the Adoption Agreement.

(f)Limitations on Elective Deferrals. In no event may Elective Deferrals be more than the maximum dollar amount permitted for the Participant’s taxable year beginning in that calendar year under Code §402(g). Elective Deferrals that exceed the applicable Code §402(g) limit are Excess Elective Deferrals and will be distributed to the affected Participants under Section 5.18. No Participant will be permitted to have Elective Deferrals made under this Plan, or any other plan, contract or arrangement maintained by the Sponsoring Employer, during any calendar year, in excess of the dollar limit in Code §402(g) in effect for the Participant’s taxable year beginning in such calendar year. The dollar limitation in Code §402(g) is $11,000 for taxable years beginning in 2002, and increasing by $1,000 each taxable year thereafter up to $15,000 for taxable years beginning in 2006 and later years. After 2006, the $15,000 limit will be adjusted by the Secretary of the Treasury for cost-of-living increases under Code §402(g)(4). Adjustments will be in multiples of $500. Catch-Up Contributions will not be used in determining the Code §402(g) limitations.

(g)Automatic Enrollment. If elected in the Adoption Agreement, the Employer may establish an automatic enrollment program. The terms of the automatic enrollment program (which may include, but are not limited to, the Elective Deferral percentage or amount, any automatic increases that apply to that Elective Deferral percentage or amount, the portion of the Elective Deferral which is considered a Pre-Tax Elective Deferral and, if available in this Plan, the portion which is considered a Roth Elective Deferral, and the Participants to whom the automatic enrollment program applies) will be set forth from time to time in an administrative policy regarding Elective Deferrals that is promulgated under Section 8.6 by the Administrator; if the Administrator does not adopt such administrative policy, then the terms of the notice that is issued to Participants regarding the automatic enrollment program will define the terms and conditions of the automatic enrollment program regarding Elective Deferrals for the Plan Year.

(h)Salary Deferral Agreement. Salary Deferral Agreements may be entered into as of such date or dates (but at least once per Plan Year) as established by the Administrator in an administrative policy regarding Elective Deferrals promulgated under Section 8.6. A Participant may thereafter modify a Salary Deferral Agreement to increase or decrease the percentage or amount being withheld as permitted under such administrative policy. The Participant may also at any time suspend or cancel his or her Salary Deferral Agreement upon reasonable written notice to the Administrator. If a Participant cancels or suspends his or her Salary Deferral Agreement, the Participant will not be permitted to put a new Salary Deferral Agreement into effect until such time as set forth in such administrative policy. If necessary to insure that the Plan satisfies the ADP Test or upon a Participant reaching the Elective Deferral limit of Code §402(g) with respect to such Participant’s Elective Deferrals in the Plan, then the Sponsoring Employer may temporarily suspend a Participant’s Salary Deferral Agreement upon notice to the Participant. If a Participant has not elected in his or her Salary Deferral Agreement to withhold at the maximum rate permitted by the Plan for a Plan Year and the Participant wants to increase the total amount withheld for that Plan Year up to the maximum permitted rate, then the Participant can make a supplemental election at any time during the last two months of the Plan Year to withhold an additional amount for one or more pay periods (including, if elected in the Adoption Agreement, Catch-Up Contributions not in excess of the Catch-Up Contribution Limit). An Elective Deferral will constitute a payroll deduction authorization for purposes of applicable state law. If automatic enrollment is elected in the Adoption Agreement pursuant to paragraph (g) above, then the Participant must be given an effective opportunity to elect a different amount (including no amount).

(i)ADP Testing. Elective Deferrals in a Non-Safe Harbor 401(k) Plan must satisfy the ADP Test of Section 3.18 for a Plan Year, and Elective Deferrals in a Non-Safe Harbor 401(k) Plan that do not satisfy the ADP Test for a Plan Year will utilize the correction methods of such Section.

(j)Distribution of Elective Deferrals. Elective Deferrals can only be distributed upon the earliest to occur of the following dates: (1) a Participant Terminates Employment (separates from service, for Plan Years beginning before 2002) with the Employer; (2) a Participant dies; (3) a Participant suffers a Disability; (4) an event that is described in Code §401(k)(10) occurs; (5) a Participant reaches Age 59½ (if on or before such date, a pre-retirement in-service withdrawal of

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Elective Deferrals is elected in the Adoption Agreement); or (6) if financial hardship distributions are elected in the Adoption Agreement, the Participant qualifies for a financial hardship distribution under Section 5.16. With respect to clause (4) of the prior sentence, Elective Deferrals can be distributed (in a lump sum only) upon termination of the Plan, so long as the Sponsoring Employer (or an Affiliated Employer) does not maintain an alternative defined contribution plan at any time during the period beginning on the date of Plan termination and ending 12 months after all assets have been distributed from the terminated Plan. However, if at all times during the 24-month period beginning 12 months before the date of Plan’s termination, fewer than 2% of the Employees who were eligible to participate in the 401(k) Plan as of the date of the Plan’s termination are eligible to participate in the other defined contribution plan, the other defined contribution plan is not an alternative defined contribution plan. A defined contribution plan is also not an alternative defined contribution plan if the defined contribution plan is an employee stock ownership plan as defined in Code §4975(e)(7) or Code §409(a), a simplified employee pension as defined in Code §408(k), a SIMPLE IRA plan as defined in Code §408(p), a plan or contract that is described in Code§ 403(b), or a plan that is described in Code §457(b) or Code §457(f).

(k)Allocation of Elective Deferrals. Participant’s Pre-tax Elective Deferrals will be allocated to the Participant’s Pre-Tax Elective Deferral Account. Each Participant’s Roth Elective Deferrals (if any) will be allocated to the Participant’s Roth Elective Deferral Account.

3.3Mandatory Employee Contributions. If elected in the Adoption Agreement, then each Participant must make Mandatory Employee Contributions under the terms and conditions as elected in the Adoption Agreement, in order to receive an allocation of Employer contributions and Forfeitures for an Allocation Period. Mandatory Employee Contributions will be allocated to a Participant’s Mandatory Employee Contribution Account in which the Participant will have a 100% Vested Interest. A Participant can elect to discontinue (or resume) Mandatory Employee Contributions in accordance with procedures established by the Administrator. Mandatory Employee Contribution Accounts will be administered as follows:

(a)Investment of Accounts. The Administrator may choose for investment purposes either to segregate Mandatory Employee Contribution Accounts into separate interest bearing accounts or to invest Mandatory Employee Contribution Accounts as part of the general Trust Fund (in which case Mandatory Employee Contribution Accounts will share in net income and losses in the manner elected in the Adoption Agreement), except for that portion of a Participant’s Mandatory Employee Contribution Account which a Participant may be permitted to self-direct pursuant to Section 7.4.

(b)Discontinuance of Contributions in the Event of a Hardship Distribution. If a Participant receives a financial hardship distribution under Section 5.16 (or receive a financial hardship distribution under Regulation §1.401(k)-1(d)(3)(iv)(E) from any other Employer maintained plan as defined in Regulation §1.401(k)-1(d)(3)(iv)(F)), he or she will be barred from making Mandatory Employee Contributions for a period of 6 months after the distribution or, such other period of time as set forth in an administrative policy regarding financial hardship distributions promulgated under Section 8.6 by the Administrator.

(c)ACP Testing. Any Mandatory Employee Contributions made for a Plan Year must satisfy the ACP Test of Section 3.19 for a Plan Year. Mandatory Employee Contributions that do not satisfy the ACP Test will utilize the correction methods of such Section.

(d)Right to Make Each Rate of Mandatory Employee Contributions. The right to make each rate of Mandatory Employee Contributions (determining the rate based on the Plan’s definition of the Compensation out of which the Mandatory Employee Contributions are made (regardless of whether that definition of Compensation satisfies Code §414(s)), and treating different rates as existing if they are based on definitions of Compensation or other requirements or formulas that are not substantially the same) must not discriminate in favor of Highly Compensated Employees.

3.4Non-Safe Harbor Matching Contributions. If the Plan is a 401(m) Plan, then the Employer may make Non-Safe Harbor Matching Contributions as elected in the Adoption Agreement and/or in one or more Non-Safe Harbor Matching Contribution Addenda, subject to the following provisions:

(a)ACP Testing. Non-Safe Harbor Matching Contributions made for a Plan Year must satisfy the ACP Test of Section 3.19 for a Plan Year. Non-Safe Harbor Matching Contributions that do not satisfy the ACP Test will utilize the correction methods of such Section.

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(b)Treatment as QMACs.The Administrator may elect to treat all or any portion of a Non-Safe Harbor Matching Contribution as a QMAC sufficient to satisfy the ADP Test, to the extent that such QMAC is not used to satisfy the ACP Test (but, so long as the QMAC is not precluded from being used in the ACP Test pursuant to Section 3.18(j)(4)(B)).

(c)True-Ups. If (1) the Allocation Period for Non-Safe Harbor Matching Contributions is a computation period that is less than the Plan Year, and (2) on the last day of any Plan Year, the dollar amount of the Non-Safe Harbor Matching Contributions made on behalf of a Benefiting Participant is less than the dollar amount that would have been made had the Non-Safe Harbor Matching Contributions been contributed for an Allocation Period of a Plan Year, then the Employer may elect, pursuant to the Employer’s discretion, for any Plan Year to make an additional Non-Safe Harbor Matching Contribution so that the Non-Safe Harbor Matching Contribution contributed for a Benefiting Participant is equal to the Non-Safe Harbor Matching Contribution that would have been made had the Non-Safe Harbor Matching Contributions been contributed for an Allocation Period of the Plan Year. However, any such additional Non-Safe Harbor Matching Contributions can only be made to the Plan on a uniform, nondiscriminatory basis. In order to determine the group of Participants who are eligible to receive the additional Non-Safe Harbor Matching Contributions of this paragraph, the Employer may impose allocation conditions that are different from the allocation conditions used to determine Benefiting Participants for purposes of other Non-Safe Harbor Matching Contributions.

(d)Prorating the Code §401(a)(17) Compensation Limit for Each Allocation Period. If the Allocation Period for Non-Safe Harbor Matching Contributions is a computation period that is less than the Plan Year, then the Employer may elect, pursuant to the Employer’s discretion, for any Plan Year to prorate the Code §401(a)(17) Compensation Limit to each Allocation Period of the Plan Year. However, any prorating of the Code §401(a)(17) Compensation Limit can only be made on a uniform, nondiscriminatory basis.

(e)Excess Elective Deferrals and Excess Contributions Not Required to Be Matched. Notwithstanding the above, to the extent Non-Safe Harbor Matching Contributions (including Qualified Matching Contributions) are contributed on an annual basis, no Non-Safe Harbor Matching Contribution (including Qualified Matching Contributions) will be required with respect to that portion of an Elective Deferral which for that Plan Year is determined to be either an Excess Elective Deferral (unless the Excess Elective Deferral is for a Non-Highly Compensated Employee) or an Excess Contribution. Furthermore, Matching Contributions (including Qualified Matching Contributions) that have been allocated to a Participant’s Account must be forfeited if the contributions to which they relate are Excess Deferrals (unless the Excess Elective Deferrals are for Non-Highly Compensated Employees), Excess Contributions, or Excess Aggregate Contributions.

(f)Discretionary Formulas. If the Sponsoring Employer elects a discretionary formula in Section 6.1(a) of the 401(k) Plan Adoption Agreement (standardized or non-standardized), the Sponsoring Employer’s discretion in establishing a formula for any Allocation Period includes, but is not limited to, establishing the amount of the contributions, the rate of match, as well as establishing a maximum Non-Safe Harbor Matching Contribution per Participant (either as a dollar maximum per Participant, a maximum percentage of each Participant’s Compensation, and/or a maximum amount of each Participant’s Elective Deferrals that will be recognized for matching purposes). In addition, the Employer must, on or before the due date (plus any extensions) for filing the Employer’s tax return, adopt a written resolution (or other written action) which describes the rate of match and the maximum limitations, if any, imposed on the Non-Safe Harbor Matching Contribution for the Allocation Period. Any such Matching Contribution will then be allocated to each Benefiting Participant’s Non-Safe Harbor Matching Contribution Account in the ratio that each such Benefiting Participant’s Elective Deferrals for the Allocation Period bears to the total Elective Deferrals of all such Benefiting Participants for the Allocation Period, subject to any maximum limitations imposed on the allocation in the written resolution (or other written action).

(g)Right to Each Rate of Match. The right to each rate of Non-Safe Harbor Matching Contributions (determining the rate using the amount of Non-Safe Harbor Matching Contributions, Elective Deferrals, Voluntary Employee Contributions, and Mandatory Employee Contributions determined after any corrections under Regulation §1.401(k)—2(b)(1)(i) and §1.401(m)—2(b)(1)(i), and treating different rates as existing if they are based on definitions of Compensation or other requirements or formulas that are not substantially the same) must not discriminate in favor of Highly Compensated Employees.

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(h)Allocation of Non-Safe Harbor Matching Contributions. Non-Safe Harbor Matching Contributions contributed on a Participant’s behalf will be allocated to the Participant’s Non-Safe Harbor Matching Contribution Account. All such allocations will be made in the manner elected by the Sponsoring Employer in the Adoption Agreement and/or the Non-Safe Harbor Matching Contribution Addendum. A Participant who makes an Elective Deferral during the Allocation Period will be eligible to receive an allocation of Non-Safe Harbor Matching Contributions for that Allocation Period as elected by the Sponsoring Employer in the Adoption Agreement. If the Sponsoring Employer elects in the Adoption Agreement to impose a service requirement (e.g., 1,000 Hours of Service) in order for a Participant to receive an allocation of Non-Safe Harbor Matching Contributions for an Allocation and the Allocation Period is less than 12 consecutive months, any such service requirement will be proportionately reduced.

3.5Non-Safe Harbor Non-Elective Contributions. The Employer may make Non-Safe Harbor Non-Elective Contributions as elected in the Adoption Agreement and/or in one or more Non-Safe Harbor Non-Elective Contribution Addenda, subject to the following provisions:

(a)Allocation of Non-Safe Harbor Non-Elective Contributions. A Participant will be eligible to receive an allocation of the Employer’s Non-Safe Harbor Non-Elective Contributions for that Allocation Period as elected by the Sponsoring Employer in the Adoption Agreement. If the Sponsoring Employer elects in the Adoption Agreement to impose a service requirement (e.g., 1,000 Hours of Service) in order for a Participant to receive an allocation of Non-Safe Harbor Non-Elective Contributions for an Allocation and the Allocation Period is less than 12 consecutive months, any such service requirement will be proportionately reduced.

(1)Allocations Using a Compensation Ratio.If the Sponsoring Employer elects in the Adoption Agreement to allocate Non-Safe Harbor Non-Elective Contributions using a Compensation ratio, then the allocation will be made to each Benefiting Participant’s Non-Elective Contribution Account in the ratio that his or her Compensation for the Allocation Period bears to the total Compensation of all Benefiting Participants for the Allocation Period.

(2)Allocations Using the Per Capita Method. If the Sponsoring Employer elects in the Adoption Agreement to allocate Non-Safe Harbor Non-Elective Contributions on a per capita basis, then the allocation will be made to each Benefiting Participant’s Non-Elective Contribution Account in an equal dollar amount for the Allocation Period.

(3)Allocations Using Points. If the Sponsoring Employer elects in the Adoption Agreement to allocate Non-Safe Harbor Non-Elective Contributions based on points awarded to a Participant as elected in the Adoption Agreement, then the allocation will be made to each Benefiting Participant’s Non-Elective Contribution Account in the ratio that each Benefiting Participant’s allocation points for the Allocation Period bears to the total allocation points of all Benefiting Participants for the Allocation Period.

(4)Allocations Using Permitted Disparity. If the Sponsoring Employer elects in the Adoption Agreement to allocate Non-Safe Harbor Non-Elective Contributions using permitted disparity, then the allocation will be made using either a 2-step method, a 4-step method, or both, as elected in the Adoption Agreement, in accordance with the following provisions:

(A)2-Step Method Only.If the Sponsoring Employer elects the 2-step method for all Allocation Periods, then the contribution will be allocated in the following manner:

(i)Step 1.An amount will be allocated equal to the lesser of [a] the Maximum Excess Percentage multiplied by a Benefiting Participant’s Excess Compensation; or [b] as elected in the Adoption Agreement, either [1] the greater of 5.7% or the OASI Percentage, [2] 5.4%, or [3] 4.3%, multiplied by a Benefiting Participant’s Excess Compensation.

(ii)Step 2. The balance of the Employer’s contribution will be allocated in the ratio that his or her Compensation bears to the total Compensation of all Benefiting Participants.

(B)4-Step Method Only.If the Sponsoring Employer elects the 4-step method for all Allocation Periods, then the contribution will be allocated in the following manner:

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(i)Step 1.First, an amount will be allocated in the ratio that his or her Compensation bears to the total Compensation of all Benefiting Participants, but the maximum amount allocated under this subparagraph will not exceed 3% of a Benefiting Participant’s Compensation. Solely for purposes of the allocation made under this subparagraph (i), the term Benefiting Participant also means any Participant entitled to a Top Heavy Minimum Allocation under Section 3.14.

(ii)Step 2.Next, an amount will be allocated in the ratio that a Benefiting Participant’s Excess Compensation bears to the total Excess Compensation of all Benefiting Participants, but the maximum amount allocated under this subparagraph will not exceed 3% of a Benefiting Participant’s Excess Compensation.

(iii)Step 3.Next, an amount will be allocated in the ratio that a Benefiting Participant’s Compensation plus Excess Compensation bears to the total Compensation plus Excess Compensation of all Benefiting Participants, but the maximum amount allocated under this subparagraph will not exceed the Third-Step Integration Percentage of a Benefiting Participant’s Compensation plus Excess Compensation.

(iv)Step 4. The balance of the contribution will be allocated in the ratio that a Benefiting Participant’s Compensation bears to the total Compensation of all Benefiting Participants.

(C)2-Step Method and 4-Step Method.If the Sponsoring Employer elects to use the 2-step method in non-Top Heavy Allocation Periods and the 4-step method in Top Heavy Allocation Periods, then the contribution will be allocated as set forth in Section 3.5(a)(4)(A) during non-Top Heavy Allocation Periods and as set forth in Section 3.5(a)(4)(B) during Top Heavy Allocation Periods.

(5)Allocations Using Allocation Groups. If the Sponsoring Employer elects in the Adoption Agreement to allocate Non-Safe Harbor Non-Elective Contributions using allocation groups, then the allocation for each Allocation Group will be made pursuant to the “Allocation Group Addendum” that is attached to the Adoption Agreement; the allocation for each Benefiting Participant will be made to each Benefiting Participant’s Non-Elective Contribution Account. The Employer must notify the Trustee of the amount of the Non-Safe Harbor Non-Elective Contribution to be allocated each Allocation Group.

If the Sponsoring Employer elects in the Adoption Agreement to allocate Non-Safe Harbor Non-Elective Contributions using allocation groups, the Sponsoring Employer may elect in the “Allocation Group Addendum” either that each Benefiting Participant of the Employer will constitute a “separate allocation group” or that specific Benefiting Participants of the Employer will be grouped together in “separate allocation groups” for purposes of allocating Non-Safe Harbor Non-Elective Contributions. However, only a limited number of Allocation Rates is permitted, and the number of Allocation Rates cannot be greater than the maximum allowable number of Allocation Rates. The maximum allowable number of Allocation Rates is equal to the sum of the allowable number of Allocation Rates for eligible Non-Highly Compensated Employees (eligible NHCEs) and the allowable number of Allocation Rates for eligible Highly Compensated Employees (eligible HCEs). The allowable number of Allocation Rates for eligible HCEs is equal to the number of eligible HCEs, limited to 25. The allowable number of NHCE Allocation Rates depends on the number of eligible NHCEs, limited to 25. If the Plan has only one or two eligible NHCEs, the allowable number of NHCE Allocation Rates is one. If the Plan has 3 to 8 eligible NHCEs, then the allowable number of NHCE Allocation Rates cannot exceed two. If the Plan has 9 to 11 eligible NHCEs, then the allowable number of NHCE Allocation Rates cannot exceed three. If the Plan has 12 to 19 eligible NHCEs, then the allowable number of NHCE Allocation Rates cannot exceed four. If the Plan has 20 to 29 eligible NHCEs, then the allowable number of NHCE Allocation Rates cannot exceed five. If the Plan has 30 or more eligible NHCEs, then the allowable number of NHCE Allocation Rates cannot exceed the number of eligible NHCEs divided by five (rounded down to the next whole number if the result of dividing is not a whole number), but will not exceed 25.

The allocation will be made as follows: First, the total amount of Non-Safe Harbor Non-Elective Contributions is allocated among the Deemed Aggregated Allocation Groups in portions determined by the Employer. Second, within each Deemed Aggregated Allocation Group, the allocated portion is allocated to each Benefiting Participant in the ratio that such Benefiting Participant’s Compensation, bears to the total Compensation of all each Benefiting Participants in the group.

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(6)Allocations Using Age Weighting. If the Sponsoring Employer elects in the Adoption Agreement to allocate Non-Safe Harbor Non-Elective Contributions using age weighting, then a Benefiting Participant’s Age Weighting Factor for any Plan Year will be determined by multiplying the Benefiting Participant’s Compensation by the appropriate percentage (based upon the Benefiting Participant’s Age) set forth in the “Age-Weighted Table Addendum” that is attached to the Adoption Agreement. The allocation will be made to each Benefiting Participant’s Non-Elective Contribution Account in the ratio that his or her Age Weighting Factor for the Allocation Period bears to the total Age Weighting Factors of all Benefiting Participants for the Allocation Period.

(b)Effect of Top Heavy on Allocation Method. Notwithstanding anything in the Section to the contrary, if the Plan is Top Heavy for any Plan Year, and if the allocation method that is elected in the Adoption Agreement (along with any other allocations that are permitted to be used to satisfy the Top Heavy Minimum Allocation requirements of Section 3.14) does not satisfy the Top Heavy Minimum Allocation requirements (because, for example, either a Benefiting Participant’s Compensation that is used in the allocation method does not satisfy Code §415(c)(3) Compensation, the Compensation Determination Period is other than the entire Plan Year, or the allocation method is not sufficient to allocate the Top Heavy Minimum Allocation to any Non-Key Employee), then the Top Heavy Minimum Allocation will be allocated first before (or, simultaneous with, if no Key Employee has any Employer contributions (including any Elective Deferrals made on behalf of a Key Employee to a 401(k) Plan maintained by the Employer) or Forfeitures allocated to the Participant’s Account for that Plan Year) any allocations under the allocation method. However, the allocation method may take into account such Top Heavy Minimum Allocation.

3.6Prevailing Wage Contributions.If elected in the Adoption Agreement, the Employer will make Prevailing Wage Contributions to the Plan for the Prevailing Wage Service of each Prevailing Wage Employee, subject to the following provisions:

(a)Amount of Prevailing Wage Contributions. The Prevailing Wage Contribution for each Prevailing Wage Employee will be based on the hourly contribution rate required under the applicable Prevailing Wage Law for each such Employee’s employment classification at which Prevailing Wage Law services are performed by each such Employee that are not being paid as wages or being used to provide other benefits.

(b)Frequency of Prevailing Wage Contributions. Prevailing Wage Contributions will be contributed to the Plan as frequently as required under the applicable Prevailing Wage Law.

(c)Allocation/Utilization of Prevailing Wage Contributions. Prevailing Wage Contributions will be allocated/utilized in any (or all) of the following ways:

(1)Used as a Qualified Non-Elective Contribution for a 401(k) Plan and/or a 401(m) Plan. If the Plan is a 401(k) Plan and/or a 401(m) Plan, then all or any portion of a Participant’s Prevailing Wage Contributions can be used as a Qualified Non-Elective Contribution.

(2)Used as a Qualified Matching Contribution for a 401(k) Plan and/or a 401(m) Plan. If the Plan is a 401(k) Plan and/or a 401(m) Plan, then all or any portion of a Participant’s Prevailing Wage Contributions can be used as a Qualified Matching Contributions, to the extent that the Participant has Elective Deferrals made to the Plan on his or her behalf.

(3)Allocated to the Prevailing Wage Account. All or any portion of a Participant’s Prevailing Wage Contributions can be allocated to the Prevailing Wage Account of each Participant eligible to share in the allocation of such Prevailing Wage Contributions; and/or

(4)Offset Other Contributions. All or any portion of a Participant’s Prevailing Wage Contributions can be used first to offset any type(s) of Employer contributions (other than Elective Deferrals). If Prevailing Wage Contributions remain after the offset(s) of the prior sentence, then the remaining Prevailing Wage Contributions will be allocated to the Prevailing Wage Account of each Participant eligible to share in the allocation of such remaining Prevailing Wage Contributions.

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3.7Qualified Matching Contributions. If the Plan is a 401(k) Plan or a 401(m) Plan, then the Employer may make a Qualified Matching Contribution in such amount as the Employer, in its sole discretion, may determine, subject to the following provisions:

(a)Contributions Treated as Qualified Matching Contributions. The Employer may elect to treat all or any portion of a Matching Contribution as a Qualified Matching Contribution. Furthermore, the Employer may elect to treat all or any portion of a Participant’s Prevailing Wage Contribution as a Qualified Matching Contribution, to the extent that the Participant has Elective Deferrals made on his or her behalf, in which event such Prevailing Wage Contributions will be subject to same Vesting and distribution requirements that apply to Qualified Matching Contributions.

(b)Allocation of Qualified Matching Contributions. Qualified Matching Contributions (QMACs), and any Non-Safe Harbor Matching Contributions that are treated as QMACs, will be allocated to the Qualified Matching Contribution Account of each Eligible Participant for that Allocation Period. Such contributions will be allocated in the manner elected by the Administrator, subject to the following:

(1)Permissible Methods of Allocation. The Administrator may elect to make the allocation from one of the following allocation methods: (A) pro-rata based on the Compensation of each Eligible Participant; (B) pro-rata based on the Compensation of each Eligible Participant starting with the Eligible Participant with the lowest amount of Compensation and working up until the ADP Test or the ACP Test is satisfied; (C) pro-rata based on the Elective Deferrals of each Eligible Participant starting with the Eligible Participant with the lowest amount of Elective Deferrals and working up until the ADP Test or the ACP Test is satisfied; (D) per capita to each Eligible Participant; (E) per capita based on the Compensation of each Eligible Participant starting with the Eligible Participant with the lowest amount of Compensation and working up until the ADP Test or the ACP Test is satisfied; or (F) per capita based on the Elective Deferrals of each Eligible Participant starting with the Eligible Participant with the lowest amount of Elective Deferrals and working up until the ADP Test or the ACP Test is satisfied.

(2)Maximum Permissible Allocation. Notwithstanding anything in this paragraph (b) to the contrary, the Sponsoring Employer may limit the maximum amount of QMACs that will be allocated for any Allocation Period to an Eligible Participant, to the limitation on disproportionate QMACs as described in Section 3.18(j)(4)(B) for purposes of the ADP Test or the limitation on disproportionate Matching Contributions as described in Section 3.19(h) or (i) for purposes of the ACP Test.

(3)Eligible Participants. As used in this paragraph (b), the term “Eligible Participant” means any Participant who is a NHCE and who makes an Elective Deferral during the Allocation Period being tested. Furthermore, the Administrator may elect to limit the allocations of QMACs only to Eligible Participants who are employed on the last day of the Allocation Period. In addition, if this 401(k) Plan and/or this 401(m) Plan provides that Otherwise Excludable Participants are eligible to participate and if the plan applies Code §410(b)(4)(B) in determining whether the 401(k) Plan and/or the 401(m) Plan meets the requirements of Code §410(b)(1), then the Administrator may elect to limit the allocations of QMACs only to either: (A) Participants who are Non-Highly Compensated Employees and who are Otherwise Excludable Participants; or (B) Participants who are Non-Highly Compensated Employees and who are not Otherwise Excludable Participants. The Administrator may also elect to allocate QMACs to one or more Participants who are Highly Compensated Employees.

3.8Qualified Non-Elective Contributions.If the Plan is a Code §401(k) Plan or a Code §401(m) Plan, then the Employer may make a Qualified Non-Elective Contribution to the Plan in such amount as the Employer, in its sole discretion, may determine, subject to the following provisions:

(a)Contributions Treated as Qualified Non-Elective Contributions. The Employer may elect to treat all or any portion of a Non-Safe Harbor Non-Elective Contribution as a Qualified Non-Elective Contribution. The Employer may also elect to treat all or any portion of a Participant’s Prevailing Wage Contribution as a Qualified Non-Elective Contribution, in which event such Prevailing Wage Contributions will be subject to same Vesting and distribution requirements that apply to Qualified Non-Elective Contributions.

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(b)Allocation of Qualified Non-Elective Contributions. Qualified Non-Elective Contributions (QNECS), Non-Safe Harbor Non-Elective Contributions that are treated as QNECS, and Prevailing Wage Contributions that are treated as QNECS will be allocated to the Qualified Non-Elective Contribution Account of each Eligible Participant for that Allocation Period. Such contributions will be allocated in the manner elected by the Administrator, subject to the following:

(1)Permissible Methods of Allocation. The Administrator may elect to make the allocation from one of the following allocation methods: (A) pro-rata based on the Compensation of each Eligible Participant; (B) pro-rata based on the Compensation of each Eligible Participant starting with the Eligible Participant with the lowest amount of Compensation and working up until the ADP Test or the ACP Test is satisfied; (C) per capita to each Eligible Participant; or (D) per capita based on the Compensation of each Eligible Participant starting with the Eligible Participant with the lowest amount of Compensation and working up until the ADP Test or the ACP Test is satisfied.

(2)Maximum Permissible Allocation. Notwithstanding anything in this paragraph (b) to the contrary, the Sponsoring Employer may limit the maximum amount of QNECs to be allocated for any Allocation Period to an Eligible Participant, to the limitation on disproportionate QNECs as described in paragraph 3.18(j)(4)(A) for purposes of the ADP Test or Section 1.44(e)(4) for purposes of the ACP Test.

(3)Eligible Participants. As used in this paragraph (b), the term “Eligible Participant” means any Participant (A) who is a NHCE, and (B) who is eligible, in the Administrator’s discretion, either to make an Elective Deferral (regardless of whether such Participant actually makes an Elective Deferral) and/or to receive a Non-Safe Harbor Matching Contribution (regardless of whether such Participant actually receives a Non-Safe Harbor Matching Contribution) during the Allocation Period being tested. Furthermore, the Administrator may elect to limit the allocations of QNECs only to Eligible Participants who are employed on the last day of the Allocation Period. In addition, if this 401(k) Plan and/or this 401(m) Plan provides that Otherwise Excludable Participants are eligible to participate and if the plan applies Code §410(b)(4)(B) in determining whether the 401(k) Plan and/or the 401(m) Plan meets the requirements of Code §410(b)(1), then the Administrator may elect to limit the allocations of QNECs only to either: (A) Participants who are Non-Highly Compensated Employees and who are Otherwise Excludable Participants; or (B) Participants who are Non-Highly Compensated Employees and who are not Otherwise Excludable Participants. Lastly, the Administrator may elect to allocate QNECs to one or more Participants who are Highly Compensated Employees.

3.9Rollover Contributions. If elected in the Adoption Agreement, then subject to any changes, limitations, or effective dates adopted by written notice and/or procedures established and adopted by the Administrator pursuant to Section 8.6, any Employee who is permitted to make Rollover Contributions as elected in the Adoption Agreement may make such Rollover Contributions into the Plan from the types of plans as elected in the Adoption Agreement. Rollover Contributions can also include various types of rollovers as elected in the Adoption Agreement. Rollover Contributions will be allocated to an Employee’s Rollover Contribution Account in which the Employee will have a 100% Vested Interest. If enumerated in the Effective Date Addendum, then this Plan will not permit an Employee to make additional Rollover Contributions to the Plan on or after the date that is enumerated in the Effective Date Addendum. However, any Rollover Contributions made before such date will continue to be maintained in the Employee’s Rollover Contribution Account. The Administrator may choose for investment purposes either to segregate Rollover Contribution Accounts into separate interest bearing accounts or to invest Rollover Contribution Accounts as part of the general Trust Fund, except for that portion of an Employee’s Rollover Contribution Account which he or she may be permitted to self-direct under Section 7.4.

3.10Safe Harbor 401(k) Contributions.If the Plan is a 401(k) Plan, then the Employer may make Safe Harbor 401(k) Contributions as elected in the Adoption Agreement, subject to the following provisions:

(a)ADP Safe Harbor Non-Elective Contributions. If the Employer elects in the Adoption Agreement (or to the extent the Employer amends the Plan either by amending the Adoption Agreement or via the Safe Harbor Notice), then the Employer will make an ADP Safe Harbor Non-Elective Contribution equal to 3% (or such higher percentage as elected by the Employer) of the Compensation of each Safe Harbor Participant. The Employer may elect in the Adoption Agreement to make this ADP Safe Harbor Non-Elective Contribution to a money purchase plan named in the Adoption Agreement. For any Allocation Period in which the Employer elects to make an ADP Safe Harbor Non-Elective Contribution to the named

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money purchase plan, an ADP Safe Harbor Non-Elective Contribution will be made to this Plan in lieu of the ADP Safe Harbor Non-Elective Contribution to the money purchase plan unless each Safe Harbor Participant under this Plan also participates in such other plan and such other plan has the same Plan Year as this Plan. Such ADP Safe Harbor Non-Elective Contribution will be subject to the provisions of Section 3.20.

(b)ADP Safe Harbor Matching Contributions. If elected in the Adoption Agreement, an ADP Safe Harbor Matching Contribution (whether “Basic” or “Enhanced” as elected in the Adoption Agreement) will be made that is equal to the amount specified in the Adoption Agreement, subject to the provisions of Section 3.20.

(c)ACP Safe Harbor Matching Contributions. If elected in the Adoption Agreement, the Employer may also make additional ACP Safe Harbor Matching Contributions for each Allocation Period. Such ACP Safe Harbor Matching Contribution will be subject to the provisions of Section 3.21.

(d)True-Ups. If (1) the Allocation Period for either ADP Safe Harbor Matching Contributions and/or ACP Safe Harbor Matching Contributions (which contributions, for purposes of this paragraph, will hereafter be known as “Safe Harbor Matching Contributions”) is a computation period that is less than the Plan Year, and (2) on the last day of any Plan Year, the dollar amount of the Safe Harbor Matching Contributions made on behalf of a Benefiting Participant is less than the dollar amount that would have been made had the Safe Harbor Matching Contributions been contributed for an Allocation Period of a Plan Year, then the Employer may elect, pursuant to the Employer’s discretion and subject to any Safe Harbor Notice requirements, for any Plan Year to make an additional Safe Harbor Matching Contribution so that the Safe Harbor Matching Contribution contributed for a Benefiting Participant is equal to the Safe Harbor Matching Contribution that would have been made had the Safe Harbor Matching Contributions been contributed for an Allocation Period of the Plan Year. However, any such additional Safe Harbor Matching Contributions can only be made to the Plan on a uniform, nondiscriminatory basis.

(e)Prorating the Code §401(a)(17) Compensation Limit for Each Allocation Period. If the Allocation Period for either ADP Safe Harbor Matching Contributions and/or ACP Safe Harbor Matching Contributions is a computation period that is less than the Plan Year, then the Employer may elect, pursuant to the Employer’s discretion and subject to any Safe Harbor Notice requirements, for any Plan Year to prorate the Code §401(a)(17) Compensation Limit to each Allocation Period of the Plan Year. However, any prorating of the Code §401(a)(17) Compensation Limit can only be made on a uniform, nondiscriminatory basis.

(f)Allocation of Safe Harbor 401(k) Contributions. Safe Harbor 401(k) Contributions will be allocated as follows: (1) ADP Safe Harbor Matching Contributions will be allocated to a Participant’s ADP Safe Harbor Matching Contribution Account; (2) ADP Safe Harbor Non-Elective Contributions will be allocated to a Participant’s ADP Safe Harbor Non-Elective Contribution Account; and (3) ACP Safe Harbor Matching Contributions will be allocated to a Participant’s ACP Safe Harbor Matching Contribution Account.

3.11Voluntary Employee Contributions. If elected in the Adoption Agreement, each Participant may make Voluntary Employee Contributions for a Plan Year, but no later than 30 days after the end of the Plan Year for which such Voluntary Employee Contribution is deemed to be made. Such Voluntary Employee Contributions will be allocated to a Participant’s Voluntary Employee Contribution Account in which the Participant will have a 100% Vested Interest. If enumerated in the Effective Date Addendum, then this Plan will not permit a Participant to make additional Voluntary Employee Contributions to the Plan on or after the date that is enumerated in the Effective Date Addendum. However, any Voluntary Employee Contributions made before such date will continue to be maintained in the Participant’s Voluntary Employee Contribution Account. Voluntary Employee Contribution Accounts will be administered in accordance with the following provisions:

(a)Investment of Accounts. The Administrator may choose for investment purposes either to segregate Voluntary Employee Contribution Accounts into separate interest bearing accounts or to invest Voluntary Employee Contribution Accounts as part of the general Trust Fund (in which case Voluntary Employee Contribution Accounts will share in net income and losses in the manner elected in the Adoption Agreement), except for that portion of a Participant’s Voluntary Employee Contribution Account which a Participant may be permitted to self-direct pursuant to Section 7.4.

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(b)Discontinuance of Contributions in the Event of a Financial Hardship Distribution. If a Participant receives a financial hardship distribution under Section 5.16 (or receives a financial hardship distribution from any other Employer maintained plan), he or she will be barred from making Voluntary Employee Contributions for a period of 6 months after the distribution, or such other period of time as set forth in an administrative policy regarding financial hardship distributions promulgated by the Administrator.

(c)ACP Testing. Any Voluntary Employee Contributions made for a Plan Year must satisfy the ACP Test of Section 3.19 for a Plan Year. Voluntary Employee Contributions that do not satisfy the ACP Test will utilize the correction methods of such Section.

(d)Right to Make Each Rate of Voluntary Employee Contributions. The right to make each rate of Voluntary Employee Contributions (determining the rate based on the Plan’s definition of the Compensation out of which the Voluntary Employee Contributions are made (regardless of whether that definition of Compensation satisfies Code §414(s)), and treating different rates as existing if they are based on definitions of Compensation or other requirements or formulas that are not substantially the same) must not discriminate in favor of Highly Compensated Employees.

3.12Allocation of Earnings and Losses. As of each Valuation Date, amounts in Participants’ accounts/sub-accounts which have not been segregated from the general Trust Fund for investment purposes (accounts which have been segregated include any Directed Investment Accounts established under Section 7.4) and which have not been distributed since the prior Valuation Date will have the net income of the Trust Fund that has been earned since the prior Valuation Date allocated in accordance with such rules and procedures that are established by the Administrator and that are applied in a uniform and nondiscriminatory manner based upon the investments of the Trust Fund and the Participants’ accounts/sub-accounts to which the net income is allocated. For purposes of this Section, the term “net income” means the net of any interest, dividends, unrealized appreciation and depreciation, capital gains and losses, and investment expenses of the Trust Fund determined on each Valuation Date. However, Participants’ accounts/sub-accounts which have been segregated from the general Trust Fund for investment purposes (accounts which have been segregated include any Directed Investment Accounts established under Section 7.4) will only have the net income earned thereon allocated thereto. Policy dividends or credits will be allocated to the Participant’s Account for whose benefit the Policy is held.

3.13Forfeitures and Their Usage. The following provisions relate to Forfeitures and their usage and allocation:

(a)Provisions Related to Forfeitures. The following provisions relate to Forfeitures:

(1)Distribution of Entire Vested Interest (or After 5 Consecutive Breaks in Service, If Earlier). If the Sponsoring Employer elects in the Adoption Agreement that a Forfeiture of the non-Vested portion of the Participant’s Account balance attributable to Employer contributions will occur as of the earlier of: (A) the date that the Participant who Terminated Employment receives a distribution of his or her Vested Interest under Article 5, or (B) the date that the Participant incurs five consecutive Breaks in Service after Termination of Employment, then the provisions of this paragraph apply. Effective as of the first day of Plan Year beginning in 2006 (or such earlier effective date as may be provided in a separate amendment for implementing the final §401(k) Regulations and as permitted by such Regulations) with respect to any 401(k) Plan, a Forfeiture of the non-Vested portion of the Participant’s Account balance attributable to Employer contributions will not occur pursuant to the provisions of clause (A) of the prior sentence unless the entire Elective Deferral Account of the Participant who Terminated Employment is or has been distributed. Furthermore, if a Participant’s Vested Interest in the entire Participant’s Account balance attributable to Employer contributions is zero on the date that the Participant Terminates Employment, then the Participant will be deemed to have received a distribution of such Vested Interest on the date of such Termination of Employment and a Forfeiture of the Participant’s Account attributable to Employer contributions will occur pursuant to the provisions of clause (A) on the date of such Termination of Employment.

(2)Consecutive Breaks in Service. If the Sponsoring Employer elects in the Adoption Agreement that a Forfeiture of the non-Vested portion of the Participant’s Account attributable to Employer contributions will occur when a Participant incurs a specified number of consecutive Breaks in Service (up to a maximum of five (5) consecutive Breaks in Service) after Termination of Employment, then a Forfeiture will not occur prior to such date, even if the Participant receives a distribution of the entire Vested Interest in the Participant’s Account balance attributable to Employer contributions prior to such date.

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(b)Usage and Allocation of Forfeitures. On each annual Valuation Date, the Administrator may elect to use all or any portion of the Forfeiture Account to pay administrative expenses incurred by the Plan. The portion of the Forfeiture Account that is not used to pay administrative expenses will be used first to restore previous Forfeitures of Participants’ Accounts pursuant to Section 5.7 and/or to restore Participants’ Accounts pursuant to Section 5.13. The portion of the Forfeiture Account that is not used to pay administrative expenses and is not used to satisfy the provisions of the previous sentence will then be allocated/used as elected in the Adoption Agreement pursuant to either (1) or (2) as follows:

(1)Profit Sharing and Money Purchase Plans. For a profit sharing plan or money purchase plan, the Forfeiture Account, as elected in the Adoption Agreement, will either (A) be allocated to Participants in the manner elected; (B) be used to reduce the Employer’s contribution; or (C) be added to the Employer’s contribution, to be allocated therewith in the manner elected in the Adoption Agreement.

(2)401(k) Plans. For a 401(k) Plan, the Forfeiture Account will, as elected in the Adoption Agreement, either (A) be allocated to Participants in the manner elected; (B) be used to reduce any Employer contribution (or combination of Employer contributions), as determined by the Administrator; or (C) be added to any Employer contribution (or combination of Employer contributions), as determined by the Administrator, to be allocated therewith in the manner elected in the Adoption Agreement.

3.14Top Heavy Minimum Allocation. In any Plan Year in which the Plan is Top Heavy and a Key Employee receives an allocation of Employer contributions or Forfeitures, each Participant who is described in paragraph (a) below will receive a Top Heavy Minimum Allocation determined in accordance with the following:

(a)Participants Who Must Receive the Top Heavy Minimum Allocation. The Top Heavy Minimum Allocation will be made for each Participant who is a Non-Key Employee (and to any other Participant (including any Key Employee), if elected in the Adoption Agreement) who is employed by an Employer on the last day of the Plan Year, even if such Participant (1) fails to complete any minimum Hours of Service or Period of Service that is required to receive an allocation of Employer contributions or Forfeitures for the Plan Year; (2) fails to make Elective Deferrals if this Plan is a 401(k) Plan; (3) fails to make a Mandatory Employee Contribution to the Plan; or (4) receives Compensation that is less than a stated amount. The Top Heavy Minimum Allocation is not required to be allocated to any Rollover Participant.

(b)Participation in Multiple Defined Contribution Plans. If (1) this Plan is not part of a Required Aggregation Group or a Permissive Aggregation Group with a defined benefit plan, (2) this Plan is part of a Required Aggregation Group or a Permissive Aggregation Group with one or more defined contribution plans, (3) a Participant who is described in paragraph (a) participates in this Plan and in one or more defined contribution plans that are part of the Required Aggregation Group or the Permissive Aggregation Group, and (4) the allocation of Employer contributions and Forfeitures of each plan that is part of the Required Aggregation Group or the Permissive Aggregation Group (when each plan is considered separately) is insufficient to satisfy the Top Heavy Minimum Allocation requirement with respect to such Participant, the Top Heavy Minimum Allocation requirement will nevertheless be satisfied if the aggregate allocation of Employer contributions and Forfeitures that are made on behalf of such Participant under this Plan and all other defined contribution plans that are part of the Required Aggregation Group or the Permissive Aggregation Group (and any other defined contribution plan that is sponsored by the Employer) is sufficient to satisfy the Top Heavy Minimum Allocation requirement. However, if the aggregate allocation of Employer contributions and Forfeitures that are made on behalf of a Participant under this Plan and all other defined contribution plans that are part of the Required Aggregation Group or the Permissive Aggregation Group (and any other defined contribution plan that is sponsored by the Employer) is not sufficient to satisfy the Top Heavy Minimum Allocation requirement, then the Employer will make an additional contribution on behalf of such Participant to this Plan and/or to one or more defined contribution plans that are part of the Required Aggregation Group or the Permissive Aggregation Group (or any other defined contribution plan that is sponsored by the Employer) in order that the aggregate allocation of Employer contributions and Forfeitures that are made on behalf of such Participant under this Plan and all defined contribution plans that are part of the Required Aggregation Group or the Permissive Aggregation Group (and any other defined contribution plan that is sponsored by the Employer) satisfies the Top Heavy Minimum Allocation requirement.

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(c)DB Plan Part of Required Aggregation Group or Permissive Aggregation Group. If this Plan is part of a Required Aggregation Group or a Permissive Aggregation Group with a defined benefit plan, then the Sponsoring Employer may, in the Sponsoring Employer’s discretion and in a uniform non-discriminatory manner which is intended to satisfy the requirements of Code §416(f) regarding the preclusion of required duplication and inappropriate omission of Top Heavy minimum benefits or Top Heavy Minimum Allocations, determine to satisfy the requirements of Code §416 with respect to each Participant described in paragraph (a) who participates in this Plan and in the defined benefit plan which is part of the Required Aggregation Group or the Permissive Aggregation Group, by any of the following methods:

(1)Defined Benefit Minimum Benefit. A defined benefit minimum, which is an accrued benefit at any point in time equal to at least the product of (A) an Employee’s average annual Code §415(c)(3) Compensation for the period of consecutive years (not exceeding five) when the Employee had the highest aggregate Code §415(c)(3) Compensation from the Employer and (B) the lesser of 2% per Year of Service or 1-Year Period of Service, as applicable, with the Employer or 20%, subject to the rules of Code §416 and the Regulations thereunder.

(2)Floor Offset Arrangement. A floor offset approach, pursuant to Revenue Ruling 76-259, under which the defined benefit minimum of the defined benefit plan that is provided pursuant to paragraph (c)(1) is offset by the benefits provided under the defined contribution plan.

(3)Using Comparability. A demonstration, using a comparability analysis pursuant to Revenue Ruling 81-202, that the plans are providing benefits at least equal to the defined benefit minimum that is provided pursuant to paragraph (c)(1).

(4)5% Defined Contribution Allocation. An allocation of Employer contributions and Forfeitures that are made on behalf of such Participant under this Plan (or any defined contribution plan that is sponsored by the Employer) equal 5% of an Employee’s Code §415(c)(3) Compensation for each Plan Year that the Required Aggregation Group or the Permissive Aggregation Group is Top Heavy.

(d)Frozen DB Plan after December 31, 2001. In determining Top Heavy minimum benefits or Top Heavy Minimum Allocations in any Plan Year which begins after December 31, 2001, a defined benefit plan in which no Key Employee and no former Key Employee benefits (within the meaning of Code §410(b)) in the defined benefit plan during a Plan Year will be disregarded in determining whether the defined benefit plan is part of a Required Aggregation Group or a Permissive Aggregation Group with this Plan.

(e)Contributions That Can Be Used to Satisfy Top Heavy Minimum. All Employer contributions to the Plan (other than (1) Elective Deferrals that are made on behalf of a Participant to a 401(k) Plan and (2) for Plan Years beginning before 2002, Matching Contributions) will be taken into account in determining if the Employer has satisfied the Top Heavy minimum benefit and/or Top Heavy Minimum Allocation requirements of this Section. Furthermore, the following Employer contributions that are made on behalf of a Participant to a 401(k) Plan may be taken into account in determining whether the Top Heavy minimum benefit and/or Top Heavy Minimum Allocation requirements have been satisfied: Non-Safe Harbor Non-Elective Contributions; Qualified Non-Elective Contributions; ADP Safe Harbor Non-Elective Contributions; for Plan Years beginning after 2001, Matching Contributions (including Qualified Matching Contributions); and any other Employer contributions as may be permitted by law.

(f)Safe Harbor Plan and SIMPLE 401(k) Plan Exceptions. The Top Heavy Minimum Allocation requirements will not apply to the Plan for any Plan Year in which the Plan is a 401(k) Plan that consists solely of Elective Deferrals, ADP Safe Harbor Contributions which meet the requirements of Code §401(k)(12), and, if applicable, ACP Safe Harbor Matching Contributions (including ADP Safe Harbor Matching Contributions) which meet the requirements of Code §401(m)(11), so long as each Participant (1) who is a Non-Key Employee and (2) who is eligible to make Elective Deferrals is also a Safe Harbor Participant for such Plan Year. Also, a SIMPLE 401(k) Plan is not subject to the Top Heavy Minimum Allocation requirements.

3.15Failsafe Allocation. If elected in the Adoption Agreement and the Plan (or a component of the Plan) for any Plan Year fails to satisfy the nondiscriminatory classification test of Code §410(b)(2)(A)(i) and Regulation §1.410(b)-4 and/or the average benefit percentage test of Code §410(b)(2)(A)(ii) and Regulation §1.410(b)-5, then certain allocations will be made under this Section only to the extent necessary to insure that the Plan (or such component of the Plan) for such Plan Year satisfies one of the tests set forth in either Code §410(b)(1)(A) (in which the Plan initially fails to benefit at least 70% of the non-excludable

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NHCEs), or Code §410(b)(1)(B) (in which the Plan initially fails to benefit a percentage of the non-excludable NHCEs that is at least 70% of the percentage of the non-excludable HCEs), pursuant to the following rules:

(a)Order of Accrual Groups. To satisfy one of the above tests for such Plan Year, an allocation may be made to certain Employees in the following groups (hereafter know as “Accrual Groups”) in the following order:

(1)First Accrual Group.First, an allocation may be made to that group of Employees who were Participants for the Plan Year but who did not receive an allocation for the Plan Year.

(2)Second Accrual Group.Next, an allocation may be made to that group of Employees who have not yet satisfied the eligibility requirements of Section 2.1 and who are Eligible Employees.

(3)Third Accrual Group.Next, an allocation may be made to that group of Employees who have satisfied the eligibility requirements of Section 2.1 and who are not Eligible Employees.

(4)Fourth Accrual Group.Finally, an allocation may be made to that group of Employees who have not yet satisfied the eligibility requirements of Section 2.1 and who are not Eligible Employees.

(b)Priority within an Accrual Group.To determine each Employee’s priority within an Accrual Group, Employees will be ranked as elected in the Adoption Agreement.

(c)Employees Who Share and the Amount of Allocation.Only those Employees who are required to benefit under the Plan (or the component of the Plan) for the Plan Year in order to satisfy one of the above tests will be entitled to an allocation, even if the number of Employees who are required to benefit is less than the total number of Employees within a specific Accrual Group. Such allocation will be made on the same basis as, and using the same allocation formula and method as, the allocation that is made to each Participant who is an otherwise Benefiting Participant for such Plan Year with respect to the Plan (or such component of the Plan). The right of an Employee who is eligible to receive an allocation under this Section for a Plan Year will be fixed as of the last day of such Plan Year.

3.16SIMPLE 401(k) Provisions. If the Sponsoring Employer elects in the Adoption Agreement to have the SIMPLE 401(k) provisions apply, the following provisions will apply each Year the election is in effect:

(a)Certain Conditions Which Must Be Satisfied.The following conditions must be satisfied each Year (as defined in paragraph (b) below) in order for the terms of this Section to apply: (1) the Employer adopting this amendment must be an Eligible Employer (as defined in paragraph (b) below); (2) no contributions are made, or benefits accrued for services during the Year, on behalf of any Eligible Employee (as defined in paragraph (b) below) under any other plan, contract, pension, or trust described in Code §219(g)(5)(A) or (B), maintained by the Employer; and (3) if the Sponsoring Employer has elected the SIMPLE 401(k) provisions in the Adoption Agreement, then to the extent that any other provision of the Plan is inconsistent with the provisions of this Section, the provisions of this Section will govern.

(b)Definitions.The following terms have the following meanings for purposes of this Section:

(1)Year. The term “Year” means the calendar year.

(2)Eligible Employee. The term “Eligible Employee” means any Employee who is entitled to make Elective Deferrals under the terms of this Section of the Plan.

(3)Eligible Employer. The term “Eligible Employer” means, with respect to any Year, an Employer that had no more than 100 Employees who received at least $5,000 of Compensation from the Employer for the preceding Year. In applying the preceding sentence, all Employees of controlled groups of corporations under Code §414(b), all Employees of trades or businesses (whether incorporated or not) under common control under Code §414(c), all Employees of affiliated service groups under Code §414(m), and Leased Employees required to be treated as the Employer’s Employees under Code §414(n), are taken into account. An Eligible Employer that adopts this amendment and fails to be an Eligible Employer for any subsequent Year is treated as an Eligible Employer for the 2 Years

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following the last Year the Employer was an Eligible Employer. If the failure is due to any acquisition, disposition, or similar transaction involving an Eligible Employer, the preceding sentence applies only if the provisions of Code §410(b)(6)(C)(i) are satisfied.

(4)Compensation. The term “Compensation” means the sum of the wages, tips and other compensation from the Employer subject to federal income tax withholding (as described in Code §6051(a)(3)) and the Employee’s Elective Deferrals made under this or any other 401(k) Plan, and, if applicable, elective deferrals under a Code §408(p) SIMPLE plan, a SARSEP, or a Code §403(b) annuity contract and compensation deferred under a Code §457 plan, required to be reported by the Employer on Form W-2 as described in Code §6051(a)(8). For Self-Employed Individuals, the term “Compensation” means net earnings from self-employment determined under Code §1402(a) prior to subtracting any contributions made under this Plan on behalf of the individual. The Code §401(a)(17) Compensation Limit applies to the Compensation under this Section except with respect to Matching Contributions, if any, made in accordance with paragraph (f) below.

(c)Salary Reduction Election.Each Eligible Employee may make a salary reduction election to have his or her Compensation reduced for the Year in any amount selected by the Eligible Employee. The Employer will make a salary reduction contribution to the Plan, as an Elective Deferral, in the amount by which the Eligible Employee’s Compensation has been reduced. The limitation on salary reduction contributions is $7,000 for 2002 and increasing by $1,000 for each Year thereafter up to $10,000 for 2005 and later Years. After 2005, the $10,000 limit will be adjusted (but only in $500 increments) by the Secretary of the Treasury for cost-of-living increases under Code §408(p)(2)(E). Beginning in 2002, the amount of an Eligible Employee’s salary reduction contributions permitted for a Year is increased for Eligible Employees aged 50 or over by the end of the Year by the amount of allowable Catch-Up Contributions. The Catch-Up Contribution Limit in a SIMPLE 401(k) Plan is $500 for 2002, increasing by $500 for each Year thereafter up to $2,500 for 2006. After 2006, the Catch-Up Contribution Limit of $2,500 will be adjusted by the Secretary of the Treasury for cost-of-living increases under Code §414(v)(2)(C). Any such adjustments will be in multiples of $500. Catch-Up Contributions are otherwise treated the same as other salary reduction contributions.

(d)Election Period.In addition to any other election periods provided under the Plan, each Eligible Employee may make or modify a salary reduction election during the 60-day period immediately preceding each January 1st. For the Year that an Eligible Employee becomes eligible to make Elective Deferrals under this Section, the 60-day election period requirement of this Section is deemed satisfied if the Eligible Employee may make or modify a salary reduction election during a 60-day period that includes either the date the Eligible Employee becomes eligible or the day before. An Eligible Employee may terminate a salary reduction election any time during the Year.

(e)Notice Requirements.The Employer will notify each Eligible Employee prior to the 60-day election period described in paragraph (d) that he or she can make a salary reduction election or modify a prior election in that period. The notification will indicate whether the Employer will provide a 3% Matching Contribution of paragraph (f) or a 2% Non-Elective Contribution of paragraph (g).

(f)Matching Contributions.If elected in the Adoption Agreement, the Employer will contribute a Matching Contribution each Year on behalf of each Eligible Employee who makes a salary reduction election under paragraph (c) above. The amount of the Matching Contribution will be equal to the Eligible Employee’s Elective Deferrals up to, as elected in the Adoption Agreement, either (1) a limit of 3% of the Eligible Employee’s Compensation for the full calendar Year; or (2) a reduced limit, provided the following requirements are met: (A) The limit is not reduced below 1%; (B) The limit is not reduced for more than 2 calendar Years during the 5-Year period ending with the calendar Year the reduction is effective; and (C) each Eligible Employee is notified of the reduced Matching Contribution limit within a reasonable period of time before such Eligible Employee’s 60-day election period for that calendar Year. For purposes of (B) above, the limit is not reduced for any Year that any SIMPLE Plan of the Employer is not in effect or for any calendar Year with respect to which the Employer makes Non-Elective Contributions to a SIMPLE Plan.

(g)Non-Elective Contributions.If elected in the Adoption Agreement by the Sponsoring Employer, the Employer will contribute a Non-Elective Contribution of 2% of Compensation for the full calendar Year for each Eligible Employee who received at least $5,000 of Compensation from the Employer for the Year, or such lesser amount of Compensation as elected in the Adoption Agreement.

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(h)Limitation on Other Contributions.No Employer or Employee contributions may be made to this Plan for the Year other than salary reduction contributions of paragraph (c) above, Matching Contributions of paragraph (f) above, Non-Elective Contributions of paragraph (g) above, and Rollover Contributions as described in Regulation §1.402(c)-2, Q & A-1(a).

(i)Code §415 Limitations.The provisions of this Plan implementing the limitations of Code §415 apply to Matching Contributions and Non-Elective Contributions.

(j)Vesting.All benefits attributable to contributions made under this Section are 100% Vested at all times and all previous contributions made under the Plan are 100% Vested as of the beginning of the Year that the SIMPLE 401(k) provisions of this Section apply to the Plan.

(k)Top Heavy Rules.The Plan is not treated as a Top Heavy Plan under Code §416 for any Year for which the provisions of this Section are effective and satisfied.

(l)Nondiscrimination Tests.The Plan is treated as meeting the requirements of Code §401(k)(3)(A)(ii) and §401(m)(2) for any Year for which the provisions of this Section are effective and satisfied.

3.17Deemed IRA Contributions. If the Sponsoring Employer elects in the Adoption Agreement, then each Participant may make Deemed IRA Contributions to the Plan and the following provisions will apply:

(a)Limitations on Deemed IRA Contributions. No Deemed IRA Contributions will be accepted unless such contributions are in cash. The total of such contributions will not exceed the following annual cash contribution limit: (1) $3,000 for any taxable year beginning in 2002 through 2004; (2) $4,000 for any taxable year beginning in 2005 through 2007; and (3) $5,000 for any taxable year beginning in 2008 and years thereafter. After 2008, the annual cash contribution limit of the prior sentence will be adjusted by the Secretary of the Treasury for cost-of-living increases under Code §219(b)(5)(C). Such adjustments will be in multiples of $500. In the case of Participants who are age 50 or over by the end of their taxable years, the annual cash contribution limit is increased by $500 for each taxable year beginning in 2002 through 2005 and $1,000 for each taxable year beginning in 2006 and years thereafter.

(b)Investments of Contributions. A Participant’s Deemed IRA Contribution Account will be invested in such assets as permitted by Code §408. If a Participant’s Deemed IRA Contribution Account acquires collectibles within the meaning of Code §408(m) after December 31, 1981, then such assets of the Deemed IRA Contribution Account will be treated as a distribution in an amount equal to the cost of such collectibles. No portion of a Participant’s Deemed IRA Contribution Account will be invested in life insurance contracts.

(c)100% Vesting and Separate Records. An Employee will have a 100% Vested Interest in his or her Deemed IRA Contribution Account at all times. Separate records will be maintained for each Participant.

(d)Application of Code §408(a)(6) to Participant’s Deemed IRA Contribution Account. Notwithstanding any provision of this Plan to the contrary, the distribution of a Participant’s interest in the Participant’s Deemed IRA Contribution Account will be made in accordance with the requirements of Code §408(a)(6) and the Regulations thereunder, the provisions of which are herein incorporated by reference. If distributions are made from an annuity contract purchased from an insurance company, then distributions thereunder must satisfy the requirements of Temporary Regulations §1.401(a)(9)-6T, Q&A-4, rather than paragraphs (d)(1)(A), (d)(1)(B) and (d)(1)(C) below and Section 5.9. The required minimum distributions calculated for this Deemed IRA Contribution Account may be withdrawn from another IRA of the individual in accordance with Regulation §1.408-8, Q&A-9. Distribution of a Participant’s interest in the Participant’s Deemed IRA Contribution Account will be made in accordance with the following:

(1)General Rules.All distributions from Participant’s Deemed IRA Contribution Account will be made in accordance with the following general rules:

(A)Required Beginning Date. The entire value of the account of the individual for whose benefit the account is maintained will commence to be distributed no later than April 1st following the calendar year in which such individual attains age 70½ (known as the “Required Beginning Date”) over the life of such individual or the lives of such individual and his or her designated beneficiary;

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(B)Distributable Amount. The amount to be distributed each year, beginning with the calendar year in which the individual attains age 70½ and continuing through the year of death, will not be less than the quotient obtained by dividing the value of the Deemed IRA Contribution Account as of the end of the preceding year by the distribution period in the Uniform Lifetime Table in Regulation §1.401(a)(9)-9, Q&A-2, using the individual’s age as of his or her birthday in the year. However, if the individual’s sole designated beneficiary is his or her surviving spouse and such spouse is more than 10 years younger than the individual, then the distribution period is determined under the Joint and Last Survivor Table in Regulation §1.401(a)(9)-9, Q&A-3, using the ages as of the individual’s and spouse’s birthdays in the year.

(C)Timing of Distributions. The required minimum distribution for the year that the individual attains age 70½ can be made as late as April 1st of the following year. The required minimum distribution for any other year must be made by the end of such year.

(2)Required Minimum Distributions After the Participant’s Death. Required minimum distributions will be made after a Participant’s death in accordance with the following provisions:

(A)Death On or After Required Beginning Date. If the individual dies on or after the Required Beginning Date, his or her remaining interest will be distributed at least as rapidly as follows:

(i)Surviving Spouse Is Not Sole Designated Beneficiary. If the designated beneficiary is someone other than the individual’s surviving spouse, the remaining interest will be distributed over the remaining life expectancy of the designated beneficiary, with such life expectancy determined using the beneficiary’s age as of his or her birthday in the year following the year of the individual’s death, or over the period described in paragraph (d)(2)(A)(iii) below if longer.

 (ii)Surviving Spouse Is Sole Designated Beneficiary. If the individual’s sole designated beneficiary is the individual’s surviving spouse, the remaining interest will be distributed over such spouse’s life or over the period described in paragraph (d)(2)(A)(iii) below if longer. Any interest remaining after such spouse’s death will be distributed over such spouse’s remaining life expectancy determined using the spouse’s age as of his or her birthday in the year of the spouse’s death, or, if the distributions are being made over the period described in  paragraph (d)(2)(A)(iii) below, over such period.

(iii)No Designated Beneficiary. If there is no designated beneficiary, or if applicable by operation of paragraph (d)(2)(A)(i) or (d)(2)(A)(ii) above, the remaining interest will be distributed over the individual’s remaining life expectancy determined in the year of the individual’s death.

(iv)Amount of Distribution. The amount to be distributed each year under paragraph (d)(2)(A)(i), (d)(2)(A)(ii), or (d)(2)(A)(iii), beginning with the calendar year following the calendar year of the individual’s death, is the quotient obtained by dividing the value of the Deemed IRA Contribution Account as of the end of the preceding year by the remaining life expectancy specified in such paragraph. Life expectancy is determined using the Single Lifetime Table in Regulation §1.401(a)(9)-9, Q&A-1. If distributions are being made to a surviving spouse as the sole designated beneficiary, such spouse’s remaining life expectancy for a year is the number in the Single Life Table corresponding to such spouse’s age in the year. In all other cases, remaining life expectancy for a year is the number in the Single Life Table corresponding to the beneficiary’s or individual’s age in the year specified in paragraph (d)(2)(A)(i), (d)(2)(A)(ii), or (d)(2)(A)(iii) and reduced by 1 for each subsequent year.

(B)Death Before Required Beginning Date.If the individual dies before the required beginning date, his or her entire interest will be distributed at least as rapidly as follows:

(i)Surviving Spouse Is Not Sole Designated Beneficiary. If the designated beneficiary is someone other than the individual’s surviving spouse, the entire interest will be distributed, starting by the end of the calendar year following the calendar year of the individual’s death, over the remaining life expectancy of the designated beneficiary, with such life expectancy determined using the age of the beneficiary as of his or her birthday in the year following the year of  the individual’s death, or, if elected, in accordance with paragraph (d)(2)(B)(iii) below.

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 (ii)Surviving Spouse Is Sole Designated Beneficiary. If the individual’s sole designated beneficiary is the individual’s surviving spouse, the entire interest will be distributed, starting by the end of the calendar year following the calendar year of the individual’s death (or by the end of the calendar year in which the individual would have attained age 70 1/2, if later), over such spouse’s life, or, if elected, in accordance with paragraph (d)(2)(B)(iii) below. If the surviving spouse dies before distributions are required to begin, the remaining interest will be distributed, starting by the end of the calendar year following the calendar year of the spouse’s death, over the spouse’s designated beneficiary’s remaining life expectancy in determined using such beneficiary’s age as of his or her birthday in the year following the death of the spouse, or, if elected, will be distributed in accordance with paragraph (d)(2)(B)(iii) below. If the surviving spouse dies after distributions are required to begin, any remaining interest will be distributed over the spouse’s remaining life expectancy determined using the spouse’s age as of his or her birthday in the year of the spouse’s death.

(iii)No Designated Beneficiary. If there is no designated beneficiary, or if applicable by operation of paragraph (d)(2)(B)(i) or (d)(2)(B)(ii) above, the entire interest will be distributed by the end of the calendar year containing the fifth anniversary of the individual’s death (or of the spouse’s death in the case of the surviving spouse’s death before distributions are required to begin under paragraph (d)(2)(B)(ii) above).

(iv)Amount of Distribution. The amount to be distributed each year under paragraph (d)(2)(B)(i) or (d)(2)(B)(ii) above is the quotient obtained by dividing the value of the Deemed IRA Contribution Account as of the end of the preceding year by the remaining life expectancy specified in such paragraph. Life expectancy is determined using the Single Lifetime Table in Regulation §1.401(a)(9)-9, Q&A-1. If distributions are being made to a surviving spouse as the sole designated beneficiary, such spouse’s remaining life expectancy for a year is the number in the Single Life Table corresponding to such spouse’s age in the year. In all other cases, remaining life expectancy for a year is the number in the Single Life Table corresponding to the beneficiary’s age in the year specified in paragraph (d)(2)(B)(i) or (d)(2)(B)(ii) and reduced by 1 for each subsequent year.

(3)Value of the Deemed IRA Contribution Account. The “value” of the Deemed IRA Contribution Account includes the amount of any outstanding rollover, transfer and recharacterization under Regulation §1.408-8, Q&A-7 and Q&A-8.

(4)Spousal Treatment of Deemed IRA Contribution Account. If the sole designated beneficiary is the surviving spouse, the spouse may elect to treat the Deemed IRA Contribution Account as his or her own IRA. This election will be deemed to have been made if such surviving spouse makes a contribution to the Deemed IRA Contribution Account or fails to take required distributions as a beneficiary.

(e)No Commingling Permitted. The assets of the Deemed IRA Contribution Account will not be commingled with other property except in a common trust fund or common investment fund.

(f)Trustee to Furnish Information.The Trustee of a Deemed IRA Contribution Account will furnish annual calendar-year reports concerning the status of the account and such information concerning required minimum distributions as is prescribed by the IRS.

(g)Substitution of Trustee. A non-bank Trustee or custodian will substitute another Trustee or custodian if the non-bank Trustee or custodian receives notice from the IRS that such substitution is required because it has failed to comply with the requirements of Regulation §1.408-2(e).

(h)Definition of Compensation for Deduction Limits.For purposes of determining the deductible limits for Deemed IRA Contributions, the term “Compensation” means wages, salaries, professional fees, or other amounts derived from or received for personal services actually rendered (including, but not limited to commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, and bonuses) and includes earned income, as defined in Code §401(c)(2) (reduced by the deduction the self employed individual takes for contributions made to a self-employed retirement plan). For purposes of this definition, Code §401(c) will be applied as if the term trade or business for purposes of Code §1402 included services derived from or received as earnings or profits from property (including but not limited to interest and dividends) or amounts not includible in gross income.

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Compensation also does not include any amount received as a pension or annuity or as deferred compensation. The term “Compensation” will include any amount includible in the individual’s gross income under Code §71 with respect to a divorce or separation instrument described in Code §71(b)(2)(A).

3.18Actual Deferral Percentage Test and Correction. If a 401(k) Plan is subject to the Actual Deferral Percentage Test (ADP Test) for a Plan Year, then the following rules will apply:

(a)The ADP Test.The ADP for Participants who are Highly Compensated Employees for the Plan Year that is being tested and the ADP for Participants who are Non-Highly Compensated Employees for the Applicable Plan Year must satisfy one of the following tests:

(1)1.25 Test.The ADP for Participants who are Highly Compensated Employees for the Plan Year that is being tested will not exceed the ADP for Participants who are Non-Highly Compensated Employees for the Applicable Plan Year multiplied by 1.25; or

(2)Multiplied By 2 or 2% Test.The ADP for Participants who are Highly Compensated Employees for the Plan Year that is being tested will not exceed the ADP for Participants who are Non-Highly Compensated Employees for the Applicable Plan Year multiplied by 2.0, provided, that the ADP for Participants who are Highly Compensated Employees for the Plan Year that is being tested does not exceed the ADP for Participants who are Non-Highly Compensated Employees for the Applicable Plan Year by more than 2 percentage points.

(b)Testing Methods and Restriction.The Sponsoring Employer may elect either the Prior Year Testing Method or Current Year Testing Method in the Adoption Agreement. However, once the Sponsoring Employer has elected the Current Year Testing Method, the Sponsoring Employer can elect the Prior Year Testing Method for a Plan Year only if the Plan has used the Current Year Testing Method for each of the preceding five (5) Plan Years (or if lesser, the number of Plan Years that the Plan has been in existence) or if, as a result of a merger or acquisition described in Code §410(b)(6)(C)(i), the Employer maintains both a 401(k) plan using the Prior Year Testing Method and a 401(k) plan using Current Year Testing Method and the change is made within the transition period described in Code §410(b)(6)(C)(ii).

(c)Prior Year Testing Method for the First Plan Year.If the Sponsoring Employer has elected the Prior Year Testing Method for the first Plan Year that the Plan permits any Participant to make Elective Deferrals (and this is not a successor plan), then the ADP for Participants who are Non-Highly Compensated Employees for the prior Plan Year will be the greater of (1) three percent (3%), or (2) the ADP for Participants who are Non-Highly Compensated Employees for the first Plan Year.

(d)HCEs as Sole Participants in Plan Year Being Tested.If the Sponsoring Employer has elected the Prior Year Testing Method and if there are no Participants who were Non-Highly Compensated Employees in the prior Plan Year, then the Plan will be deemed to satisfy the ADP Test for the Plan Year that is being tested. Similarly, if the Sponsoring Employer has elected the Current Year Testing Method and if there are no Participants who are Non-Highly Compensated Employees in the current Plan Year, then the Plan will be deemed to satisfy the ADP Test for the Plan Year that is being tested. The provisions of this paragraph may be utilized with the permissive disaggregation rule of Section 3.18(e)(2).

(e)Special Rule for Early Participation.If this 401(k) Plan provides that Otherwise Excludable Participants are eligible to participate and if the Plan applies Code §410(b)(4)(B) in determining whether the 401(k) Plan meets the requirements of Code §410(b)(1), then in determining whether the 401(k) Plan satisfies the ADP Test, the Sponsoring Employer may, in the Sponsoring Employer’s discretion (but is not required to), either:

(1)Early Participation Rule.Pursuant to Code §401(k)(3)(F), perform the ADP Test for the Plan (determined without regard to disaggregation under Regulation §1.410(b)—7(c)(3)), by using the ADP for all Participants who are Highly Compensated Employees for the Plan Year  and the ADP for Participants who are Non-Highly Compensated Employees for the Applicable Plan Year, disregarding all Otherwise Excludable Participants who are Non-Highly Compensated Employees; or

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(2)Permissive Disaggregation Rule.Pursuant to Regulation §1.401(k)—1(b)(4), disaggregate the Plan into separate plans and perform the ADP Test separately for all Participants who are Otherwise Excludable Participants and for all Participants who are not Otherwise Excludable Participants.

(f)HCEs and NHCEs for a Particular Plan Year.A Participant is a Highly Compensated Employee for a particular Plan Year if that Participant meets the definition of a Highly Compensated Employee in effect for that Plan Year. Similarly, a Participant is a Non-Highly Compensated Employee for a particular Plan Year if the Participant does not meet the definition of a Highly Compensated Employee in effect for that Plan Year.

(g)ADP for an HCE in Multiple CODAs of the Sponsoring Employer. The ADP for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferrals (and Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, if treated as Elective Deferrals for purposes of the ADP Test) allocated to such Participant’s accounts under two or more cash or deferral arrangements (CODAs) described in Code §401(k), that are maintained by the Sponsoring Employer, will be determined as if such Elective Deferrals (and, if applicable, such Qualified Non-Elective Contributions or Qualified Matching Contributions, or both) were made under a single arrangement. If a Highly Compensated Employee participates in two or more CODAs of the Sponsoring Employer that have different plan years, all Elective Deferrals made during the Plan Year under all such arrangements will be aggregated. For Plan Years beginning prior to 2006 (or the year of such earlier effective date as may be provided in a separate amendment for implementing the final §401(k) Regulations and as permitted by such Regulations), all such CODAs ending with or within the same calendar year will be treated as a single arrangement. Notwithstanding the foregoing, certain plans will be treated as separate if mandatorily disaggregated under the §401(k) Regulations.

(h)Plan Aggregation and Coverage Change Rules.If this Plan satisfies the requirements of Code §401(k), §401(a)(4), or §410(b) only by being aggregated with one or more other plans of the Sponsoring Employer, or if one or more other plans satisfy the requirements of Code §401(k), §401(a)(4), or §410(b) only by being aggregated with this Plan, then this Section will be applied by determining the ADP of the Employees as if all such plans (including this Plan) were a single plan. If the Prior Year Testing Method is being used and if more than 10% of the Employer’s NHCEs are involved in a plan coverage change as defined in Regulation §1.401(k)-2(c)(4), then any adjustments to the Non-Highly Compensated Employees’ ADP for the prior Plan Year will be made in accordance with such Regulations. Plans may be aggregated in order to satisfy Code §401(k) only if they have the same Plan Year and use the same ADP testing method (the Prior Year Testing Method or the Current Year Testing Method).

(i)Contributions Must Be Made Within 12 Months.Elective Deferrals, Qualified Non-Elective Contributions, and Qualified Matching Contributions must be made, for purposes of determining the ADP Test, by the end of the 12-month period immediately following the Plan Year to which the contributions relate.

(j)Correction Methods for Failed ADP Test.If a 401(k) Plan is subject to the Actual Deferral Percentage Test (ADP Test) for a Plan Year and the Plan fails to satisfy the ADP Test for such Plan Year, then the Sponsoring Employer will use one or more of the following correction methods to satisfy the ADP Test for such Plan Year (and the Sponsoring Employer has the discretion to determine which one or more of the correct methods may be used to satisfy the ADP Test):

(1)Distribution of Excess Contributions Plus Income or Loss.Excess Contributions of Highly Compensated Employee(s), plus any income and minus any loss allocable to such Excess Contributions, may be distributed pursuant to Section 5.19.

(2)Recharacterization as Voluntary Employee Contributions.If the Sponsoring Employer elects in the Adoption Agreement to permit Voluntary Employee Contributions and if elected by a Participant, then, subject to the ACP Test and to the extent that the recharacterization does not create Excess Aggregation Contributions, Elective Deferrals allocated to a Highly Compensated Employee as Excess Contributions may be recharacterized as Voluntary Employee Contributions. Such Participant will treat Excess Contributions allocated to such Participant as an amount distributed to the Participant and then contributed by the Participant to the Plan as Voluntary Employee Contributions. Recharacterized amounts will remain nonforfeitable. Amounts may not be recharacterized by a HCE to the extent that such amount in combination with other Voluntary Employee Contributions made by that Employee would exceed any stated limit under the Plan on Voluntary Employee Contributions. Recharacterization must occur no later than 2½

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months after the last day of the Plan Year in which such Excess Contributions arose and is deemed to occur no earlier than the date that the last Highly Compensated Employee is informed in writing of the amount recharacterized and the consequences thereof.

(3)Recharacterization as Catch-Up Contributions.If the Sponsoring Employer elects in the Adoption Agreement to permit Catch-Up Contributions, then (i) to the extent that a catch-up eligible Participant who is a Highly Compensated Employee is to receive a distribution of Excess Contributions, and (ii) to the extent that such catch-up eligible Participant has not exceeded the Participant’s Catch-Up Contribution Limit, the Excess Contributions of such Participant may be recharacterized as Catch-Up Contributions (to the extent that the recharacterized Catch-Up Contributions do not cause the Catch-Up Contribution Limit to be exceeded for the taxable year of the Participant).

(4)QMACs and QNECs. The Sponsoring Employer may make Qualified Matching Contributions pursuant to Section 3.7 and/or Qualified Non-Elective Contributions pursuant to Section 3.8 to satisfy the ADP Test., subject to the following limitations:

(A)Limitation on Disproportionate QNECs.Qualified Non-Elective Contributions cannot be taken into account in the ADP Test of a Plan Year for a NHCE to the extent the QNECs exceed the product of (i) that NHCE’s Code §414(s) Compensation, multiplied by (ii) the greater of [a] 5% (or 10% of a NHCE’s Code §414(s) Compensation with respect to an Employer’s obligation to make Prevailing Wage Contributions to the Plan), or [b] two times the Plan’s Representative Contribution Rate. Any QNEC used in an ACP Test under Regulation §1.401(m)—2(a)(6) (including the determination of the Representative Contribution Rate for purposes of Regulation §1.401(m)—2(a)(6)(v)(B)), cannot be used for purposes of the ADP Test (including the determination of the Representative Contribution Rate for purposes of the ADP Test).

(B)Limitation on QMACs. Qualified Matching Contributions are permitted to be used in the ADP Test only to the extent that such Qualified Matching Contributions are Matching Contributions that are not precluded from being taken into account under the ACP Test for the Plan Year under the rules of Regulation §1.401(m)—2(a)(5)(ii).

(C)Prohibition Against Double-Counting. Qualified Non-Elective Contributions and Qualified Matching Contributions cannot be taken into account in the ADP Test to the extent such contributions are taken into account for purposes of satisfying any other ADP Test, any ACP Test, or the requirements of Regulation §1.401(k)—3, §1.401(m)—3 or §1.401(k)—4. Matching Contributions that are made pursuant to Regulation §1.401(k)—3(c) cannot be taken into account under the ADP Test. Furthermore, if this Plan switches from the Current Year Testing Method to the Prior Year Testing Method pursuant to Regulation §1.401(k)—2(c), then Qualified Non-Elective Contributions that are taken into account under the Current Year Testing Method for a Plan Year may not be taken into account under the Prior Year Testing Method for the next Plan Year.

3.19Actual Contribution Percentage Test and Correction. If a 401(m) Plan is subject to the Actual Contribution Percentage Test (ACP Test) for a Plan Year, then the following rules will apply:

(a)The ACP Test.The ACP for Participants who are Highly Compensated Employees for the Plan Year that is being tested and the ACP for Participants who are Non-Highly Compensated Employees for the Applicable Plan Year must satisfy one of the following tests:

(1)1.25 Test.The ACP for Participants who are Highly Compensated Employees for the Plan Year that is being tested will not exceed the ACP for Participants who are Non-Highly Compensated Employees for the Applicable Plan Year multiplied by 1.25; or

(2)Multiplied By 2 or 2% Test.The ACP for Participants who are Highly Compensated Employees for the Plan Year that is being tested will not exceed the ACP for Participants who are Non-Highly Compensated Employees for the Applicable Plan Year multiplied by 2.0, provided, that the ACP for Participants who are Highly Compensated Employees for the Plan Year that is being tested does not exceed the ACP for Participants who are Non-Highly Compensated Employees for the Applicable Plan Year by more than 2 percentage points.

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(b)Testing Methods and Restriction.The Sponsoring Employer may elect either the Prior Year Testing Method or Current Year Testing Method in the Adoption Agreement. However, once the Sponsoring Employer has elected the Current Year Testing Method, the Sponsoring Employer can elect the Prior Year Testing Method for a Plan Year only if the Plan has used the Current Year Testing Method for each of the preceding five (5) Plan Years (or if lesser, the number of Plan Years that the Plan has been in existence) or if, as a result of a merger or acquisition described in Code §410(b)(6)(C)(i), the Employer maintains both a 401(m) plan using the Prior Year Testing Method and a 401(m) plan using Current Year Testing Method and the change is made within the transition period described in Code §410(b)(6)(C)(ii).

(c)Prior Year Testing Method for the First Plan Year.If the Sponsoring Employer has elected the Prior Year Testing Method for the first Plan Year that the Plan permits any Participant to make Employee Contributions, provides for Non-Safe Harbor Matching Contributions, or both (and this is not a successor plan), then the ACP for Participants who are Non-Highly Compensated Employees for the prior Plan Year will be the greater of (1) three percent (3%), or (2) the ACP for Participants who are Non-Highly Compensated Employees for the first Plan Year.

(d)HCEs as Sole Participants in Plan Year Being Tested.If the Sponsoring Employer has elected the Prior Year Testing Method and if there are no Participants who were Non-Highly Compensated Employees in the prior Plan Year, then the Plan will be deemed to satisfy the ACP Test for the Plan Year that is being tested. Similarly, if the Sponsoring Employer has elected the Current Year Testing Method and if there are no Participants who are Non-Highly Compensated Employees in the current Plan Year, then the Plan will be deemed to satisfy the ACP Test for the Plan Year that is being tested. The provisions of this paragraph may be utilized with the permissive disaggregation rule of Section 3.19(e)(2).

(e)Special Rule for Early Participation.If this 401(m) Plan provides that Otherwise Excludable Participants are eligible to participate and if the Plan applies Code §410(b)(4)(B) in determining whether the 401(m) Plan meets the requirements of Code §410(b)(1), then in determining whether the 401(m) Plan satisfies the ACP Test, the Sponsoring Employer may, in the Sponsoring Employer’s discretion (but is not required to), either:

(1)Early Participation Rule.Pursuant to Code §401(m)(5)(C), perform the ACP Test for the Plan (determined without regard to disaggregation under Regulation §1.410(b)—7(c)(3)), by using the ACP for all Participants who are Highly Compensated Employees for the Plan Year  and the ACP for Participants who are Non-Highly Compensated Employees for the Applicable Plan Year, disregarding all Otherwise Excludable Participants who are Non-Highly Compensated Employees; or

(2)Permissive Disaggregation Rule.Pursuant to Regulation §1.401(m)—1(b)(4), disaggregate the Plan into separate plans and perform the ACP Test separately for all Participants who are Otherwise Excludable Participants and for all Participants who are not Otherwise Excludable Participants.

(f)HCEs and NHCEs for a Particular Plan Year.A Participant is a Highly Compensated Employee for a particular Plan Year if that Participant meets the definition of a Highly Compensated Employee in effect for that Plan Year. Similarly, a Participant is a Non-Highly Compensated Employee for a particular Plan Year if the Participant does not meet the definition of a Highly Compensated Employee in effect for that Plan Year.

(g)Plan Aggregation and Coverage Change Rules.If this Plan satisfies the requirements of Code §401(m), §401(a)(4), or §410(b) only by being aggregated with one or more other plans of the Sponsoring Employer, or if one or more other plans satisfy the requirements of Code §401(m), §401(a)(4), or §410(b) only by being aggregated with this Plan, then this Section will be applied by determining the ACP of the Employees as if all such plans (including this Plan) were a single plan. If the Plan uses the Prior Year Testing Method and if more than 10% of the Employer’s NHCEs are involved in a plan coverage change as defined in Regulation §1.401(m)-2(c)(4), then any adjustments to the NHCEs’ ACP for the prior Plan Year will be made in accordance with such Regulations. Plans may be aggregated in order to satisfy Code §401(m) only if they have the same Plan Year and use the same ACP testing method (the Prior Year Testing Method or the Current Year Testing Method).

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(h)Disproportionate Matching Contributions With Respect to Elective Deferrals Excluded From ACP Test. A Matching Contribution with respect to an Elective Deferral for a Participant who is a Non-Highly Compensated Employee is not taken into account under the ACP Test for a Plan Year to the extent that the Matching Contribution exceeds the greatest of (1) 5% of such Participant’s Code §414(s) Compensation; (2) 100% of the Participant’s Elective Deferrals for the Plan Year; and (3) the product of 2 times the Plan’s Representative Matching Rate and the Participant’s Elective Deferrals for the Plan Year.

(i)Disproportionate Matching Contributions With Respect to Employee Contributions Excluded From ACP Test. If the Plan provides a Match Contribution with respect to the sum of a Participant’s Employee Contributions and Elective Deferrals, then the sum of the Participant’s Employee Contributions and Elective Deferrals is substituted for the amount of the Participant’s Elective Deferrals in paragraph (h). Similarly, if the Plan provides a Match Contribution with respect to a Participant’s Employee Contributions (but not Elective Deferrals), then the Participant’s Employee Contributions are substituted for the amount of the Participant’s Elective Deferrals in paragraph (h).

(j)Matching Contributions Taken Into Account Under Safe Harbor Provisions. If this Plan satisfies the ACP safe harbor requirements of Code §401(m)(11) for a Plan Year but nonetheless must satisfy the ACP Test because the Plan provides for Employee Contributions for such Plan Year, then the Sponsoring Employer is permitted (but is not required) to apply the ACP Test by disregarding all Matching Contributions with respect to all Participants. In addition, if this Plan satisfies the ADP safe harbor requirements of Regulation §1.401(k)—3 for a Plan Year using ADP Safe Harbor Matching Contributions but does not satisfy the ACP safe harbor requirements of Code §401(m)(11) for such Plan Year, then the Sponsoring Employer is permitted (but is not required) to apply the ACP Test by excluding Matching Contributions with respect to all Participants that do not exceed 4% of each Participant’s Code §414(s) Compensation. If the Plan disregards any Matching Contributions pursuant to this paragraph, then this disregard must be applied to all Participants.

(k)Multiple Use Test.Effective for Plan Years beginning after December 31, 2001, the multiple use test is repealed and does not apply to this Plan, pursuant to EGTRRA §666.

(l)Correction Methods for Failed ACP Test.If a 401(m) Plan is subject to the Actual Contribution Percentage Test (ACP Test) for a Plan Year and the Plan fails to satisfy the ACP Test for such Plan Year, then the Sponsoring Employer will use one or more of the following correction methods to satisfy the ACP Test for such Plan Year (and the Sponsoring Employer has the discretion to determine which one or more of the correct methods may be used to satisfy the ACP Test):

(1)Distribution of Excess Aggregate Contributions Plus Income or Loss.Excess Aggregate Contributions of Highly Compensated Employee(s), plus any income and minus any loss allocable to such Excess Aggregate Contributions, may be forfeited (if forfeitable) and may be distributed (if non-forfeitable), pursuant to Section 5.20.

(2)QNECs and QMACs.The Sponsoring Employer may make Qualified Matching Contributions pursuant to Section 3.7 and/or Qualified Non-Elective Contributions pursuant to Section 3.8 to satisfy the ACP Test, subject to the following limitations: (A) Qualified Non-Elective Contributions are permitted to be used in the ACP Test only to the extent that such Qualified Non-Elective Contributions satisfy the limitations of Section 1.44(e); and (B) Qualified Matching Contributions are permitted to be used in the ACP Test only to the extent that such Qualified Matching Contributions satisfy the limitations of Sections 1.44(c), 1.44(f), 1.44(g), and either 3.19(h) or 3.19(i).

3.20ADP Safe Harbor Contributions. A 401(k) Plan that satisfies the ADP Safe Harbor Contribution requirements of Code §401(k)(12) for a Plan Year is a Safe Harbor 401(k) Plan if it satisfies the following requirements:

(a)ADP Safe Harbor Contribution. The Sponsoring Employer makes an ADP Safe Harbor Contribution on behalf of each Safe Harbor Participant, equal to either an ADP Safe Harbor Non-Elective Contribution or an ADP Safe Harbor Matching Contribution, that satisfies the following requirements:

(1)ADP Safe Harbor Non-Elective Contribution.An ADP Safe Harbor Non-Elective Contribution equal to at least three percent (3%) of the Safe Harbor Participant’s Compensation for the Plan Year; or

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(2)ADP Safe Harbor Matching Contribution.An ADP Safe Harbor Matching Contribution in an amount determined under either a basic matching formula or an enhanced matching formula, that satisfies the following requirements:

(A)Basic Matching Formula.An ADP Safe Harbor Matching Contribution in an amount equal to the sum of (i) 100% of the amount of the Safe Harbor Participant’s Elective Deferrals that do not exceed 3% of the Safe Harbor Participant’s Compensation; plus (ii) 50% of the amount of the Safe Harbor Participant’s Elective Deferrals that exceed 3% of the Safe Harbor Participant’s Compensation but that do not exceed 5% of the Safe Harbor Participant’s Compensation.

(B)Enhanced Matching Formula.An ADP Safe Harbor Matching Contribution formula that, at any rate of Safe Harbor Participant’s Elective Deferrals, provides an aggregate amount of ADP Safe Harbor Matching Contributions that is at least equal to the aggregate amount of ADP Safe Harbor Matching Contributions that would have been provided under the basic matching formula of paragraph (a)(2)(A). Furthermore, the ratio of a Safe Harbor Participant’s ADP Safe Harbor Matching Contributions under the enhanced matching formula for a Plan Year to the Safe Harbor Participant’s Elective Deferrals may not increase as the amount of a Safe Harbor Participant’s Elective Deferrals increases.

(C)Limitation on HCE Matching Contributions.The ratio of ADP Safe Harbor Matching Contributions to Elective Deferrals of a Safe Harbor Participant who is a Highly Compensated Employee must not exceed the ratio of ADP Safe Harbor Matching Contributions to Elective Deferrals of any Safe Harbor Participant who is a Non-Highly Compensated Employee with Elective Deferrals at the same percentage of Compensation as any Highly Compensated Employee.

(D)ADP Safe Harbor Matching Contributions on Employee Contributions.ADP Safe Harbor Matching Contributions may be made on both Elective Deferrals and Employee Contributions if the ADP Safe Harbor Matching Contributions are made with respect to the sum of Elective Deferrals and Employee Contributions on the same terms as ADP Safe Harbor Matching Contributions that are made with respect to Elective Deferrals alone. Alternatively, ADP Safe Harbor Matching Contributions may be made on both Elective Deferrals and Employee Contributions if the ADP Safe Harbor Matching Contributions on Elective Deferrals are not affected by the amount of Employee Contributions.

(E)Periodic Matching Contributions. If the Employer elects to contribute and allocate separately ADP Safe Harbor Matching Contributions for an Allocation Period of less than the Plan Year (e.g., each payroll period or with respect to all payroll periods ending with or within each month or quarter of a Plan Year), then such ADP Safe Harbor Matching Contributions with respect to any Elective Deferrals made during a Plan Year quarter will be contributed to the Plan by the last day of the immediately following Plan Year quarter.

(F)Catch-Up Contributions.With respect to ADP Safe Harbor Matching Contributions, Catch-Up Contributions will be treated as any other Elective Deferrals and will be matched according to the ADP Safe Harbor Matching Contribution formula as if the Catch-Up Contributions were any other Elective Deferrals.

(G)Permissible Restrictions on Elective Deferrals by NHCEs.Elective Deferrals by Safe Harbor Participants who are NHCEs cannot be restricted, except pursuant to the following rules:

(i)Restrictions on Election Periods.The Plan may limit the frequency and duration of periods in which Safe Harbor Participants may make or change cash or deferred elections under the Plan. However, a Safe Harbor Participant must have a reasonable opportunity (including a reasonable period after receipt of the Safe Harbor Notice) to make or change a cash or deferred election for the Plan Year. A 30-day period is deemed to be a reasonable period to make or change a cash or deferred election.

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(ii)Restrictions on Amount of Elective Deferrals.The Plan may limit the amount of Elective Deferrals that may be made by a Safe Harbor Participant, provided that each Safe Harbor Participant who is a NHCE is permitted (unless restricted under paragraph (a)(2)(G)(iv)) to make Elective Deferrals in an amount that is at least sufficient to receive the maximum amount of ADP Safe Harbor Matching Contributions available under the Plan for the Plan Year, and the Safe Harbor Participant who is a NHCE is permitted to elect any lesser amount of Elective Deferrals. However, the Plan may limit cash or deferred elections to whole percentages of Compensation or whole dollar amounts.

(iii)Restrictions on Types of Compensation that May Be Deferred. The Plan may limit the types of Compensation that may be deferred by a Safe Harbor Participant, provided that each Safe Harbor Participant who is a Non-Highly Compensated Employee is permitted to make Elective Deferrals under a definition of Compensation that is a reasonable definition of compensation within the meaning of Regulation §1.414(s)—1(d)(2). Therefore, the definition of Compensation from which Elective Deferrals may be made is not required to satisfy the nondiscrimination requirement of Regulation §1.414(s)—1(d)(3).

(iv)Restrictions Due to Limitations Under the Code.The Plan may limit the amount of Elective Deferrals made by an a Safe Harbor Participant under the Plan either [a] because of the limitations of Code §402(g) or §415; or [b] because, on account of a financial hardship distribution, the Safe Harbor Participant’s ability to make Elective Deferrals has been suspended for 6 months in accordance with Regulation §1.401(k)—1(d)(3)(iv)(E).

(b)Safe Harbor Notice.The Sponsoring Employer must give a Safe Harbor Notice to each Safe Harbor Participant, which must satisfy the following content and timing requirements:

(1)Safe Harbor Notice Must Be Written.The Safe Harbor Notice must be in writing or in such other form of communication as permitted by Regulation §1.401(a)—21.

(2)Content Requirements.The content requirement for a Safe Harbor Notice is satisfied if the Safe Harbor Notice is sufficiently accurate and comprehensive to inform the Safe Harbor Participant of the Safe Harbor Participant’s rights and obligations under the plan; and the Safe Harbor Notice is written in a manner calculated to be understood by the average Safe Harbor Participant in the Plan. A Safe Harbor Notice will satisfy this content requirement if the Safe Harbor Notice accurately describes (A) the ADP Safe Harbor Contribution formula used by the Plan (including a description of the levels of ADP Safe Harbor Matching Contributions, if any, available under the Plan); (B) any other contributions under the Plan or Matching Contributions to another plan on account of Elective Deferrals or Employee Contributions under this plan (including the potential for discretionary Matching Contributions) and the conditions under which such contributions are made; (C) the plan to which the ADP Safe Harbor Contribution will be made (if different than this Plan); (D) the type and amount of Compensation that may be deferred under the Plan; (E) how to make cash or deferred elections, including any administrative requirements that apply to such elections; (F) the periods available under the plan for making cash or deferred elections; (G) the distribution and Vesting provisions applicable to contributions under the Plan; and (H) information that makes it easy to obtain additional information about the Plan (including an additional copy of the summary plan description) such as telephone numbers, addresses and, if applicable, electronic addresses, of individuals or offices from whom Safe Harbor Participants can obtain such Plan information. The Safe Harbor Notice may cross-reference relevant portions of a summary plan description that provides the same information that would be provided (or is concurrently provided) to Safe Harbor Participants, with respect to information described in: (i) paragraph (b)(2)(B) (relating to any other contributions under the Plan); (ii) paragraph (b)(2)(C) (relating to the plan to which safe harbor contributions will be made); and/or (iii) paragraph (b)(2)(D) (relating to the type and amount of Compensation that may be deferred under the Plan).

(3)Timing Requirement.The timing requirement for a Safe Harbor Notice is satisfied if the Safe Harbor Notice is provided within a reasonable period before the beginning of the Plan Year (or, in the Plan Year in which an Employee will become a Safe Harbor Participant, within a reasonable period before the Employee becomes a Safe Harbor Participant). The determination of whether a Safe Harbor Notice satisfies the timing requirement is based on all of the relevant facts and circumstances. However, this timing requirement is deemed to be satisfied if at least 30 days, but not more than 90 days, or any other reasonable period, before the beginning of a Plan Year, the Safe Harbor Notice is

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given to each Safe Harbor Participant for the Plan Year. In the case of an Employee who does not receive the Safe Harbor Notice within the period described in the previous sentence because the Employee becomes a Safe Harbor Participant after the 90th day before the beginning of the Plan Year, the timing requirement is deemed to be satisfied if the Safe Harbor Notice is provided no more than 90 days before the Employee becomes a Safe Harbor Participant (and no later than the date that the Employee becomes a Safe Harbor Participant). The preceding sentence would apply in the case of any Employee who becomes a Safe Harbor Participant for the first Plan Year under a newly established plan that provides for Elective Deferrals, or would apply in the case of the first Plan Year in which an Employee becomes a Safe Harbor Participant under an existing plan that provides for Elective Deferrals.

(c)Plan Year Requirement.Except as provided in this paragraph or paragraph (d), the Sponsoring Employer must adopt ADP Safe Harbor Contribution provisions before the first day of the Plan Year and remain in effect for an entire 12-month Plan Year. In addition, except as provided in paragraph (e), if the Plan includes ADP Safe Harbor Contribution provisions, then the Plan cannot be amended to change such provisions for that Plan Year. Moreover, if ADP Safe Harbor Non-Elective Contributions or ADP Safe Harbor Matching Contributions will be made to another plan for a Plan Year, provisions under that other plan that specify that the ADP Safe Harbor Contributions will be made and provide that the contributions will be ADP Safe Harbor Non-Elective Contributions or ADP Safe Harbor Matching Contributions must also be adopted before the first day of that Plan Year. A 401(k) Plan will be considered to be a Safe Harbor 401(k) Plan  for a Plan Year of less than 12 months, pursuant to the following rules:

(1)Initial Plan Year.If this Plan is a newly established plan (other than a successor plan within the meaning of Regulation §1.401(k)—2(c)(2)(iii)), then the Plan Year may be less than 12 months, provided that the Plan Year is at least 3 months long (or, in the case of a newly established Employer that establishes the Plan as soon as administratively feasible after the employer comes into existence, a shorter period). Similarly, a cash or deferred arrangement may be added to an existing profit sharing, stock bonus, or pre-ERISA money purchase pension plan for the first time during that Plan Year, provided that (A) the Plan is not a successor plan; and (B) the cash or deferred arrangement is made effective no later than 3 months prior to the end of the Plan Year.

(2)Change of Plan Year.If the Plan has a short Plan Year as a result of changing its Plan Year, then the Plan Year may be less than 12 months, provided that (A) the Plan satisfied the requirements of this Section for the immediately preceding Plan Year; and (B) the Plan satisfies the requirements of this Section (determined without regard to paragraph (e)) for the immediately following Plan Year (or for the immediately following 12 months if the immediately following Plan Year is less than 12 months).

(3)Final Plan Year. If the Plan terminates during a Plan Year, then the final Plan Year may be less than 12 months, provided that the Plan satisfies the requirement of this Section through the date of termination and either (A) the Plan satisfies the requirements of paragraph (e), treating the termination of the Plan as a reduction or suspension of ADP Safe Harbor Matching Contributions, other than the requirement that Safe Harbor Participants have a reasonable opportunity to change their cash or deferred elections and, if applicable, Employee Contribution elections; or (B) the Plan termination is in connection with a transaction described in Code §410(b)(6)(C) or the employer incurs a substantial business hardship comparable to a substantial business hardship described in Code §412(d).

(d)Contingent ADP Safe Harbor Non-Elective Contributions.Notwithstanding paragraph (c), if the Plan that provides for the use of the Current Year Testing Method, then the Plan may be amended after the first day of the Plan Year and no later than 30 days before the last day of the Plan Year to adopt ADP Safe Harbor Non-Elective Contributions for the Plan Year, effective as of the first day of the Plan Year, but only if the Plan provides the contingent Safe Harbor Notice and follow-up Safe Harbor Notice:

(1)Contingent Safe Harbor Notice Provided.The requirement to provide the contingent Safe Harbor Notice is satisfied, if the Plan provides a Safe Harbor Notice that would satisfy the requirements of paragraph (b), except that, in lieu of setting forth the ADP Safe Harbor Contributions used under the Plan as set forth in paragraph (b)(2)(A), the Safe Harbor Notice specifies that the Plan may be amended during the Plan Year to include the ADP Safe Harbor Non-Elective Contribution and that, if the Plan is amended, a follow-up Safe Harbor Notice will be provided.

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(2)Follow-up Safe Harbor Notice Requirement.The requirement to provide the follow-up Safe Harbor Notice is satisfied if, no later than 30 days before the last day of the Plan Year, each Safe Harbor Participant is given a Safe Harbor Notice that states that the ADP Safe Harbor Non-Elective Contribution will be made for the Plan Year. The Safe Harbor Notice must be in writing or in such other form of communication as permitted by Regulation §1.401(a)—21 and is permitted to be combined with a contingent Safe Harbor Notice for the next Plan Year.

(e)Permissible Reduction or Suspension of ADP Safe Harbor Matching Contributions.If the Plan provides for ADP Safe Harbor Matching Contributions for a Plan Year, then the Plan may be amended during the Plan Year to reduce or suspend ADP Safe Harbor Matching Contributions on future Elective Deferrals (and, if applicable, Employee Contributions), provided that:

(1)Supplemental Notice.All Safe Harbor Participants are provided a supplemental notice in writing or in such other form of communication as permitted by Regulation §1.401(a)—21, that explains (A) the consequences of the amendment which reduces or suspends ADP Safe Harbor Matching Contributions on future Elective Deferrals and, if applicable, Employee Contributions; (B) the procedures for changing their cash or deferred election and, if applicable, their Employee Contribution elections; and (C) the effective date of the amendment.

(2)Effective Date.The reduction or suspension of ADP Safe Harbor Matching Contributions is effective no earlier than the later of (A) 30 days after Safe Harbor Participants are provided the supplemental notice, or (B) the date that the amendment is adopted.

(3)Opportunity to Change Deferral Elections.Safe Harbor Participants are given a reasonable opportunity (including a reasonable period after receipt of the supplemental notice) prior to the reduction or suspension of safe harbor matching contributions to change their cash or deferred elections and, if applicable, their Employee Contribution elections.

(4)Satisfaction of ADP Test.The Plan is amended to provide that the ADP Test will be satisfied for the entire Plan Year in which the reduction or suspension occurs using the Current Year Testing Method.

(5)Satisfaction through Effective Date. The Plan satisfies the requirements of this Section (other than this paragraph) with respect to Elective Deferrals and/or Employee Contributions through the effective date of the amendment.

(f)Additional Rules.The following additional rules apply to ADP Safe Harbor Contributions:

(1)ADP Safe Harbor Contributions Taken into Account.An ADP Safe Harbor Contribution is taken into account for purposes of this Section for a Plan Year if the ADP Safe Harbor Contribution would be taken into account for such Plan Year under the rules of Regulation §1.401(k)—2(a) or §1.401(m)—2(a). Thus, an ADP Safe Harbor Matching Contribution must be made within 12 months after the end of the Plan Year. Similarly, an Elective Deferral that would be taken into account for a Plan Year under Regulation §1.401(k)—2(a)(4)(i)(B)(2) must be taken into account for such Plan Year for purposes of this Section, even if the Compensation would have been received after the close of the Plan Year.

(2)Use of ADP Safe Harbor Non-Elective Contributions for Other Non-Discrimination Tests.ADP Safe Harbor Non-Elective Contributions may also be taken into account for purposes of determining whether the Plan satisfies Code §401(a)(4). Thus, ADP Safe Harbor Non-Elective Contributions are not subject to the limitations on Qualified Non-Elective Contributions under Regulation §1.401(k)—2(a)(6)(ii), but are subject to the rules generally applicable to Non-Elective Contributions under Code §401(a)(4) and Regulation §1.401(a)(4)—1(b)(2)(ii). However, pursuant to Code §401(k)(12)(E)(ii), ADP Safe Harbor Matching Contributions and ADP Safe Harbor Non-Elective Contributions may not be taken into account under the Plan (or any other plan) for purposes of Code §401(l) (including the imputation of permitted disparity under Regulation §1.401(a)(4)—7).

(3)Early Participation Rule.The Plan is permitted to apply the rules of Code §410(b)(4)(B) to treat the Plan as two separate plans for purposes of Code §410(b) and apply the safe harbor requirements to one plan and apply the requirements of Regulation §1.401(k)—2 to the other plan.

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(4)Satisfying ADP Safe Harbor Contribution Requirements under Another Plan. ADP Safe Harbor Non-Elective Contributions or ADP Safe Harbor Matching Contributions may be made to this Plan or to another defined contribution plan that satisfies Code §401(a) or §403(a). If ADP Safe Harbor Contributions are made to another defined contribution plan, then this Plan must specify the plan to which the ADP Safe Harbor Contributions are being made and the ADP Safe Harbor Contribution requirements of paragraph (a) must be satisfied in the other defined contribution plan in the same manner as if the ADP Safe Harbor Contributions were made to this Plan. The plan to which the ADP Safe Harbor Contributions are being made must have the same Plan Year as this Plan, and each Safe Harbor Participant under this Plan must be eligible under the same conditions under the other defined contribution plan. The plan to which the ADP Safe Harbor Contributions are being made need not be a plan that can be aggregated with this Plan.

(5)Contributions Used Only Once.ADP Safe Harbor Non-Elective Contributions or ADP Safe Harbor Matching Contributions cannot be used to satisfy the ADP Safe Harbor Contribution requirements for more than one plan.

3.21ACP Safe Harbor Contributions. Matching Contributions (including, if applicable, ADP Safe Harbor Matching Contributions) that satisfy the ACP Safe Harbor Matching Contribution requirements of Code §401(m)(11) for a Plan Year are ACP Safe Harbor Matching Contributions in a Safe Harbor 401(m) Plan if such contributions (including, if applicable, ADP Safe Harbor Matching Contributions) satisfy the following requirements:

(a)Satisfaction of ADP Safe Harbor Contribution Requirements.The Plan must satisfy the ADP Safe Harbor Contribution requirements of Section 3.20 with either ADP Safe Harbor Non-Elective Contributions (including contingent ADP Safe Harbor Non-Elective Contributions of Section 3.20(d)) or ADP Safe Harbor Matching Contributions. Pursuant to Code §401(k)(12)(E)(ii), the ADP Safe Harbor Contribution requirements must be satisfied without regard to Code §401(l).

(b)Limitation on Matching Contributions.The Plan that provides for ACP Safe Harbor Matching Contributions must satisfy the following limitations:

(1)Matching Contribution Rate Must Not Increase.The ratio of Matching Contributions on behalf of a Safe Harbor Participant for a Plan Year to the Safe Harbor Participant’s Elective Deferrals and Employee Contributions, cannot not increase as the amount of a Safe Harbor Participant’s Elective Deferrals and Employee Contributions increases;

(2)Matching Contribution Cannot Be Made for Deferrals in Excess of 6% of Compensation.Matching Contributions cannot be made with respect to Elective Deferrals or Employee Contributions that exceed six percent (6%) of the Safe Harbor Participant’s Compensation;

(3)Discretionary Matching Contribution Cannot Exceed 4% of Compensation. If Matching Contributions are discretionary, then the Matching Contributions cannot exceed 4% of the Safe Harbor Participant’s Compensation; and

(4)Limitation on Rate of Match. The ratio of Matching Contributions on behalf of a Safe Harbor Participant who is a HCE to his or her Elective Deferrals or Employee Contributions (or to the sum thereof) for that Plan Year is no greater than the ratio of Matching Contributions to Elective Deferrals or Employee Contributions (or the sum of Elective Deferrals and Employee Contributions) that would apply with respect to any Safe Harbor Participant who is a NHCE for whom the Elective Deferrals or Employee Contributions (or the sum of Elective Deferrals and Employee Contributions) are the same percentage of Compensation. The determination of the rate of Matching Contributions will be made pursuant to the rules of Regulation §1.401(m)-3(d)(4) and §1.401(m)-3(d)(5).

(5)Catch-Up Contributions.With respect to ACP Safe Harbor Matching Contributions, Catch-Up Contributions will be treated as any other Elective Deferrals and will be matched according to the ACP Safe Harbor Matching Contribution formula as if the Catch-Up Contributions were Elective Deferrals.

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(6)Permissible Restrictions on Elective Deferrals or Employee Contributions by NHCEs. Elective Deferrals and/or Employee Contributions by Safe Harbor Participants who are NHCEs cannot be restricted, except pursuant to the rules of Section 3.20(a)(2)(G) (which rules will apply to Elective Deferrals and/or Employee Contributions) and Regulation §1.401(m)-3(d)(6).

(c)Safe Harbor Notice.The Sponsoring Employer must give a Safe Harbor Notice to each Safe Harbor Participant that satisfies the content and timing requirements of Section 3.20(b) and Reg. §1.401(k)-3(d).

(d)Plan Year Requirement. The Sponsoring Employer must adopt ACP Safe Harbor Matching Contributions provisions before the first day of the Plan Year and remain in effect for an entire 12-month Plan Year, subject to the rules and exceptions of Section 3.20(c) (which will apply to ACP Safe Harbor Matching Contributions) and Regulation §1.401(m)-3(f). For purposes of an initial Plan Year of a Plan, the amendment providing for ACP Safe Harbor Matching Contributions must be made effective at the same time as the adoption of a cash or deferred arrangement that satisfies the requirements of Regulation §1.401(k)-3.

(e)Permissible Reduction or Suspension of ACP Safe Harbor Matching Contributions.If the Plan provides for ACP Safe Harbor Matching Contributions for a Plan Year, then the Plan may be amended during the Plan Year to reduce or suspend ACP Safe Harbor Matching Contributions on future Elective Deferrals (and, if applicable, Employee Contributions), subject to the rules of Section 3.20(e) (which rules will apply to ACP Safe Harbor Matching Contributions) and Regulation §1.401(m)-3(h).

(f)Additional Rules.The following additional rules apply to ACP Safe Harbor Matching Contributions:

(1)ACP Safe Harbor Matching Contributions Taken into Account.An ACP Safe Harbor Matching Contribution is taken into account for purposes of this Section for a Plan Year, pursuant to the same rules of Section 3.20(f)(1) and Regulation §1.401(k)-3(h)(1).

(2)Early Participation Rule.The Plan is permitted to apply the rules of Code §410(b)(4)(B) to treat the 401(m) Plan as two separate plans for purposes of Code §410(b) and apply the safe harbor requirements to one plan and apply the requirements of Regulation §1.401(m)—2 to the other plan.

(3)Satisfying ACP Safe Harbor Matching Contribution Requirements Under Another Plan.ACP Safe Harbor Matching Contributions may be made to this Plan or to another defined contribution plan that satisfies Code §401(a) or §403(a), pursuant to the same rules of Section 3.20(f)(4) and Regulation §1.401(k)-3(h)(4). Consequently, each Safe Harbor Participant who is a NHCE under the plan providing for ACP Safe Harbor Matching Contributions must be eligible under the same conditions under the other defined contribution plan and the plan to which the contributions are made must have the same Plan Year as the plan providing the ACP Safe Harbor Matching Contributions.

(4)ACP Safe Harbor Matching Contributions Used Only Once. ACP Safe Harbor Matching Contributions cannot be used to satisfy the ACP Safe Harbor Matching Contribution requirements for more than one plan.

(5)Plan Must Satisfy ACP Test With Respect to Employee Contributions.If this Plan permits Employee Contributions, then in addition to satisfying the requirements of this Section, the Plan must also satisfy the ACP Test. However, the ACP Test is permitted to be performed disregarding some or all ACP Safe Harbor Matching Contributions when this Section is satisfied with respect to the ACP Safe Harbor Matching Contributions, pursuant to Section 3.19(j) and Regulation §1.401(m)-2(a)(5)(iv).

3.22General Non-Discrimination Test Requirements. For Plan Years beginning on or after January 1, 2002, if the Sponsoring Employer applies the general test for non-discrimination as set forth in Code §401(a)(4) based upon Equivalent Accrual Rates to demonstrate that a Non-Safe Harbor Non-Elective Contribution that is made to this Plan is non-discriminatory, or if a Non-Safe Harbor Non-Elective Contribution that is made to this Plan is aggregated with one or more other plans of the Sponsoring Employer so that the Sponsoring Employer can apply the general test for non-discrimination set forth in Code §401(a)(4) based upon Equivalent Accrual Rates for the defined contribution plan(s) (including this Plan) to demonstrate that the plans (including this Plan) are non-discriminatory, then the following rules will apply:

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(a)Defined Contribution Rule.If this Plan (or any defined contribution plan(s) which are aggregated with this Plan) is not aggregated with any defined benefit plan of the Sponsoring Employer for purposes of applying the general test for non-discrimination based upon Equivalent Accrual Rates for this Plan (or any defined contribution plan(s) which are aggregated with this Plan), then any NHCE who is a Participant in this Plan (or, if any defined contribution plan(s) are aggregated with this Plan, any NHCE who is a Participant in this Plan or the other defined contribution plan(s)) and who receives an allocation of Non-Elective Contributions and/or QNECs must receive an allocation of Non-Elective Contributions and/or QNECs that is at least equal to the Minimum Allocation Gateway for the Plan Year, subject to the following provisions:

(1)Circumstances When Minimum Allocation Gateway Not Required.The Minimum Allocation Gateway requirement need not be satisfied if this Plan (or the group of any defined contribution plan(s) which are aggregated with this Plan) has Broadly Available Allocation Rates or a Gradually Increasing Age or Service Schedule.

(2)Treatment of Otherwise Excludable Participants. For purposes of this paragraph (a), Otherwise Excludable Participants will not be considered.

(b)Combination of Defined Benefit/Defined Contribution Rule.If this Plan (or any defined contribution plan(s) which are aggregated with this Plan) is aggregated with any defined benefit plan for purposes of applying the general test for non-discrimination based upon Equivalent Accrual Rates for this Plan (or any defined contribution plan(s) which are aggregated with this Plan), then the Aggregate Normal Allocation Rate of each Non-Highly Compensated Employee in any plan that is part of the aggregated defined benefit plan(s) and defined contribution plan(s) (including this Plan) must be at least equal to the Minimum Aggregate Allocation Gateway for the Plan Year, subject to the following provisions:

(1)Circumstances When Minimum Aggregate Allocation Gateway Not Required. The Minimum Aggregate Allocation Gateway requirement need not be satisfied if the aggregated combination of defined benefit plan(s) and defined contribution plan(s) (including this Plan) either is Primarily Defined Benefit in Character or consists of Broadly Available Separate Plans.

(2)Treatment of Otherwise Excludable Participants.For purposes of this paragraph (b), Otherwise Excludable Participants will not be considered.

3.23Annual Overall and Cumulative Permitted Disparity Limit. In any Plan Year, if an Employee benefits under more than one plan, then the annual overall permitted disparity limit of this Section is satisfied only if an Employee’s Total Annual Disparity Fraction does not exceed one. Furthermore, the cumulative permitted disparity limit for a Participant is 35 Total Cumulative Permitted Disparity Years. The following rules apply in determining compliance with the two prior sentences:

(a)Plans Taken into Account.All plans of the Employer are taken into account. In addition, all plans of any other employer are taken into account for all Service with the other employer for which the Employee receives credit for purposes of allocations/benefit accruals under any plan of the current Employer.

(b)Application of the Limit. The limit of this Section takes into account the disparity provided under a section 401(l) plan, as defined in Regulation §1.401(a)(4)-12, and the permitted disparity imputed under a plan that satisfies Code §401(a)(4) by relying on Regulation §1.401(a)(4)-7.

(c)Total Annual Disparity Fraction.The term “Total Annual Disparity Fraction” means the sum of the Employee’s Annual Disparity Fractions for a Plan Year. An Employee’s Total Annual Disparity Fraction is determined as of the end of each Plan Year, based on the Employee’s Annual Disparity Fractions under all plans with plan years ending in the current Plan Year. The following subparagraphs determine an Employee’s Annual Disparity Fractions:

(1)Annual Disparity Fraction for a Defined Contribution Plan. The Annual Disparity Fraction for an Employee benefiting under a defined contribution plan that is a section 401(l) plan, as defined in Regulation §1.401(a)(4)-12, is a fraction: (A) the numerator of which is the disparity provided under the plan for the Plan Year; and (B) the denominator of which is the maximum excess allowance under Regulation §1.401(l)-2(b)(2) for the Plan Year.

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(2)Annual Disparity Fraction for a Defined Benefit Excess Plan. The Annual Disparity Fraction for an Employee benefiting under a defined benefit excess plan that is a section 401(l) plan, as defined in Regulation §1.401(a)(4)-12, is a fraction: (A) the numerator of which is the disparity provided under the plan for the Plan Year; and (B) the denominator of which is the maximum excess allowance under Regulation §1.401(l)-3(b)(2) for the Plan Year.

(3)Annual Disparity Fraction for a Defined Benefit Offset Plan. In general, the Annual Disparity Fraction for an Employee benefiting under a defined benefit offset plan that is a section 401(l) plan, as defined in Regulation §1.401(a)(4)-12, is a fraction: (A) the numerator of which is the disparity provided under the plan for the Plan Year; and (B) the denominator of which is the maximum offset allowance under Regulation §1.401(l)-3(b)(3) for the Plan Year. However, if a defined benefit offset plan applies an offset of a specified percentage of the employee’s PIA, as permitted under Regulation §1.401(l)-3(c)(2)(ix), then the numerator of the prior sentence is the offset percentage used in the Code §401(l) overlay under the plan.

(4)Annual Disparity Fraction for a Plan that Imputes Disparity. The Annual Disparity Fraction for an Employee benefiting under a plan that imputes permitted disparity with respect to the Employee under Regulation §1.401(a)(4)-7 is one.

(5)Annual Disparity Fraction for a Plan that Neither is a Section 401(l) Plan Nor Imputes Disparity The Annual Disparity Fraction for an Employee benefiting under a plan that neither is a section 401(l) plan as defined in Regulation §1.401(a)(4)-12 nor imputes permitted disparity under Regulation §1.401(a)(4)-7 is zero.

(6)Determination of Annual Disparity Fractions. Generally, a separate Annual Disparity Fraction is determined for each plan under which the Employee benefits. If two plans are aggregated and treated as a single plan for purposes of Code §401(a)(4), a single annual disparity fraction applies to the aggregated plan. However, if a plan provides an allocation or benefit equal to the sum of two or more formulas, then each formula is considered a separate plan for purposes of this Section. If a plan provides an allocation or benefit equal to the greater of two or more formulas, then an Annual Disparity Fraction is calculated for the Employee under each formula and the largest of the fractions is the Employee’s Annual Disparity Fraction under the plan.

(d)Adjustment to Plans if Total Annual Disparity Fraction Exceeds One. If (1) this Plan utilizes the disparity provided under a section 401(l) plan as defined in Regulation §1.401(a)(4)-12 and/or the permitted disparity imputed under a plan that satisfies Code §401(a)(4) by relying on Regulation §1.401(a)(4)-7, and (2) the Total Annual Disparity Fraction exceeds one, then the following provisions will apply in a uniform manner for all Employees:

(1)Other Plan(s) have Adjustment Method. If the other plan(s) have a method to adjust Employer-provided contributions or benefits to assure that the Total Annual Disparity Fraction does not exceed one, then the adjustment method of the other plan(s) will apply.

(2)Other Plan(s) do not have Adjustment Method. If the other plan(s) do not have a method to adjust employer-provided contributions or benefits to assure that the Total Annual Disparity Fraction does not exceed one, then the Sponsoring Employer will establish an administrative policy that is promulgated under Section 8.6 that adjusts Employer-provided contributions or benefits so that the Total Annual Disparity Fraction does not exceed one.

(3)Special Rule for Multiple Prototypes Using this Same Basic Plan. Notwithstanding anything in this Section to the contrary, if multiple prototype plans (including this Plan) utilize this same Prototype Basic Plan, then the Sponsoring Employer will establish an administrative policy that is promulgated under Section 8.6 that adjusts Employer-provided contributions or benefits so that the Total Annual Disparity Fraction does not exceed one.

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(e)Cumulative Permitted Disparity Limit.Effective for Plan Years beginning on or after January 1, 1995, the cumulative permitted disparity limit for a Participant is 35 Total Cumulative Permitted Disparity Years. The term “Total Cumulative Permitted Disparity Years” means the number of Plan Years credited to the Participant for allocation or accrual purposes under this Plan, and under any other qualified plan or simplified employee pension plan (whether or not terminated) ever maintained by the Employer. For purposes of determining the Participant’s cumulative permitted disparity limit, all Plan Years ending in the same calendar year are treated as the same Plan Year. If the Participant has not benefited under a defined benefit or target benefit plan for any Plan Year beginning on or after January 1, 1994, then the Participant has no cumulative disparity limit. For purposes of the prior sentence, a Participant is not treated as benefiting under a defined benefit plan for a Plan Year if the defined benefit plan was not a section 401(l) plan within the meaning of Regulation §1.401(a)(4)-12 for that Plan Year and did not impute permitted disparity under Regulation §1.401(a)(4)-7 for that Plan Year.

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Article 4

Plan Benefits

4.1Benefit Upon Normal (or Early) Retirement. Every Participant who has reached Normal (or Early) Retirement Age will be entitled upon subsequent Termination of Employment with the Employer to receive his or her Vested Aggregate Account balance determined as of the most recent Valuation Date coinciding with or immediately preceding the date of distribution. Distribution will be made under Section 5.1.

4.2Benefit Upon Late Retirement. A Participant who has reached Normal Retirement Age may elect to remain employed by the Employer and retire at a later date. Such Participant will continue to participate in the Plan and his or her Participant’s Account will continue to receive allocations under Article 3. Upon actual retirement, the Participant will be entitled to his or her Vested Aggregate Account balance determined as of the most recent Valuation Date coinciding with or immediately preceding the date of distribution. In addition, if elected in the Adoption Agreement, a Participant who elects late retirement may at any time (1) choose to have distributed prior to actual retirement all or part of his or her Vested Aggregate Account balance determined as of the most recent Valuation Date coinciding with or immediately preceding the date of distribution; or (2) choose to have such Vested Aggregate Account balance transferred to another qualified retirement plan maintained by the Employer. Upon actual retirement, the Participant will be entitled to his or her undistributed Vested Aggregate Account balance determined as of the most recent Valuation Date coinciding with or immediately preceding the date of distribution. Distribution will be made under Section 5.1.

4.3Benefit Upon Death. Upon the death of a Participant prior to Termination of Employment with the Employer, or upon the death of a Terminated Participant prior to distribution of his or her Vested Aggregate Account, his or her Beneficiary will be entitled to the Participant’s Vested Aggregate Account balance determined as of the most recent Valuation Date coinciding with or immediately preceding the date of distribution. If any Beneficiary who is living on the date of the Participant’s death dies prior to receiving his or her entire death benefit, the portion of such death benefit will be paid in a lump sum to the estate of such deceased Beneficiary. The Administrator’s determination that a Participant has died and that a particular person has a right to receive a death benefit will be final. Distribution will be made under Section 5.2.

4.4      Benefit Upon Disability. If a Participant suffers a Disability prior to Termination of Employment with the Employer, or if a Terminated Participant suffers a Disability prior to distribution of his or her Vested Aggregate Account, he or she will be entitled to his or her Vested Aggregate Account balance determined as of the most recent Valuation Date coinciding with or immediately preceding the date of distribution. Distribution will be made under Section 5.3.

4.5Benefit Upon Termination of Employment. A Terminated Participant will be entitled to his or her Vested Aggregate Account balance as of the most recent Valuation Date coinciding with or immediately preceding the date of distribution. Distribution to a Terminated Participant who does not die prior to distribution or who does not suffer a Disability prior to distribution will be made under Section 5.4

4.6Determination of Vested Interest. A Participant’s Vested Interest in his or her Participant’s Account will be determined in accordance with the following provisions:

(a)100% Vesting Upon Retirement, Death or Disability.A Participant will have a 100% Vested Interest in his or her Participant’s Account upon reaching Normal Retirement Age prior to Termination of Employment. If elected in the Adoption Agreement, a Participant will also have a 100% Vested Interest therein upon (1) his or her retirement at Early Retirement; (2) his or her Disability prior to Termination of Employment; or (3) his or her death prior to Termination of Employment.

(b)100% Vesting of Elective Deferral Accounts and Certain Other Accounts.A Participant will at all times have a 100% Vested Interest in his or her Elective Deferral Account, ADP Safe Harbor Non-Elective Contribution Account, ADP Safe Harbor Matching Contribution Account, Qualified Matching Contribution Account, Qualified Non-Elective Contribution Account, Voluntary Employee Contribution Account, Mandatory Employee Contribution Account and Deemed IRA Contribution Account.

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(c)Vesting of All Other Contributions.A Participant’s Vested Interest in all Employer contribution accounts not specified in paragraph (b) will be determined by the Vesting schedule or schedules as elected in the Adoption Agreement. If the Counting of Hours Method is used for Vesting purposes, then a Participant’s Vested Interest will be based on the Years of Service that are credited to such Participant. If the Elapsed Time Method is used for Vesting purposes, then a Participant’s Vested Interest will be based on the 1-Year Periods of Service that are credited to the Participant. If elected in the Adoption Agreement, then in determining a Participant’s Vested Interest under this paragraph, a Participant’s Years of Service or 1-Year Periods of Service will be disregarded (1) during any period for which the Employer did not maintain this Plan or a predecessor plan; (2) if the Counting of Hours Method is used for Vesting purposes, then before the Vesting Computation Period in which the Participant attains Age 18; (3) if the Elapsed Time Method is used for Vesting purposes, then before the 1-Year Period of Service in which the Participant attains Age 18; (4) if the Counting of Hours Method is used for Vesting purposes, then during any Vesting Computation Period for which the Participant fails to make Mandatory Employee Contributions to the Plan, if applicable to the Plan; and/or (5) if the Elapsed Time Method is used for Vesting purposes, then during any 1-Year Period of Service for which the Participant fails to make Mandatory Employee Contributions to the Plan, if applicable to the Plan. For Plan Years beginning before 2002, Matching Contributions could Vest according to any Vesting schedule that satisfied Code §411(a)(2) (and Code §416(b) if the Plan was Top Heavy). The Vesting schedules available in the Adoption Agreement are described in more detail below:

(1)7 Year Graded

Years/Periods of Service	Vested Percentage
1	0	%
2	0	%
3	20	%
4	40	%
5	60	%
6	80	%
7	100	%

(2)6 Year Graded

Years/Periods  of Service	Vested Percentage
1	0	%
2	20	%
3	40	%
4	60	%
5	80	%
6	100	%

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(3)5 Year Cliff

Years/Periods of Service	Vested Percentage
1	0	%
2	0	%
3	0	%
4	0	%
5	100	%

(4)3 Year Cliff

Years/Periods of Service	Vested Percentage
1	0	%
2	0	%
3	100	%

(5)Full and Immediate.A Participant’s Account will be 100% Vested upon entering the Plan as a Participant and at all times thereafter.

(6)Other.A Participant’s Account will be Vested in accordance with the schedule entered on the Adoption Agreement; provided, however, that any schedule entered for a non-Top Heavy Plan Year must be at least as favorable as either the 7 Year Graded Vesting schedule of subparagraph (1) above or the 5 Year Cliff Vesting schedule of subparagraph (3) above. Furthermore, any schedule entered for a Top Heavy Plan Year must be at least as favorable as either the 6 Year Graded Vesting schedule of subparagraph (2) above or the 3 Year Cliff Vesting schedule of subparagraph (3) above.

(d)Vesting in a Top Heavy Plan Year.In a Top Heavy Plan Year, a Participant’s Vested Interest in all Employer contributions allocated to his or her Participant’s Account which are subject to a non-Top Heavy Vesting schedule will be determined by the Top Heavy Vesting schedule as elected in the Adoption Agreement. If this Plan ceases to be Top Heavy and the non-Top Heavy Vesting schedule again becomes effective, a Participant’s Vested Interest as determined under the Top Heavy Vesting schedule cannot be reduced. Furthermore, any such reverting back to the non-Top Heavy Vesting schedule will be considered an amendment to this Section and will be treated in accordance with paragraph (g) below pertaining to amendments to a Vesting schedule. Only those Years/Periods of Service which are included in determining a Participant’s Vested Interest in a non-Top Heavy Plan Year will be included in determining a Participant’s Vested Interest in a Top Heavy Plan Year hereunder.

(e)Vesting Requirement upon Complete Termination or Discontinuance of Contributions.Upon a complete termination of the Plan, or, in the case of a Plan to which Code §412 does not apply, upon a complete discontinuance of contributions under the Plan, then (1) any Participant who is affected by such complete termination or, if applicable, such complete discontinuance of contributions; (2) any Participant who has not Terminated Employment with the Employer; (3) any Participant who has Terminated Employment with the Employer and has not received a complete distribution of the Participant’s Vested Aggregate Account; and (4) any Participant who has Terminated Employment but has not incurred five consecutive Breaks in Service; will have a 100% Vested Interest in his or her unpaid Participant’s Account.

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(f)Vesting Requirement upon Partial Termination Upon partial termination of the Plan, only a Participant who has Terminated Employment because of the event which causes the partial termination but who has not incurred five consecutive Breaks in Service will have a 100% Vested Interest in his or her unpaid Participant’s Account as of the date of partial termination.

(g)Amendments to the Vesting Schedule.No amendment to the Plan may directly or indirectly reduce a Participant’s Vested Interest in his or her Participant’s Account. If the Plan is amended in any way that directly or indirectly affects the computation of a Participant’s Vested Interest in his or her Participant’s Account, or the Plan is deemed amended by an automatic change to or from a Top Heavy Vesting schedule, then the following provisions will apply:

(1)Participant Election.Any Participant with at least three Years/Periods of Service may, by filing a written request with the Administrator, elect to have the Vested Interest in his or her Participant’s Account computed by the Vesting schedule in effect prior to the amendment. A Participant who fails to make an election will have the Vested Interest computed under the new schedule. The period in which the election may be made will begin on the date the amendment is adopted or is deemed to be made and will end on the latest of (A) 60 days after the amendment is adopted; (B) 60 days after the amendment becomes effective; or (C) 60 days after the Participant is issued written notice of the amendment by the Employer or Administrator.

(2)Preservation of Vested Interest.Notwithstanding the foregoing to the contrary, if the vesting schedule is amended, then in the case of an Employee who is a Participant as of the later of the date such amendment is adopted or the date it becomes effective, the Vested Interest in his or her Participant’s Account determined as of such date will not be less than his or her Vested Interest computed under the Plan without regard to such amendment.

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Article 5

Distribution of Benefits

5.1Distribution of Benefit Upon Retirement. Unless a mandatory cash-out occurs under Section 5.5, the retirement benefit a Participant is entitled to receive under Section 4.1 or 4.2 will be distributed as follows:

(a)Normal Form of Distribution in a 401(k) Plan or Profit Sharing Plan.If the Plan is either a 401(k) Plan or a profit sharing plan, then a Participant’s benefit will be distributed in the form that is elected by the Sponsoring Employer in the Adoption Agreement; the permitted Normal Forms of Distribution are (1) a Qualified Joint and Survivor Annuity; (2) a lump sum payment; or (3) Substantially Equal monthly, quarterly, semi-annual or annual cash installment payments over a period certain which does not extend beyond the life of the Participant; the joint lives of the Participant and a designated Beneficiary; or a period certain not extending beyond the life expectancy of the Participant and a designated Beneficiary. If the Normal Form of Distribution is Substantially Equal installment payments, then the lump sum value of the Participant’s benefit either may be segregated and separately invested and the Substantially Equal installments will be paid from the Plan; may remain invested in the Trust’s assets and the Substantially Equal installments will be paid from the Plan; or may be used to purchase a nontransferable immediate or deferred annuity that is selected by the Employer and that complies with the terms of the Plan from an insurance company to provide for such Substantially Equal installments.

(b)Normal Form of Distribution in a Money Purchase Pension Plan.If the Plan is a money purchase pension plan, then the Normal Form of Distribution is a Qualified Joint and Survivor Annuity if the Participant has not died before the Annuity Starting Date.

(c)Optional Forms of Distribution.If elected by the Sponsoring Employer in the Adoption Agreement, then a Participant may waive the Normal Form of Distribution and elect to have his or her benefit distributed in an Optional Form of Distribution. The permitted Optional Forms of Distribution are (1) a lump sum payment; (2) Substantially Equal monthly, quarterly, semi-annual or annual cash installment payments over a period certain which does not extend beyond the life of the Participant, the joint lives of the Participant and a designated Beneficiary, or a period certain not extending beyond the life expectancy of the Participant and a designated Beneficiary. If an Optional Form of Distribution is Substantially Equal installment payments, then the lump sum value of the Participant’s benefit either may be segregated and separately invested and the Substantially Equal installments will be paid from the Plan; may remain invested in the Trust’s assets and the Substantially Equal installments will be paid from the Plan; or may be used to purchase a nontransferable immediate or deferred annuity that is selected by the Employer and that complies with the terms of the Plan from an insurance company to provide for such Substantially Equal installments; (3) a non-transferable annuity which can be purchased from an insurance company and complies with the terms of the Plan; and/or (4) in designated sums from time to time as elected by the Participant. All Optional Forms of Distribution that are elected by the Sponsoring Employer in the Adoption Agreement are available on a non-discriminatory basis and are not subject to the Administrator’s discretion.

(d)Partial Distributions.If a Participant receives a distribution of less than 100% of his or her Vested Aggregate Account balance, then the Administrator will determine the portion (including zero) of the distribution that will be made from each of the Participant’s sub-accounts, provided that any such determination is made in a uniform nondiscriminatory manner.

(e)Time of Distribution.Distribution will be made under this Section (1) within a reasonable time after the Participant’s actual retirement at Normal Retirement Date (or Early Retirement Date, if applicable), or (2) within a reasonable time after the date that a Participant who elects late retirement under Section 4.2 requests payment as permitted thereunder.

5.2Distribution of Benefit Upon Death. Unless a mandatory cash-out occurs under Section 5.5, the death benefit a deceased Participant’s Beneficiary is entitled to receive under Section 4.3 will be distributed as follows:

(a)Surviving Spouse.If a Participant has a surviving Spouse on the date of the Participant’s death, then the deceased Participant’s surviving Spouse will be entitled to receive a death benefit determined in accordance with the following provisions:

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(1)Normal Form of Distribution Is a Qualified Joint and Survivor Annuity.If the Normal Form of Distribution elected under Section 5.1 is a Qualified Joint and Survivor Annuity, a Participant dies before the Annuity Starting Date, and the Participant has a surviving Spouse on the date of the Participant’s death, then notwithstanding any other Beneficiary designation made by the Participant, the Participant’s surviving Spouse will receive a minimum death benefit as a QPSA unless such QPSA has been waived in accordance with the terms of Section 5.8. If the QPSA has been waived, then the benefit (and any additional death benefit to which the surviving Spouse is entitled) will be distributed in the alternate form(s) that are elected by the Sponsoring Employer in the Adoption Agreement. The alternate forms of distribution permitted under the Adoption Agreement are (A) a lump sum payment; (B) Substantially Equal monthly, quarterly, semi-annual or annual cash installment payments over a period certain which does not extend beyond the life of the surviving Spouse (or beyond the life expectancy of the surviving Spouse). If an alternate form of distribution is Substantially Equal installment payments, then the lump sum value of the Participant’s benefit either may be segregated and separately invested and the Substantially Equal installments will be paid from the Plan; may remain invested in the Trust’s assets and the Substantially Equal installments will be paid from the Plan; or may be used to purchase a nontransferable immediate or deferred annuity that is selected by the Employer and that complies with the terms of the Plan from an insurance company to provide for such Substantially Equal installments; (C) a non-transferable annuity which can be purchased from an insurance company and complies with the terms of the Plan; and/or (D) in designated sums from time to time as elected by the Beneficiary. All alternate forms of distribution that are elected by the Sponsoring Employer in the Adoption Agreement are available on a non-discriminatory basis and are not subject to the Administrator’s discretion.

(2)Normal Form of Distribution Is Not a Qualified Joint and Survivor Annuity.If the Normal Form of Distribution elected under Section 5.1 is not a Qualified Joint and Survivor Annuity and the Participant has a surviving Spouse on the date of the Participant’s death, then notwithstanding any other Beneficiary designation made by a Participant, the deceased Participant’s surviving Spouse will be entitled to receive 100% of the deceased Participant’s death benefit unless the surviving Spouse has waived that right in accordance with the terms of Section 5.8. If the Normal Form of Distribution elected under Section 5.1 has been waived, then the benefit will be distributed to the surviving Spouse in the alternate form(s) that are elected by the Sponsoring Employer in the Adoption Agreement. The alternate forms of distribution permitted under the Adoption Agreement are (A) a lump sum payment; (B) Substantially Equal monthly, quarterly, semi-annual or annual cash installment payments over a period certain which does not extend beyond the life of the surviving Spouse (or beyond the life expectancy of the surviving Spouse). If an alternate form of distribution is Substantially Equal installment payments, then the lump sum value of the Participant’s benefit either may be segregated and separately invested and the Substantially Equal installments will be paid from the Plan; may remain invested in the Trust’s assets and the Substantially Equal installments will be paid from the Plan; or may be used to purchase a nontransferable immediate or deferred annuity that is selected by the Employer and that complies with the terms of the Plan from an insurance company to provide for such Substantially Equal installments; (C) a non-transferable annuity which can be purchased from an insurance company and complies with the terms of the Plan; and/or (D) in designated sums from time to time as elected by the Beneficiary. All alternate forms of distribution that are elected by the Sponsoring Employer in the Adoption Agreement are available on a non-discriminatory basis and are not subject to the Administrator’s discretion.

(3)Time of Distribution.Any death benefit payable to a surviving Spouse will be distributed within a reasonable time after the death of the Participant, but not later than December 31st of the calendar year which contains the fifth anniversary of the date of the Participant’s death pursuant to Section 5.9(b)(2)(A), if required minimum distributions to the Participant have not begun. However, if the Life Expectancy rule is elected in the Adoption Agreement and the surviving Spouse elects the Life Expectancy rule under Section 5.9(b)(2)(B), then the surviving Spouse may elect to defer distribution of the death benefit, but distribution to the surviving Spouse must begin no later than December 31st of the calendar year in which the deceased Participant would have attained Age 70½.

(4)Death of Surviving Spouse Before Distribution Begins.If the surviving Spouse dies before distribution begins, then distribution will be made as if the surviving Spouse were the Participant. If the Normal Form of Distribution that is elected under Section 5.1 is a Qualified Joint and Survivor Annuity and the QPSA has not been waived, or if the Sponsoring Employer elects in the Adoption Agreement to permit a Participant (or, if no election has been made by the Participant prior to the Participant’s death, then the Participant’s surviving Spouse) to elect the Life Expectancy rule and the Participant (or, if no election has been made by the Participant prior to the Participant’s death, then the

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Participant’s surviving Spouse) elects the Life Expectancy rule, then distribution will be considered to have begun when the deceased Participant would have reached Age 70½ even if payments have been made to the surviving Spouse before that date. Furthermore, if distribution to the surviving Spouse commences in the form of an irrevocable annuity over a period permitted under subparagraph (a)(1) above before the deceased Participant would have reached Age 70½, then distribution will be considered to have begun on the actual annuity commencement date.

(b)Non-Spouse Beneficiary.Any death benefit payable to a non-Spouse Beneficiary will be distributed to the Beneficiary in accordance with the following provisions:

(1)Form of Distribution.Any such death benefit will be distributed to the Beneficiary in the form(s) that are elected by the Sponsoring Employer in the Adoption Agreement. The forms of distribution permitted under the Adoption Agreement are (A) a lump sum payment; (B) Substantially Equal monthly, quarterly, semi-annual or annual cash installment payments over a period certain which does not extend beyond the life of the Beneficiary (or beyond the life expectancy of the Beneficiary). If a form of distribution is Substantially Equal installment payments, then the lump sum value of the Participant’s benefit either may be segregated and separately invested and the Substantially Equal installments will be paid from the Plan; may remain invested in the Trust’s assets and the Substantially Equal installments will be paid from the Plan; or may be used to purchase a nontransferable immediate or deferred annuity that is selected by the Employer and that complies with the terms of the Plan from an insurance company to provide for such Substantially Equal installments; (C) a non-transferable annuity which can be purchased from an insurance company and complies with the terms of the Plan; and/or (D) in designated sums from time to time as elected by the Beneficiary. All forms of distribution that are elected by the Sponsoring Employer in the Adoption Agreement are available on a non-discriminatory basis and are not subject to the Administrator’s discretion.

(2)Time of Distribution.Any death benefit payable to a non-Spouse Beneficiary will be distributed within a reasonable time after the death of the Participant, but not later than December 31st of the calendar year which contains the fifth anniversary of the date of the Participant’s death pursuant to Section 5.9(b)(2)(A), if required minimum distributions to the Participant have not begun. However, if the Life Expectancy rule is elected in the Adoption Agreement and the non-Spouse Beneficiary elects the Life Expectancy rule pursuant to Section 5.9(b)(2)(B), then distribution of the death benefit to a non-Spouse Beneficiary must begin no later than December 31st of the calendar year immediately following the calendar year in which the Participant died.

(c)Distribution If the Participant or Other Payee Is In Pay Status.If a Participant or Beneficiary who has begun receiving distribution of his or her benefit dies before the entire benefit is distributed, then the balance thereof will be distributed to the Participant’s Beneficiary (or Beneficiary’s Beneficiary) at least as rapidly as under the method of distribution being used on the date of the Participant’s or Beneficiary’s death.

(d)Payments to a Beneficiary of a Beneficiary.In the absence of a Beneficiary designation or other directive from the deceased Participant to the contrary, any Beneficiary may name his or her own Beneficiary to receive any benefits payable in the event of the Beneficiary’s death prior to receiving the entire death benefit to which the Beneficiary is entitled; if a Beneficiary has not named his or her own Beneficiary, then the Beneficiary’s estate will be the Beneficiary. If any benefit is payable under this paragraph to a Beneficiary of the deceased Participant’s Beneficiary, to the estate of the deceased Participant’s Beneficiary, or to any other Beneficiary or the estate thereof, then subject to the limitations regarding the latest dates for benefit payment of this Section and Section 5.9, the Administrator may (1) continue to pay the remaining value of such benefits in the amount and form that has already commenced, (2) pay such benefits in any other manner permitted under the Plan for distribution of benefits upon death, and/or (3) if payments have not already commenced, pay such benefits in any other manner permitted under the Plan for distribution of benefits upon death. Distribution to the Beneficiary of a Beneficiary must begin no later than the date that a distribution would have been made to the Participant’s Beneficiary. The Administrator’s determination under this paragraph will be final and will be applied in a uniform manner that does not discriminate in favor of Participants who are Highly Compensated Employees.

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(e)Partial Distributions.If a Participant’s Beneficiary receives a distribution of less than 100% of the Participant’s Vested Aggregate Account balance, then the Administrator will determine the portion (including zero) of the distribution that will be made from each of the Participant’s sub-accounts, provided that any such determination is made in a uniform manner that does not discriminate in favor of Participants who are Highly Compensated Employees.

5.3Distribution of Benefit Upon Disability. Unless a mandatory cash-out occurs under Section 5.5, the Disability benefit a Participant is entitled to receive under Section 4.4 will be distributed in the following manner:

(a)Normal Form of Distribution in a 401(k) Plan or Profit Sharing Plan.If the Plan is either a 401(k) Plan or a profit sharing plan, then a Participant’s benefit will be distributed in the form that is elected by the Sponsoring Employer in the Adoption Agreement; the permitted Normal Forms of Distribution are (1) a Qualified Joint and Survivor Annuity; (2) a lump sum payment; or (3) Substantially Equal monthly, quarterly, semi-annual or annual cash installment payments over a period certain which does not extend beyond the life of the Participant; the joint lives of the Participant and a designated Beneficiary; or a period certain not extending beyond the life expectancy of the Participant and a designated Beneficiary. If the Normal Form of Distribution is Substantially Equal installment payments, then the lump sum value of the Participant’s benefit either may be segregated and separately invested and the Substantially Equal installments will be paid from the Plan; may remain invested in the Trust’s assets and the Substantially Equal installments will be paid from the Plan; or may be used to purchase a nontransferable immediate or deferred annuity that is selected by the Employer and that complies with the terms of the Plan from an insurance company to provide for such Substantially Equal installments.

(b)Normal Form of Distribution in a Money Purchase Pension Plan.If the Plan is a money purchase pension plan, then the Normal Form of Distribution is a Qualified Joint and Survivor Annuity if the Participant has not died before the Annuity Starting Date.

(c)Optional Forms of Distribution.If elected by the Sponsoring Employer in the Adoption Agreement, then a Participant may waive the Normal Form of Distribution and elect to have his or her benefit distributed in an Optional Form of Distribution. The permitted Optional Forms of Distribution are (1) a lump sum payment; (2) Substantially Equal monthly, quarterly, semi-annual or annual cash installment payments over a period certain which does not extend beyond the life of the Participant; the joint lives of the Participant and a designated Beneficiary; or a period certain not extending beyond the life expectancy of the Participant and a designated Beneficiary. If an Optional Form of Distribution is Substantially Equal installment payments, then the lump sum value of the Participant’s benefit either may be segregated and separately invested and the Substantially Equal installments will be paid from the Plan; may remain invested in the Trust’s assets and the Substantially Equal installments will be paid from the Plan; or may be used to purchase a nontransferable immediate or deferred annuity that is selected by the Employer and that complies with the terms of the Plan from an insurance company to provide for such Substantially Equal installments; (3) a non-transferable annuity which can be purchased from an insurance company and complies with the terms of this Plan; and/or (4) in designated sums from time to time as elected by the Participant. All Optional Forms of Distribution that are elected by the Sponsoring Employer in the Adoption Agreement are available on a non-discriminatory basis and are not subject to the Administrator’s discretion.

(d)Partial Distributions.If a Participant receives a distribution of less than 100% of his or her Vested Aggregate Account balance, then the Administrator will determine the portion (including zero) of the distribution that will be made from each of the Participant’s sub-accounts, provided that any such determination is made in a uniform nondiscriminatory manner.

(e)Time of Distribution.Distribution will be made under this Section (1) if elected in the Adoption Agreement, within an administratively reasonable time after the date on which a Participant who suffers a Disability Terminates Employment with the Employer on account of the Disability; or (2) if elected in the Adoption Agreement, on the date that a distribution is to be made to a Terminated Participant under Section 5.4

5.4Distribution of Benefit Upon Termination of Employment. Unless a mandatory cash-out occurs under Section 5.5 or a distribution occurs under Section 5.1, 5.2, or 5.3, the benefit that a Terminated Participant is entitled to receive under Section 4.5 will be distributed in the following manner:

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(a)Normal Form of Distribution in a 401(k) Plan or Profit Sharing Plan.If the Plan is either a 401(k) Plan or a profit sharing plan, then a Participant’s benefit will be distributed in the form that is elected by the Sponsoring Employer in the Adoption Agreement; the permitted Normal Forms of Distribution are (1) a Qualified Joint and Survivor Annuity; (2) a lump sum payment; or (3) Substantially Equal monthly, quarterly, semi-annual or annual cash installment payments over a period certain which does not extend beyond the life of the Participant; the joint lives of the Participant and a designated Beneficiary; or a period certain not extending beyond the life expectancy of the Participant and a designated Beneficiary. If the Normal Form of Distribution is Substantially Equal installment payments, then the lump sum value of the Participant’s benefit either may be segregated and separately invested and the Substantially Equal installments will be paid from the Plan; may remain invested in the Trust’s assets and the Substantially Equal installments will be paid from the Plan; or may be used to purchase a nontransferable immediate or deferred annuity that is selected by the Employer and that complies with the terms of the Plan from an insurance company to provide for such Substantially Equal installments.

(b)Normal Form of Distribution in a Money Purchase Pension Plan.If the Plan is a money purchase pension plan, then the Normal Form of Distribution is a Qualified Joint and Survivor Annuity if the Participant has not died before the Annuity Starting Date.

(c)Optional Forms of Distribution.If elected by the Sponsoring Employer in the Adoption Agreement, then a Participant may waive the Normal Form of Distribution and elect to have his or her benefit distributed in an Optional Form of Distribution. The permitted Optional Forms of Distribution are (1) a lump sum payment; (2) Substantially Equal monthly, quarterly, semi-annual or annual cash installment payments over a period certain which does not extend beyond the life of the Participant; the joint lives of the Participant and a designated Beneficiary; or a period certain not extending beyond the life expectancy of the Participant and a designated Beneficiary. If an Optional Form of Distribution is Substantially Equal installment payments, then the lump sum value of the Participant’s benefit either may be segregated and separately invested and the Substantially Equal installments will be paid from the Plan; may remain invested in the Trust’s assets and the Substantially Equal installments will be paid from the Plan; or may be used to purchase a nontransferable immediate or deferred annuity that is selected by the Employer and that complies with the terms of the Plan from an insurance company to provide for such Substantially Equal installments; (3) a non-transferable annuity which can be purchased from an insurance company and complies with the terms of this Plan; and/or (4) in designated sums from time to time as elected by the Participant. All Optional Forms of Distribution that are elected by the Sponsoring Employer in the Adoption Agreement are available on a non-discriminatory basis and are not subject to the Administrator’s discretion.

(d)Partial Distributions.If a Participant receives a distribution of less than 100% of his or her Vested Aggregate Account balance, then the Administrator will determine the portion (including zero) of the distribution that will be made from each of the Participant’s sub-accounts, provided that any such determination is made in a uniform nondiscriminatory manner.

(e)Time of Distribution.Distribution will be made under this Section within an administratively reasonable time after the occurrence of the event as elected by the Sponsoring Employer in the Adoption Agreement.

5.5Mandatory Cash-Out of Benefits. If elected in the Adoption Agreement, the Vested Aggregate Account of a Participant who has Terminated Employment, who is entitled to a distribution under Sections 5.1, 5.2, 5.3 or 5.4 and who satisfies the requirements below will be distributed without the Participant’s consent in accordance with the following:

(a)General Rule.Distribution can only be made under this Section if a Participant’s Vested Aggregate Account balance on or after the date of Termination of Employment does not exceed the amount elected in the Adoption Agreement. Distribution will be made as soon as administratively feasible after the Participant Terminates Employment.

(b)Later Distribution if Account Falls to the Threshold.If a Participant would have received a distribution under paragraph (a) but for the fact that his or her Vested Aggregate Account exceeded the cash-out threshold elected in the Adoption Agreement, and if at a later time the Participant’s Vested Aggregate Account is reduced to an amount not greater than the cash-out threshold, the Administrator will distribute such Vested Aggregate Account in a lump sum without the Participant’s consent as soon as administratively feasible after the date the Participant’s Vested Aggregate Account no longer exceeds the cash-out threshold.

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(c)Cash-out Threshold and the Participant’s Rollover Contribution Account.If the cash-out threshold elected in the Adoption Agreement is $5,000, then effective January 1, 2002, the determination of whether a Participant’s Vested Aggregate Account exceeds $5,000 may be made by excluding the Participant’s Rollover Contribution Account (if any). If the cash-out threshold elected in the Adoption Agreement is any amount other than $5,000, the determination of whether a Participant’s Vested Aggregate Account balance exceeds such amount must be made by including the Participant’s Rollover Contribution Account (if any).

(d)Cash-out Threshold Exceeds $1,000.If the cash-out threshold exceeds $1,000 at any time, then a mandatory cash-out distribution under this paragraph will, at the election of the Participant, be made as a lump sum cash payment or as a direct rollover under Section 5.14. Prior to March 28, 2005, if the Participant does not elect to have the distribution paid directly to an eligible retirement plan specified by the Participant in a direct rollover or to receive the distribution as a lump sum cash payment, then the Administrator will pay the distribution as a lump sum cash payment. However, if the cash-out threshold ever exceeds $1,000 on or after March 28, 2005, the remaining provisions of this paragraph apply. In the event of a mandatory cash-out distribution greater than $1,000, if the Participant does not elect to have such distribution paid directly to an eligible retirement plan specified by the Participant in a direct rollover or to receive the distribution as a lump sum cash payment, the Administrator will pay the distribution in an automatic direct rollover to an individual retirement plan designated by the Administrator. Such individual retirement plan, as defined in Code §7701(a)(37), may be either an individual retirement account within the meaning of Code §408(a) or an individual retirement annuity within the meaning of Code §408(b); either of which will subsequently be referred to as an IRA. The Administrator will establish the IRA at a qualified financial institution by selecting an IRA trustee, custodian or issuer that is unrelated to the Employer or the Administrator (unless subsequent rules or Regulations permit otherwise), and will make the initial investment choices for the IRA. An automatic direct rollover will occur not less than 30 days and not more than 90 days (or such other time as permitted by law) after the Code §402(f) notice with the explanation of the automatic direct rollover is provided to the Participant. The determination of whether a mandatory cash-out distribution exceeds $1,000 will be made by including the Participant’s Rollover Contribution Account (if any).

(e)Cash-out Threshold Does Not Exceed $1,000.If the cash-out threshold is $1,000 or less at any time, a mandatory cash-out distribution under this paragraph will, at the election of the Participant, be made as a lump sum cash payment or as a direct rollover under Section 5.14. If the Participant does not elect to have the distribution paid directly to an eligible retirement plan specified by the Participant in a direct rollover or to receive the distribution as a lump sum cash payment, the Administrator will pay the distribution as a lump sum cash payment; any such lump sum cash payment will occur not less than 30 days and not more than 90 days (or such other time as permitted by law) after the Code §402(f) notice is provided to the Participant.

5.6Restrictions on Immediate Distributions. If a Participant’s Vested Aggregate Account balance exceeds the amount set forth in paragraph (a) of this Section and is Immediately Distributable, then such account can only be distributed in accordance with the following provisions:

(a)General Rule.If (1) the Vested Aggregate Account balance (effective January 1, 2002, determined before taking into account the Participant’s Rollover Contribution Account) of a Participant who has Terminated Employment exceeds $5,000, or if there are remaining payments to be made with respect to a particular distribution option that previously commenced, and (2) such amount is Immediately Distributable, then the Participant (and, with respect to any portion of the Participant’s Account which is subject to the Qualified Joint and Survivor Annuity requirements of Code §401(a)(11) and Code §417, the Participant’s Spouse, if any (or where either the Participant or Spouse has died, the survivor)), must consent to any distribution of such amount. If (1) the Vested Aggregate Account balance (effective January 1, 2002, determined before taking into account the Participant’s Rollover Contribution Account) of a Participant who has Terminated Employment does not exceed $5,000, but (if applicable) exceeds the cash-out threshold that the Sponsoring Employer elects in the Adoption Agreement, and (2) such amount is Immediately Distributable, then only the Participant (or where the Participant has died, the Participant’s Spouse or Beneficiary) must consent to any distribution of such amount.

(b)General Consent Requirement.The consent of the Participant (and, with respect to any portion of the Participant’s Account which is subject to the Qualified Joint and Survivor Annuity requirements of Code §401(a)(11) and Code §417, the Participant’s Spouse, if any (or where either the Participant or Spouse has died, the survivor)) to any benefit that is Immediately Distributable must be obtained in writing within the 90-day period (or such other period as may be required

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by law) ending on the Annuity Starting Date. However, (1) with respect to any portion of the Participant’s Account which is not subject to the Qualified Joint and Survivor Annuity requirements of Code §401(a)(11) and Code §417, the Participant will not be required to consent to a distribution that is required by Code §401(a)(9) or §415; and (2) with respect to any portion of the Participant’s Account which is subject to the Qualified Joint and Survivor Annuity requirements of Code §401(a)(11) and Code §417, (A) only the Participant must consent to the distribution of a Qualified Joint and Survivor Annuity while the benefit is Immediately Distributable, and (B) neither the Participant (nor the Participant’s Spouse, if any) will be required to consent to a distribution that is required under the terms of Code §401(a)(9) or Code §415.

(c)Notification Requirement.The Administrator must notify the Participant (and, with respect to any portion of the Participant’s Account which is subject to the Qualified Joint and Survivor Annuity requirements of Code §401(a)(11) and Code §417, the Participant’s Spouse) of the right to defer any distribution until it is no longer Immediately Distributable. Notification will include a general explanation of the material features and relative values of the optional forms of benefit available in a manner that would satisfy the notice requirements of Code §417(a)(3); and will be provided no less than 30 days or more than 90 days (or such other period as may be required by law) prior to the Annuity Starting Date. Notwithstanding the other requirements of this Section, the respective notices prescribed by this Section need not be given to a Participant if: (1) the Plan “fully subsidizes” the costs of a Qualified Joint and Survivor Annuity or Qualified Pre-Retirement Survivor Annuity;, and (2) the Plan does not allow the Participant to waive the Qualified Joint and Survivor Annuity or Qualified Pre-Retirement Survivor Annuity, and does not allow a Participant who has a Spouse to designate a non-Spouse Beneficiary. For purposes of this Section, a plan fully subsidizes the costs of a benefit if no increases in cost, or decreases in benefits to the Participant may result from the Participant’s failure to elect another benefit.

(d)Waiver of 30-Day Requirement.Notwithstanding anything in this Section to the contrary, distribution of a Participant’s benefit may begin less than 30 days after the notice described in paragraph (c) is given if (1) the Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving notice to consider the decision of whether or not to elect a distribution; (2) the Participant, after receiving the notice, affirmatively elects a distribution (or a particular distribution option); and (3) with respect to any portion of the Participant’s Account which is subject to the Qualified Joint and Survivor Annuity requirements of Code §401(a)(11) and Code §417, the Participant does not revoke the election at any time prior to the expiration of the 7-day period that begins on the date the notice is given.

(e)Consent Not Needed on Plan Termination.If upon Plan termination neither the Employer nor an Affiliated Employer maintains another defined contribution plan other than an employee stock ownership plan (ESOP) as defined in Code §4975(e)(7) or §409(a), then the Participant’s benefit will, without the Participant’s consent (and, with respect to any portion of the Participant’s Account which is subject to the Qualified Joint and Survivor Annuity requirements of Code §401(a)(11) and Code §417, without the Spouse’s consent), be distributed to the Participant. If the Employer or an Affiliated Employer maintains another defined contribution plan other than an ESOP, then the Participant’s benefit will, without the Participant’s consent (and, with respect to any portion of the Participant’s Account which is subject to the Qualified Joint and Survivor Annuity requirements of Code §401(a)(11) and Code §417, without the Spouse’s consent), be transferred to the other plan if the Participant does not consent to an immediate distribution under this Section. Notwithstanding the foregoing, this paragraph will not apply to any portion of the Participant’s Account which is subject to the Qualified Joint and Survivor Annuity requirements of Code §401(a)(11) and Code §417 if the Plan, upon termination, offers an annuity option purchased from a commercial provider with respect to such portion of the Participant’s Account.

5.7Accounts of Reemployed Participants. If a Participant who is not 100% Vested in his or her Participant’s Account Terminates Employment with the Employer, a Forfeiture of all or a portion of the Participant’s Account of the Participant who has Terminated Employment may have occurred, and the Participant is subsequently reemployed by the Employer, then the Participant’s Account of the reemployed Participant will be administered in accordance with the following provisions:

(a)Reemployment of a Participant After 5 Consecutive Breaks in Service.If the Participant is reemployed by the Employer after incurring five consecutive Breaks in Service, then any previous Forfeiture of the Participant’s Account will not be restored under the terms of this Plan.

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(b)Reemployment of a Non-Vested Participant Before 5 Consecutive Breaks in Service.If a Participant’s Vested Interest in the entire Participant’s Account attributable to Employer contributions is 0% on the date the Participant Terminates Employment, the Participant is deemed to have received a distribution of such Vested Interest on the date of such Termination of Employment pursuant to the Section 3.13(a)(1), a Forfeiture of the Participant’s Account attributable to Employer contributions occurs on the date of such Termination of Employment pursuant to the Section 3.13(a)(1), and the Participant is subsequently reemployed by the Employer before incurring five consecutive Breaks in Service, then the previous Forfeiture of such Participant’s Account attributable to Employer contributions will be restored, calculated as of the date that the Forfeiture occurred (unadjusted by subsequent gains and losses). Furthermore, if a Participant’s Vested Interest in the entire Participant’s Account attributable to Employer contributions is 0% on the date the Participant Terminates Employment, a Forfeiture of the Participant’s Account attributable to Employer contributions occurs on the date that a Participant incurs the number of consecutive Breaks in Service after Termination of Employment that the Sponsoring Employer elects in the Adoption Agreement pursuant to the Section 3.13(a)(2), and the Participant is subsequently reemployed by the Employer before incurring five consecutive Breaks in Service, then the previous Forfeiture of such Participant’s Account attributable to Employer contributions will be restored, calculated as of the date that the Forfeiture occurred (unadjusted by subsequent gains and losses). Such restoration of the previous Forfeiture attributable to Employer contributions will occur in the Plan Year that such Participant is reemployed by the Employer.

(c)Reemployment of a Vested Participant Before 5 Consecutive Breaks in Service.If a Participant’s Vested Interest in the Participant’s Account balance attributable to Employer contributions is less than a 100% (but greater than 0%) on the date that the Participant Terminates Employment, a Forfeiture of the non-Vested portion of the Participant’s Account balance attributable to Employer contributions of the Participant who has Terminated Employment may have occurred, and the Participant is subsequently reemployed by the Employer before incurring five consecutive Breaks in Service, then the following provisions will apply:

(1)Distribution Has Occurred But No Forfeiture Has Occurred.If a Forfeiture of the non-Vested portion of the Participant’s Account attributable to Employer contributions has not occurred but a distribution of all or a portion of the Participant’s Account of the Participant who has Terminated Employment has occurred, then a separate bookkeeping account will be established for the Participant’s Account at the time of distribution; the Participant’s Vested Interest in the separate bookkeeping account at any relevant time will be an amount (“X”) determined according to the following formula: X = P(AB + (R x D)) - (R x D)). In applying the formula, “P” is the Vested Interest at the relevant time, “AB” is the respective account balance at the relevant time, “D” is the amount of the distribution, and “R” is the ratio of the respective account balance at the relevant time to the respective account balance after the distribution.

(2)No Distribution Has Occurred But Forfeiture Has Occurred.If the Sponsoring Employer elects in the Adoption Agreement that a Forfeiture will occur when a Participant who has Terminated Employment incurs a specified number of consecutive Breaks in Service that is less than five (5) consecutive Breaks in Service, a Forfeiture of the non-Vested portion of the Participant’s Account balance attributable to Employer contributions has occurred when a Participant who Terminated Employment incurred the specified number of consecutive Breaks in Service, and the Participant who has Terminated Employment is reemployed by the Sponsoring Employer or an Affiliated Employer before incurring five (5) consecutive Breaks in Service and before receiving any distribution of the Vested Interest in his or her Participant’s Account balance attributable to Employer contributions, then the previous Forfeiture of such Participant’s Account balance attributable to Employer contributions will be restored, calculated as of the date that the Forfeiture occurred (unadjusted by subsequent gains and losses). Such restoration of the previous Forfeiture of such Participant’s Account balance attributable to Employer contributions will occur in the Plan Year that such Participant is reemployed by the Employer.

(3)Both Distribution and Forfeiture Have Occurred.If a distribution of all or a portion of the Vested Interest in the Participant’s Account of a Participant who has Terminated Employment has occurred and a Forfeiture of the non-Vested portion of the Participant’s Account attributable to Employer contributions has occurred (which may not necessarily occur at the same time that the distribution occurs), then the previous Forfeiture of such Participant’s Account balance attributable to Employer contributions will be restored, calculated as of the date the Forfeiture occurred (unadjusted by subsequent gains and losses) and based upon the Sponsoring Employer’s decision whether the Participant is required to repay to the Plan the full amount of all distribution(s) which were attributable to Employer contributions (and if this Plan is a 401(k) Plan, then effective as of the first day of Plan Year beginning in 2006 (or

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such earlier effective date as may be provided in a separate amendment for implementing the final §401(k) Regulations and as permitted by such Regulations), including Elective Deferrals). With respect to such decision of the Sponsoring Employer whether the Participant is required to repay to the Plan the full amount of all distribution(s) which were attributable to Employer contributions (and if this Plan is a 401(k) Plan, then effective as of the first day of Plan Year beginning in 2006 (or such earlier effective date as may be provided in a separate amendment for implementing the final §401(k) Regulations and as permitted by such Regulations), including Elective Deferrals) in order to have the previous Forfeiture of such Participant’s Account balance attributable to Employer contributions be restored, the following provisions will apply:

(A)Precedent Established. Once such decision by the Sponsoring Employer has been made, such decision will establish precedence for the Plan and cannot be changed, altered or modified.

(B)Time of Restoration If Repayment Is Not Required.If, based upon the Sponsoring Employer’s decision, the Participant is not required to repay to the Plan the full amount of all distribution(s) which were attributable to Employer contributions (and if this Plan is a 401(k) Plan, then effective as of the first day of Plan Year beginning in 2006 (or such earlier effective date as may be provided in a separate amendment for implementing the final §401(k) Regulations and as permitted by such Regulations), including Elective Deferrals) in order to have the previous Forfeiture of such Participant’s Account balance attributable to Employer contributions be restored, then such restoration will occur in the Plan Year in which the Participant is reemployed by the Employer.

(C)Time of Restoration If Repayment Is Required. If, based upon the Sponsoring Employer’s decision, the Participant is required to repay to the Plan the full amount of all distribution(s) which were attributable to Employer contributions (and if this Plan is a 401(k) Plan, then effective as of the first day of Plan Year beginning in 2006 (or such earlier effective date as may be provided in a separate amendment for implementing the final §401(k) Regulations and as permitted by such Regulations), including Elective Deferrals) in order to have the previous Forfeiture of such Participant’s Account balance attributable to Employer contributions be restored, then, such repayment by the Participant must be made before the earlier of (i) five years after the Participant’s Reemployment Commencement Date, or (ii) the date on which the Participant incurs five consecutive Breaks in Service following the date of distribution of either the entire or the remaining Vested Interest in the Participant’s Account. Such restoration of the previous Forfeiture of such Participant’s Account balance attributable to Employer contributions will occur in the Plan Year that the Participant repays to the Plan the full (or any remaining) amount of the distribution which was attributable to Employer contributions (and if this Plan is a 401(k) Plan, then effective as of the first day of Plan Year beginning in 2006 (or such earlier effective date as may be provided in a separate amendment for implementing the final §401(k) Regulations and as permitted by such Regulations), including Elective Deferrals).

(d)Sources of Restoration of Previously Forfeited Amounts.The sources to restore a previous Forfeiture of the non-Vested portion of the Participant’s Account balance attributable to Employer contributions pursuant to this Section will be made first by using available Forfeitures to restore the previous Forfeiture and, if such available Forfeitures are insufficient to restore the previous Forfeiture, by the Employer making a special Employer contribution to the Plan to the extent necessary to restore the previous Forfeiture.

5.8Waiver of Benefits and Spousal Consent. If following provisions apply to a Participant’s (or, where applicable, a Participant’s Spouse’s) waiver of benefits under the Plan:

(a)Normal Form of Distribution Is Not a QJSA. If the Normal Form of Distribution is not a Qualified Joint and Survivor Annuity, all distributions can be made from the Plan to a Participant without the consent of the Participant’s Spouse, except for any portion of the Participant’s Account which is subject to the Qualified Joint and Survivor Annuity requirements of Code §401(a)(11) and Code §417. Subject to the provisions of the next sentence, with regard to a death benefit payable to a Spouse, a Spouse can elect to waive such death benefit under Section 5.2 of the Plan, but the election will not be effective unless (1) the election is in writing; (2) the election designates a specific Beneficiary or form of benefit which may not be changed without Spousal consent (or the Spouse’s consent expressly permits designations by the Participant without any

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requirement of further Spousal consent); and (3) the Spouse’s consent acknowledges the effect of the election and is witnessed by the Administrator or a notary public. With regard to a distribution of any portion of a Participant’s Account which is subject to the QJSA and QPSA requirements of Code §401(a)(11) and Code §417, the provisions set forth in paragraph (b) below apply.

(b)Normal Form of Distribution Is a QJSA. If the Normal Form of Distribution is a Qualified Joint and Survivor Annuity, or with respect to any portion of a Participant’s Account which is subject to the Qualified Joint and Survivor Annuity requirements of Code §401(a)(11) and §417, the following provisions apply:

(1)Election to Waive a QJSA.A married Participant’s election to waive a Qualified Joint and Survivor Annuity, or an unmarried Participant’s election to waive a life annuity, must be in writing and must be made during the 90-day period (or such other period as may be required by law) ending on the Annuity Starting Date. The election may be revoked in writing and a new election may be made at any time and any number of times during the election period.

(2)Election to Waive a QPSA.A married Participant’s election to waive a Qualified Pre-Retirement Survivor Annuity must be in writing and must be made during an election period beginning on the first day of the Plan Year in which the Participant reaches Age 35 and ending on the date of his or her death. The election may be revoked in writing and a new election made at any time and any number of times during the election period. A terminated Participant’s election period concerning his or her Vested Aggregate Account before Termination of Employment will not begin later than such date. If elected in the Adoption Agreement and the Participant has not completed a designation form specifying the time and/or form of payment of the Qualified Pre-Retirement Survivor Annuity prior to the Participant’s death, then the surviving Spouse may elect to receive the Qualified Pre-Retirement Survivor Annuity in any optional form of payment permitted in Section 5.2 and as elected in the Adoption Agreement.

(3)Special Pre-Age 35 QPSA Election.A Participant who has not yet reached Age 35 as of the end of any current Plan Year may make a special election to waive a Qualified Pre-Retirement Survivor Annuity for the period beginning on the date of such election and ending on the first day of the Plan Year in which such Participant reaches Age 35. This election will not be valid unless the Participant receives the same written explanation of the Qualified Pre-Retirement Survivor Annuity set forth in subparagraph (4). Qualified Pre-Retirement Survivor Annuity coverage will be automatically reinstated as of the first day of the Plan Year in which the Participant reaches Age 35. A new election to waive a Qualified Pre-Retirement Survivor Annuity on or after such date is subject to the full requirements of this Section.

(4)Required Written Explanation.In the case of a Qualified Joint and Survivor Annuity, the Administrator will no less than 30 days and no more than 90 days (or such other period as may be required by law) prior to the Annuity Starting Date provide to each Participant a written explanation of: (A) the terms and conditions of a Qualified Joint and Survivor Annuity; (B) the Participant’s right to make and the effect of an election to waive the Qualified Joint and Survivor Annuity form of benefit; (C) the rights of a Participant’s Spouse; and (D) the right to make, and the effect of, a revocation of a previous election to waive the Qualified Joint and Survivor Annuity. The Annuity Starting Date for a distribution in a form other than a Qualified Joint and Survivor Annuity may be less than 30 days after receipt of the written explanation described in the preceding sentence provided: (A) the Participant has been provided with information that clearly indicates that the Participant has at least 30 days to consider whether to waive the Qualified Joint and Survivor Annuity and elect (with Spousal consent) to a form of distribution other than a Qualified Joint and Survivor Annuity; (B) the Participant is permitted to revoke any affirmative distribution election at least until the Annuity Starting Date or, if later, at any time prior to the expiration of the 7-day period that begins the day after the explanation of the Qualified Joint and Survivor Annuity is provided to the Participant; and (C) the Annuity Starting Date is a date after the date that the written explanation was provided to the Participant. In the case of a Qualified Pre-Retirement Survivor Annuity, the Administrator will provide each Participant within the Applicable Period as defined in paragraph (5) with a written explanation of the Qualified Pre-Retirement Survivor Annuity in such terms and in such manner as would be comparable to the written explanation applicable to a Qualified Joint and Survivor Annuity as set forth herein.

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(5)Applicable Period.The term “Applicable Period” means whichever of the following periods ends last: (A) the period beginning with the first day of the Plan Year in which the Participant attains Age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains Age 35; (B) a reasonable period after the individual becomes a Participant in the Plan; (C) a reasonable period ending after the requirements of Code §401(a)(11) apply to the Participant; or (D) a reasonable period ending after the requirements of Code §417(a)(5) cease to apply with respect to the Participant. For purposes of this paragraph, a reasonable period means the end of the two year period beginning one year prior to the date the applicable event occurs, and ending one year after that date.

(6)Participants Who Terminate Before Age 35.If a Participant Terminates Employment before the Plan Year in which he or she reaches Age 35, then the notice required under subparagraph (4) will be provided within the two year period beginning one year prior to such Termination of Employment and ending one year after such Termination of Employment. If such Participant thereafter returns to employment with the Employer, then the Applicable Period for such Participant will be redetermined.

(7)Elections Must Have Spousal Consent.A Participant’s election not to receive a Qualified Joint and Survivor Annuity or a Participant’s election not to receive a Qualified Pre-Retirement Survivor Annuity will not be effective unless (A) the Participant’s Spouse consents in writing to the election; (B) the election designates a specific Beneficiary (or form of benefit) which may not be changed without Spousal consent (or the consent of the Spouse expressly permits designations by the Participant without any requirement of further Spousal consent); and (C) the Spouse’s consent acknowledges the effect of the election and is witnessed by the Administrator or a notary public.

(8)Additional Requirements and Exceptions For Spousal Consent.Notwithstanding subparagraph (7) above, a Spouse’s consent will not be required if there is no Spouse, if the Spouse cannot be located, or if there are other circumstances (as set forth in the Code or Regulations) which preclude the necessity of such Spouse’s consent. Any consent by a Participant’s Spouse (or establishment that consent cannot be obtained) will be effective only with respect to such Spouse. A consent that permits designations by the Participant without any requirement of further Spousal consent must acknowledge that the Spouse has the right to limit consent to a specific Beneficiary, and a specific form of benefit where applicable, and that the Spouse voluntarily elects to relinquish either or both of such rights. A revocation of a prior election may be made by a Participant without the Spouse’s consent at any time before benefits begin. No Spouse’s consent obtained under subparagraph (7) will be valid unless the Participant has received notice as provided in subparagraph (4) above.

5.9Required Minimum Distributions. All distributions from the Plan will be determined and made in accordance with the final and temporary Regulations under Code §401(a)(9) on April 17, 2002. Pursuant to those Regulations, all distributions will be determined in accordance with the following provisions:

(a)General Rules.All distributions hereunder will be made in accordance with the following general rules:

(1)Effective Date.Unless an earlier effective date is specified in the Adoption Agreement, the provisions of this Section will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year.

(2)Coordination with Minimum Distribution Requirements Previously in Effect.If the Adoption Agreement specifies an effective date of this Section that is earlier than calendar years beginning with the 2003 calendar year, then required minimum distributions for 2002 under this Section will be determined as follows: If the total amount of 2002 required minimum distributions under the Plan made to the distributee prior to the effective date of this Section equals or exceeds the required minimum distributions determined under this Section, then no additional distributions will be required to be made for 2002 on or after such date to the distributee. If the total amount of 2002 required minimum distributions under the plan made to the distributee prior to the effective date of this Section is less than the amount determined under this Section, then required minimum distributions for 2002 on and after such date will be determined so that the total amount of required minimum distributions for 2002 made to the distributee will be the amount determined under this Section.

(3)Precedence.The requirements of this Section will take precedence over any inconsistent provisions of the Plan and any prior Plan amendments.

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(4)Requirements of Regulations Incorporated.All distributions required under this Section will be determined and made in accordance with the Regulations under Code §401(a)(9).

(5)TEFRA §242(b)(2) Elections.Notwithstanding the other provisions of this Section, distributions may be made under a designation made before January 1, 1984, in accordance with Tax Equity and Fiscal Responsibility Act (TEFRA) §242(b)(2) and the provisions of the Plan that relate to TEFRA §242(b)(2).

(b)Time and Manner of Distribution. All required minimum distributions will be made from the Plan in the following time and in the following manner:

(1)Required Beginning Date. The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s Required Beginning Date.

(2)Death of Participant Before Distributions Begin.If the Participant dies before distribution begins, the Participant’s entire interest will be distributed (or begin to be distributed) not later than as follows:

(A)5-Year Rule Applies to All Distributions to Designated Beneficiaries.If the Participant dies before distributions begin and there is a Designated Beneficiary, the Participant’s entire interest will be distributed to the Designated Beneficiary by December 31 of the calendar year containing the fifth anniversary of the Participant’s death. If the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary and the surviving Spouse dies after the Participant but before distributions to either the Participant or the surviving Spouse begin, this subparagraph will apply as if the surviving Spouse were the Participant. This subparagraph also applies to all distributions.

(B)Life Expectancy Rule.Notwithstanding subparagraph (b)(2)(A), if the Sponsoring Employer elects in the Adoption Agreement to permit a Participant (or, if no election has been made by the Participant prior to the Participant’s death, then the Participant’s Designated Beneficiary) to elect the Life Expectancy rule, then a Participant (or, if no election has been made by the Participant prior to the Participant’s death, then the Participant’s Designated Beneficiary) may elect on an individual basis whether the Life Expectancy rule applies to distributions after the death of a Participant who has a Designated Beneficiary. The election must be made no later than September 30th of the calendar year in which distribution would be required to begin under this subparagraph (b)(2)(B). If neither the Participant nor the Beneficiary makes an election under this subparagraph (or the election is received later than September 30th of the calendar year in which distribution would be required to begin under this subparagraph (b)(2)(B)), then distributions will be made in accordance with the 5-Year rule of subparagraph (b)(2)(A) above. The following provisions relate to the Life Expectancy rule under this subparagraph (b)(2)(B):

(i)Surviving Spouse Is the Sole Designated Beneficiary.If the Participant’s surviving Spouse is the sole Designated Beneficiary, then distributions to the surviving Spouse will begin by the later of [a] December 31 of the calendar year immediately following the calendar year in which the Participant died, or [b] December 31 of the calendar year in which the Participant would have attained age 70½.

(ii)Surviving Spouse Is Not the Sole Designated Beneficiary.If the Participant’s surviving Spouse is not the sole Designated Beneficiary, then distributions to the Designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

(iii)No Designated Beneficiary.If there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, then the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(iv)Surviving Spouse Dies Before Distributions Begin.If the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary and the surviving Spouse dies after the Participant but before distributions to the surviving Spouse begin, then this subparagraph (b)(2)(B), other than subparagraph (b)(2)(B)(i), will apply as if the surviving Spouse were the Participant.

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(v)Election to Allow Designated Beneficiary Receiving Distributions Under 5-Year Rule to Elect Life Expectancy Distributions.A Designated Beneficiary who is receiving payments under the 5-Year rule may make a new election to receive payments under the Life Expectancy rule until December 31, 2003, provided that all amounts that would have been required to be distributed under the Life Expectancy rule for all Distribution Calendar Years before 2004 are distributed by the earlier of December 31, 2003 or the end of the 5-Year period.

(C)Date Distributions Are Deemed To Begin.For purposes of this subparagraph (b)(2) and paragraph (d), unless subparagraph (b)(2)(B)(iv) above applies, distributions are considered to begin on the Participant’s Required Beginning Date. If subparagraph (b)(2)(B)(iv) above applies, distributions are considered to begin on the date distributions are required to begin to the surviving Spouse under subparagraph (b)(2)(B)(i) above. If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s Required Beginning Date (or to the Participant’s surviving Spouse before the date distributions are required to begin to the surviving Spouse under subparagraph (b)(2)(B)(i)), then the date distributions are considered to begin is the date distributions actually commence.

(3)Forms of Distribution.Unless the Participant’s interest is distributed as an annuity purchased from an insurance company or in a single sum on or before the Required Beginning Date, as of the first Distribution Calendar Year distributions will be made in accordance with paragraphs (c) and (d). If the Participant’s interest is distributed as an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Code §401(a)(9) and the Regulations.

(c)Required Minimum Distributions During the Participant’s Lifetime.The amount of required minimum distributions during a Participant’s lifetime will be determined as follows:

(1)Amount of Required Distribution for Each Distribution Calendar Year.During the Participant’s lifetime, the minimum amount that will be distributed each Distribution Calendar Year is the lesser of (A) the quotient obtained by dividing the Participant’s Account Balance by the distribution period in the Uniform Lifetime Table set forth in Regulation §1.401(a)(9)-9, using the Participant’s age as of the Participant’s birthday in the Distribution Calendar Year; or (B) if the Participant’s sole Designated Beneficiary for the Distribution Calendar Year is the Participant’s Spouse, then the quotient obtained by dividing the Participant’s Account Balance by the number in the Joint and Last Survivor Table set forth in Regulation §1.401(a)(9)-9, using the Participant’s and Spouse’s attained ages as of the Participant’s and Spouse’s birthdays in the Distribution Calendar Year.

(2)Required Minimum Distributions Continue Through Year of Participant’s Death.Required minimum distributions will be determined under this paragraph (c) beginning with the first Distribution Calendar Year and up to and including the Distribution Calendar Year that includes the Participant’s date of death.

(d)Required Minimum Distributions After the Participant’s Death. Required minimum distributions will be made after a Participant’s death in accordance with the following provisions:

(1)Death On or After Distributions Begins.If a Participant dies on or after the date distribution begins, then the amount of a required minimum distribution will be determined as follows:

(A)Participant Survived by Designated Beneficiary.If the Participant dies on or after the date distributions begin and there is a Designated Beneficiary, then the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the longer of the remaining Life Expectancy of the Participant or the remaining Life Expectancy of the Designated Beneficiary, determined in accordance with the following provisions:

(i)Calculation of Participant’s Remaining Life Expectancy.The Participant’s remaining Life Expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

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(ii)Surviving Spouse Is Sole Designated Beneficiary. If the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary, then the remaining Life Expectancy of the surviving Spouse is calculated for each Distribution Calendar Year after the year of the Participant’s death using the surviving Spouse’s age as of the Spouse’s birthday in that Distribution Calendar Year. For Distribution Calendar Years after the year of the surviving Spouse’s death, the remaining Life Expectancy of the surviving Spouse is calculated using the age of the surviving Spouse as of the Spouse’s birthday in the calendar year of the Spouse’s death, reduced by one for each subsequent calendar year.

(iii)Surviving Spouse Is Not Sole Designated Beneficiary. If the Participant’s surviving Spouse is not the Participant’s sole Designated Beneficiary, then the Designated Beneficiary’s remaining Life Expectancy is calculated using the age of the Beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent calendar year.

(B)No Designated Beneficiary.If the Participant dies on or after the date distributions begin and there is no Designated Beneficiary as of September 30 of the year after the year of the Participant’s death, then the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the Participant’s remaining Life Expectancy calculated using the age of the Participant in the year of death, reduced by one each subsequent year.

(2)Death Before the Date Distribution Begins.If a Participant dies before the date distribution begins, then the amount of a required minimum distribution will be determined as follows:

(A)Participant Survived by Designated Beneficiary.If (i) the Sponsoring Employer elects in the Adoption Agreement to permit a Participant (or, if no election has been made by the Participant prior to the Participant’s death, then the Participant’s Designated Beneficiary) to elect the Life Expectancy rule of subparagraph (b)(2)(B); (ii) the Participant dies before the date distributions begin; and (iii) there is a Designated Beneficiary, then the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the remaining Life Expectancy of the Participant’s Designated Beneficiary, determined as provided in subparagraph (d)(1).

(B)No Designated Beneficiary.If the Participant dies before the date distributions begin and there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, then distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(C)Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin.If (i) the Sponsoring Employer elects in the Adoption Agreement to permit a Participant (or, if no election has been made by the Participant prior to the Participant’s death, then the Participant’s Designated Beneficiary) to elect the Life Expectancy rule of subparagraph (b)(2)(B); (ii) the Participant dies before the date distributions begin; (iii) the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary; and (iv) the surviving Spouse dies before distributions are required to begin to the surviving Spouse under subparagraph (b)(2)(B)(i), then this subparagraph (d)(2) will apply as if the surviving Spouse were the Participant.

5.10Statutory Commencement of Benefits. Unless the Participant otherwise elects, distribution of a Participant’s benefit must begin no later than the 60th day after the latest of the close of the Plan Year in which the Participant (a) reaches the earlier of Age 65 or Normal Retirement Age; (b) reaches the 10th anniversary of the year that the Participant commenced Plan participation; or (c) Terminates Employment with the Employer. However, the failure of a Participant (and, with respect to any portion of the Participant’s Account which is subject to the Qualified Joint and Survivor Annuity requirements of Code §401(a)(11) and Code §417, the Participant’s Spouse) to consent to a distribution while a benefit is Immediately Distributable will be deemed to be an election to defer the payment (or the commencement of the payment) of any benefit sufficient to satisfy this Section. In addition, if this Plan provides for an Early Retirement Date, then a Participant who satisfied the service requirement (if applicable) for Early Retirement Age prior to Termination of Employment will be entitled to receive his or her Vested Aggregate Account balance, if any, upon (a) the satisfaction of the age requirement (if applicable) for Early Retirement Age, and (b) reaching the Participant’s Early Retirement Date.

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5.11Post-Termination Earnings. As of the Valuation Date coinciding with or next following the date a Participant Terminates Employment with the Employer for any reason, the Administrator will, until a distribution is made to the Participant or the Participant’s Beneficiary in accordance with Sections 5.1, 5.2, 5.3, 5.4, or 5.5, direct the Trustee in a uniform nondiscriminatory manner to either (a) invest the Participant’s Vested Aggregate Account balance determined as of such Valuation Date in a separate interest bearing account; or (b) leave the Participant’s Vested Aggregate Account balance as part of the general Trust Fund. If the Participant’s Vested Aggregate Account balance remains as part of the general Trust Fund, then such account will either (a) share in the allocation of net earnings and losses under Section 3.12 as a non-segregated account, or (b) be granted interest at a rate consistent with the interest bearing investments of the Trust Fund.

5.12Distribution in the Event of Legal Incapacity. If any person entitled to benefits (the “Payee”) is under any legal incapacity by virtue of age or mental condition, then payments may be made in one or more of the following ways as directed by the Administrator: (a) to a court-appointed guardian of the Payee; (b) to the person or entity that has a valid power of attorney of the Payee or the Payee’s estate; (c) any other person or entity authorized under State (or Commonwealth) law to receive benefits on behalf of the Payee; or (d) if the Payee is a minor, to the authorized person or entity of the Payee (e.g., custodian or guardian) under any State’s (or Commonwealth’s) Uniform Transfers to Minors Act or Uniform Gifts to Minors Act.

5.13Missing Payees and Unclaimed Benefits. With respect to a Participant or Beneficiary who has not claimed any benefit (the “missing payee”) to which such missing payee is entitled, and with respect to any Participant or Beneficiary who has not satisfied the administrative requirements for benefit payment, the Administrator may elect to either (a) to segregate the benefit into an interest bearing account, in which event an annual maintenance fee as may be set from time to time in a policy established by the Sponsoring Employer may be assessed against the segregated account; (b) subject to a policy established by the Administrator, distribute the benefit at any time in any manner which is sanctioned by the Internal Revenue Service and/or the Department of Labor, which may include (but not be limited to) (1) distribute the benefit in a automatic direct rollover to an individual retirement plan designated by the Administrator; such individual retirement plan, as defined in Code §7701(a)(37), may be either an individual retirement account within the meaning of Code §408(a) or an individual retirement annuity within the meaning of Code §408(b); or (2) distribute the benefit to the Pension Benefit Guarantee Corporation or any other authorized Federal Department or agency; (c) distribute the benefit to any person or entity who is appointed under State (or Commonwealth) law to act as a duly authorized guardian, legal representative, conservator, or power of attorney; or (d) treat the entire benefit as a Forfeiture. If a missing payee whose benefit has been forfeited is located, or if a payee whose benefit has been forfeited for failure to satisfy the administrative requirements for benefit payment subsequently satisfies such administrative requirements and claims his or her benefit, and if the Plan has not terminated (or if the Plan has terminated, all benefits have not yet been paid), then the benefit will be restored. The Administrator, on a case by case basis, may elect to restore the benefit by the use of earnings from non-segregated assets of the Fund, by Employer contributions, by available Forfeitures of the Forfeiture Account, or by any combination thereof. However, if any such payee has not been located (or satisfied the administrative requirements for benefit payment) by the time the Plan terminates and all benefits have been distributed from the Plan, then the Forfeiture of such unpaid benefit will not be restored.

5.14Direct Rollovers. This Section applies to distributions made after December 31, 2001. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee’s election, a distributee may elect, at the time and in the manner prescribed by the Plan, to have any portion of an eligible rollover distribution that is equal to at least $500 paid directly to an eligible retirement plan specified by the distributee in a direct rollover. If an eligible rollover distribution is less than $500, then a distributee may not make the election described in the preceding sentence to rollover a portion of the eligible rollover distribution.

(a)Definition of Eligible Rollover Distribution.The term “eligible rollover distribution” means any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include (1) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee’s designated beneficiary, or for a specified period of ten years or more; (2) any distribution to the extent such distribution is required under Code §401(a)(9); (3) the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities); (4) the portion of any distribution which is attributable to a financial hardship distribution; and (5) any other distribution that is reasonably expected to total less than $200 during a year.

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(b)Voluntary and Mandatory Employee Contributions as Eligible Rollover Distributions.Notwithstanding anything in the Plan to the contrary, with respect to distributions made after December 31, 2001, an eligible rollover distribution may include either Voluntary Employee Contributions or Mandatory Employee Contributions which are not includible in gross income; however, the portion of an eligible rollover distribution attributable to Voluntary Employee Contributions or Mandatory Employee Contributions can be paid only to an individual retirement account or annuity described in Code §408(a) or (b), or to a qualified defined contribution plan described in Code §401(a) or §403(a) that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible. Furthermore, in accordance with the Job Creation and Worker Assistance Act of 2002, when a distribution includes either Voluntary Employee Contributions or Mandatory Employee Contributions which are not includible in gross income, the amount that is rolled over will first be attributed to amounts includible in gross income.

(c)Definition of Eligible Retirement Plan.With respect to distributions made after December 31, 2001, the term “eligible retirement plan” means an individual retirement account described in Code §408(a); an individual retirement annuity described in Code §408(b); an annuity plan described in Code §403(a); an annuity contract described in Code §403(b); a qualified trust described in Code §401(a); or an eligible deferred compensation plan under Code §457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan. This definition of eligible retirement plan will also apply in the case of a distribution to a surviving Spouse, or to a Spouse or former Spouse who is the alternate payee under a qualified domestic relation order, as defined in Code §414(p); such distribution will be made in the same manner as if the Spouse was the Employee. If any portion of an eligible rollover distribution is attributable to payments or distributions from an individual’s Roth Elective Deferral Account (or the segregated portion of an individual’s Rollover Contribution Account that is attributable to Roth Elective Deferrals), then an eligible retirement plan with respect to such portion will only be either another plan’s designated Roth account of the individual from whose account the payments or distributions were made, or such individual’s Roth IRA.

(d)Definition of Distributee.The term “distributee” means an Employee or former Employee. In addition, an Employee’s or former Employee’s surviving Spouse and an Employee’s or former Employee’s Spouse or former Spouse who is the alternate payee under a qualified domestic relations order as defined in Code §414(p), are distributees with regard to the interest of the Spouse or former Spouse. With respect to any portion of a distribution that is made after December 31, 2006 from an eligible retirement plan of a deceased Employee, a distributee for purposes of a direct trustee-to trustee transfer will include an individual who is the Designated Beneficiary of the Employee and who is not the surviving Spouse of the Employee.

(e)Definition of Direct Rollover. The term “Direct Rollover” means a payment by the Plan to the eligible retirement plan that is specified by the distributee.

(f)Direct Rollover Rules for Roth Elective Deferral Account.The Plan will not provide for a direct rollover for distributions from a Participant’s Roth Elective Deferral Account if the amount of the distributions that are eligible rollover distributions are reasonably expected to total less than $200 during a year. In addition, any distribution from a Participant’s Roth Elective Deferral Account is not taken into account in determining whether distributions from the other Participant’s Account(s) are reasonably expected to total less than $200 during a year. Furthermore, the provision of this Section that allows a Participant to elect a direct rollover of only a portion of an eligible rollover distribution (but only if the amount rolled over is at least $500) is applied by treating any amount distributed from the Participant’s Roth Elective Deferral Account as a separate distribution from any amount distributed from the other Participant’s Account(s) in the Plan, even if the amounts are distributed at the same time.

5.15Distribution of Property. The determination to pay any distribution in property will be made by the Administrator in its sole discretion applied in a nondiscriminatory manner that does not discriminate in favor of Participants who are HCEs. However, if this is an amended or restated Plan, then the payee will have the right to elect a full or partial distribution in property pursuant to and limited by the provisions of Section 11.1(e).

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5.16Financial Hardship Distributions. If the Plan is a profit sharing plan or a 401(k) Plan, and if elected by the Sponsoring Employer in the Adoption Agreement, then a Participant who is still an Employee may make a written request to the Administrator that a distribution be made to the Participant because of his or her immediate and heavy financial hardship. Any such distribution will be made in accordance with the provisions of an administrative policy regarding financial hardship distributions that is promulgated under Section 8.6 by the Administrator; such administrative policy will include (but not be limited to): (a) the Participant’s accounts (or sub-accounts) that are available for financial hardship distributions; (b) the maximum percentages of such accounts (or sub-accounts) that may be distributed for financial hardships; and (c) the standards that will be used for determining whether a Participant has incurred a financial hardship for purposes of financial hardship distributions from accounts (or sub-accounts) other than Elective Deferrals. Such standards must be based on non-discriminatory and objective criteria. If the Plan is a 401(k) Plan, then any distribution under this Section of a Participant’s Pre-Tax Elective Deferrals may include any allocable earnings that are credited to such Participant’s Pre-Tax Elective Deferral Account as of the later of December 31, 1988 or the end of the last Plan Year ending before July 1, 1989, any Qualified Non-Elective Contributions (and allocable earnings) as of the later of December 31, 1988 or the end of the last Plan Year ending before July 1, 1989, and any Qualified Matching Contributions (and allocable earnings) as of the later of December 31, 1988 or the end of the last Plan Year ending before July 1, 1989. If the Normal Form of Distribution as elected in the Adoption Agreement is a Qualified Joint and Survivor Annuity, then any distribution under this Section is subject to the Spousal consent requirements of Code §401(a)(11) and §417, pursuant to Section 5.8. If the Plan is a 401(k) Plan, then any financial hardship distribution of Elective Deferrals from the Plan will comply with the following provisions:

(a)Immediate and Heavy Financial Needs. The following are the only financial needs considered immediate and heavy: (1) expenses incurred or necessary for medical care, described in Code §213(d), of the Employee, the Employee’s Spouse or dependents; (2) the purchase (excluding mortgage payments) of a principal residence for the Employee; (3) payment of tuition and related educational fees for the next 12 months of post-secondary education for the Employee, the Employee’s Spouse, the Employee’s children or the Employee’s dependents; (4) payments necessary to prevent the eviction of the Employee from, or a foreclosure on the mortgage of, the Employee’s principal residence; (5) payments for funeral or burial expenses for the Employee’s deceased parent, Spouse, children, or dependents (as defined in Code §152, and for taxable years beginning on or after January 1, 2005, without regard to Code §152(d)(1)(B)); or (6) expenses for the repair of damage to the Employee’s principal residence that would qualify for a casualty loss deduction under Code §165 (determined without regard to whether the loss exceeds 10% of adjusted gross income). Clauses (5) and (6) above only apply to Plan Years beginning after 2005.

(b)Necessary to Satisfy an Immediate and Heavy Financial Need. A financial hardship distribution will be considered as necessary to satisfy an immediate and heavy financial need of the Employee only if: (1) The distribution is not in excess of the amount of the immediate and heavy financial need (including amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution); (2) the Employee has obtained all distributions, other than financial hardship distributions, and all nontaxable loans under all plans maintained by the Employer; and (3) effective as of January 1, 2002, all plans maintained by the Employer provide that the Employee’s Elective Deferrals (and Employee Contributions) will be suspended for 6 months after the receipt of the financial hardship distribution.

5.17In-Service Distributions. If the Plan is a profit sharing plan or a 401(k) plan, and if elected in the Adoption Agreement, and subject to the minimum Age and/or Service and/or participation requirements elected in the Adoption Agreement, a Participant who is still an Employee may request in writing to the Administrator that up to 100% of the Participant’s Vested Interest in the accounts elected by the Sponsoring Employer in the Adoption Agreement be distributed to the Participant, subject to the following provisions:

(a)Amount and Form of Distribution. The amount of a Participant’s Vested Interest for distribution under this Section will be determined as of the Valuation Date which coincides with or immediately precedes the date of distribution. Any distribution under this Section will be made to the Participant in a single payment; however, if the Normal Form of Distribution as elected in the Adoption Agreement is a Qualified Joint and Survivor Annuity, then any distribution under this Section is subject to the Spousal consent requirements of Code §401(a)(11) and §417, pursuant to Section 5.8. When feasible, any such distribution will be paid at the Participant’s direction within 60 days of his or her request, but not later than a date as soon as administratively practical following the next Valuation date after the Administrator’s receipt of such request.

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(b)Frequency of In-Service Distributions.The frequency of in-service distributions to any Participant under this Section will be determined pursuant to an administrative policy regarding in-service distributions that is promulgated under Section 8.6 by the Administrator.

(c)Provisions Applicable to 401(k) Plans.If the Plan is a 401(k) plan, the minimum attained age requirement which can be elected by the Sponsoring Employer in the Adoption Agreement with respect to the distribution of amounts attributable to a Participant’s Elective Deferrals, QNECs, QMACs, ADP Safe Harbor Non-Elective Contributions and/or ADP Safe Harbor Matching Contributions is age 59½.

(d)Participants Who Are Not 100% Vested.If a distribution is made under this Section at a time when the Participant has less than a 100% Vested Interest in his or her Non-Safe Harbor Non-Elective Contribution sub-account and Matching Contribution sub-account and such Vested Interest may increase, a separate account will be established for the Participant’s Non-Safe Harbor Non-Elective Contribution sub-account balance and the Participant’s Matching Contribution sub-account balance at the time of distribution, and at any relevant time the Participant’s Vested Interest in the separate account will be equal to an amount (“X”) determined by the following formula: X = P(AB + (R x D)) - (R x D). In applying the formula, “P” is the Vested Interest at the relevant time, “AB” is the respective account balance at the relevant time, “D” is the amount of the distribution, and “R” is the ratio of the respective account balance at the relevant time to the respective account balance after distribution.

(e)Restriction on Certain Transfer Contribution Accounts.Notwithstanding anything in this Section to the contrary, no pre-retirement distribution can be made under this Section with respect to Transfer Contribution Accounts (including post-transfer earnings thereon) that are transferred into this Plan from a money purchase plan or target benefit plan (other than any portion thereof which is attributable to Voluntary Employee Contributions). Furthermore, if the Transfer Contributions are Elective Deferrals (including QNECs, QMACs, and ADP Safe Harbor Contributions) which are transferred to this Plan in a direct or indirect trustee-to-trustee transfer from another qualified plan and which are subject to the limitations in Regulation §1.401(k)-1(d), then the distribution of such Transfer Contributions (including post-transfer earnings thereon) will be subject to the limitations in Regulation §1.401(k)-1(d).

5.18Distribution of Excess Elective Deferrals. Excess Elective Deferrals, plus any income and minus any loss allocable thereto, will be distributed no later than April 15th to any Participant to whose account Excess Elective Deferrals were allocated for the preceding taxable year or calendar year and who claims Excess Elective Deferrals for such taxable year or calendar year. Distribution of Excess Elective Deferrals will be made in accordance with the following provisions:

(a)Assignment of Excess Elective Deferrals.A Participant may assign to this Plan any Excess Elective Deferrals made during a taxable year of the Participant by notifying the Administrator on or before March 15th (or such later date as established by the Administrator) of the subsequent year of the amount of the Excess Elective Deferrals to be assigned to the Plan. A Participant will be deemed to notify the Administrator of any Excess Elective Deferrals that arise by taking into account only those Elective Deferrals made to this Plan and any other plan, contract or arrangement of the Sponsoring Employer. Notwithstanding any other provision of the Plan, Excess Elective Deferrals, plus any income and minus any loss allocable to such Excess Elective Deferrals, will be distributed no later than April 15 to any Participant to whose account Excess Elective Deferrals were assigned for the preceding year and who claims Excess Elective Deferrals for such taxable year or calendar year.

(b)Determination of Income or Loss.Excess Elective Deferrals will be adjusted for any income or loss up to the last day of the Plan Year, without considering the gap period or any adjustment for income or loss during the gap period (the period between the end of the Participant’s taxable year and the date of distribution). The Plan may use any reasonable method for computing income or loss allocable to Excess Elective Deferrals, provided such method is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income or loss to Participants’ Accounts.

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(c)Source of Distribution.Distribution of Excess Elective Deferrals will be taken from a Participant’s investment options (if any) based on rules established by the Administrator. In addition, for years beginning after 2005, unless a different rule is established by the Administrator, distribution of Excess Elective Deferrals will first be made from a Participant’s Roth Elective Deferral Account before the Participant’s Pre-Tax Elective Deferral Account, to the extent Roth Elective Deferrals were made for the year, unless the Administrator permits the Participant to specify otherwise.

5.19Distribution of Excess Contributions. Notwithstanding any other provision of the Plan, Excess Contributions, plus any income and minus any loss allocable thereto, will be distributed no later than 12 months after a Plan Year to Participants to whose accounts such Excess Contributions were allocated for such Plan Year, except to the extent such Excess Contributions are classified as Catch-up Contributions.

(a)Allocation to Highly Compensated Employees.Excess Contributions will be allocated to the Highly Compensated Employees with the largest amounts of Employer contributions taken into account in calculating the ADP Test for the Plan Year in which the Excess Contributions arose, beginning with the Highly Compensated Employee with the largest amount of such Employer contributions and continuing in descending order until all the Excess Contributions have been allocated. For purposes of the preceding sentence, the “largest amount” is determined by including and excluding such Employer contributions actually paid over to the Trust on behalf of such Participant for the Plan Year that are described in Section 1.6. To the extent a Highly Compensated Employee has not reached his or her Catch-Up Contribution Limit, Excess Contributions allocated to such Highly Compensated Employee are Catch-Up Contributions and will not be treated as Excess Contributions. Excess Contributions will be treated as Annual Additions, even if such Excess Contributions are distributed.

(b)Distribution of Excess Contributions After 2½ Months.If Excess Contributions (other than Catch-up Contributions) are distributed more than 2½ months (or such later time as may be granted by future governmental guidance) after the last day of the Plan Year in which such Excess Contributions arose, then a 10% excise tax will be imposed on the Sponsoring Employer with respect to such Excess Contributions.

(c)Determination of Net Income or Loss.For Plan Years beginning prior to January 1, 2006 (or such earlier effective date as may be provided in a separate amendment implementing the final §401(k) Regulations and as permitted by such Regulations), Excess Contributions will be adjusted for any income or loss up to the end of the Plan Year and, at the discretion of the Administrator, may be adjusted for income or loss during the period, if any, between the end of the Plan Year and the actual date of distribution (the “gap period”). However, effective as of the first day of the first Plan Year beginning on or after January 1, 2006 (or such earlier effective date as may be provided in a separate amendment implementing the final §401(k) Regulations and as permitted by such Regulations), Excess Contributions will be adjusted for any income or loss up to the end of the Plan Year and during the gap period. Any adjustment for income or loss during the gap period will be allocated in a consistent manner to all Participants, and to all corrective distributions made for the Plan Year, and will be the amount determined by one of the methods set forth either in subparagraph (1), subparagraph (2), or subparagraph (3) below, as elected by the Administrator:

(1)Method 1. The amount determined by multiplying the income or loss allocable to the Participant’s Elective Deferrals (and QNECs or QMACs, or both, if such contributions are used in the ADP Test) for the Plan Year and the gap period, by a fraction, the numerator of which is the Participant’s Excess Contributions for the Plan Year and the denominator of which is the Participant’s Elective Deferral Account balance (and QNECs or QMACs, or both, if such contributions are used in the ADP Test) as of the beginning of the Plan Year plus any Elective Deferrals (and QNECs or QMACs, or both, if such contributions are used in the ADP Test) allocated to the Participant during the Plan Year and gap period.

(2)Method 2. The sum of (A) and (B): (A) the amount determined by multiplying the income or loss allocable to the Participant’s Elective Deferrals (and QNECs or QMACs, or both, if such contributions are used in the ADP Test) for the Plan Year, by a fraction, the numerator of which is the Participant’s Excess Contributions for the Plan Year and the denominator of which is the Participant’s Elective Deferral Account balance (and QNECs or QMACs, or both, if such contributions are used in the ADP Test) as of the beginning of the Plan Year plus any Elective Deferrals (and QNECs or QMACs, or both, if such contributions are used in the ADP Test) allocated to the Participant during such Plan Year;

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plus (B) the amount of gap period income or loss equal to 10% of the amount determined under clause (A) above multiplied by the number of whole months between the end of the Plan Year and the distribution date, counting the month of distribution if the distribution occurs after the 15th day of such month.

(3)Method 3. The amount determined by any reasonable method of allocating income or loss to the Participant’s Excess Contributions for the Plan Year and the gap period, provided the method used is the same method used for allocating income or losses to Participants’ Accounts. This Plan will not fail to use a reasonable method for computing the income allocable to Excess Contributions merely because the income allocable to such Excess Contributions is determined on a date that is no more than 7 days before the distribution.

(d)Accounting for Excess Contributions.Excess Contributions allocated to a Participant will be distributed from the Participant’s Elective Deferral Account and QMAC Account in proportion to the Participant’s Elective Deferrals and QMACs (to the extent used in the ADP Test) for the Plan Year. Excess Contributions will be distributed from the Participant’s QNEC Account only to the extent that the Excess Contributions exceed the balance in the Participant’s Elective Deferral Account and QMAC Account.

(e)Source and Ordering of Distribution.Distribution of Excess Contributions will be taken from a Participant’s investment options (if any) based on rules established by the Administrator. For purposes of determining the sources of a distribution of Excess Contributions, the sources will be distributed in the following order (unless a policy for the order of the sources to distribute Excess Contributions is established by the Administrator and such policy will control): (1) unmatched Elective Deferrals, (2) matched Elective Deferrals, (3) Qualified Matching Contributions (that are tested in the ACP Test and that are utilized in (or shifted into) the ADP Test), and (4) Qualified Non-Elective Contributions (to the extent that such contributions are utilized in the ADP Test). In addition, for Plan Years beginning after 2005, unless a different rule is established by the Administrator, distribution of Elective Deferrals that are Excess Contributions will first be made from a Participant’s Roth Elective Deferral Account before the Participant’s Pre-Tax Elective Deferral Account, to the extent that Roth Elective Deferrals were made for the Plan Year, unless the Administrator permits the Participant to specify otherwise.

5.20Distribution of Excess Aggregate Contributions. Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, will be forfeited, if forfeitable, or if not forfeitable, distributed no later than 12 months after a Plan Year to Participants to whose Accounts such Excess Aggregate Contributions were allocated for such Plan Year. Distribution will be made in accordance with the following provisions:

(a)Allocation to Highly Compensated Employees.Excess Aggregate Contributions will be allocated to the Highly Compensated Employees with the largest Contribution Percentage Amounts taken into account in calculating the ACP Test for the Plan Year in which the Excess Aggregate Contributions arose, beginning with the Highly Compensated Employee with the largest amount of such Contribution Percentage Amounts and continuing in descending order until all the Excess Aggregate Contributions have been allocated. For purposes of the preceding sentence, the “largest amount” is determined by including and excluding such Employer contributions and allocations that are described in the definition of “Contribution Percentage Amounts.” Excess Aggregate Contributions will be treated as Annual Additions, even if such Excess Aggregate Contributions are distributed.

(b)Distribution of Excess Aggregate Contributions After 2½ Months.If Excess Aggregate Contributions are distributed more than 2½ months after the last day of the Plan Year in which such Excess Aggregate Contributions arose, then a ten percent (10%) excise tax will be imposed on the Sponsoring Employer maintaining the Plan with respect to such Excess Aggregate Contributions.

(c)Forfeitures of Excess Aggregate Contributions.Forfeitures of Excess Aggregate Contributions will be used and/or allocated pursuant to the provisions of Section 3.13(b).

(d)Determination of Net Income or Loss.For Plan Years beginning prior to January 1, 2006 (or such earlier effective date as may be provided in a separate amendment implementing the final §401(m) Regulations and as permitted by such Regulations), Excess Aggregate Contributions will be adjusted for any income or loss up to the end of the Plan Year and, at the discretion of the Administrator, may be adjusted for income or loss during the period, if any, between the end of the Plan Year and the actual date of distribution (the “gap period”). However, effective as of the first day of the first Plan Year

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beginning on or after January 1, 2006 (or such earlier effective date as may be provided in a separate amendment implementing the final §401(m) Regulations and as permitted by such Regulations), Excess Aggregate Contributions will be adjusted for any income or loss up to the end of the Plan Year and during the gap period. Any adjustment for income or loss during the gap period will be allocated in a consistent manner to all Participants, and to all corrective distributions made for the Plan Year, and will be the amount determined by one of the methods set forth either in subparagraph (1), subparagraph (2), or subparagraph (3) below, as elected by the Administrator:

(1)Method 1. The amount determined by multiplying the income or loss allocable to the Participant’s Voluntary Employee Contributions, Mandatory Employee Contributions, Matching Contributions (if not used in the ADP Test), QNECs (if not used in the ADP Test) and, to the extent applicable, Elective Deferrals for the Plan Year and the gap period, by a fraction, the numerator of which is such Participant’s Excess Aggregate Contributions for the Plan Year and the denominator of which is the Participant’s Account balance(s) attributable to Contribution Percentage Amounts as of the beginning of the Plan Year, plus any additional amounts attributable to Contribution Percentage Amounts allocated to the Participant during such Plan Year and the gap period.

(2)Method 2. The sum of (A) and (B) as follows: (A) the amount determined by multiplying the income or loss allocable to the Participant’s Voluntary Employee Contributions, Mandatory Employee Contributions, Matching Contributions (if not used in the ADP Test), QNECs (if not used in the ADP Test) and, to the extent applicable, Elective Deferrals for the Plan Year, by a fraction, the numerator of which is such Participant’s Excess Aggregate Contributions for the Plan Year and the denominator of which is the Participant’s Account balance(s) attributable to Contribution Percentage Amounts as of the beginning of the Plan Year, plus any additional amounts attributable to Contribution Percentage Amounts allocated to the Participant during such Plan Year; plus (B) the amount of gap period income or loss equal to 10% of the amount determined under clause (A) above multiplied by the number of whole months between the end of the Plan Year and the distribution date, counting the month of distribution if the distribution occurs after the 15th day of such month.

(3)Method 3. The amount determined by any reasonable method of allocating income or loss to the Participant’s Excess Aggregate Contributions for the Plan Year and for the gap period, provided the method used is the same method used for allocating income or losses to Participants’ Accounts. This Plan will not fail to use a reasonable method for computing the income allocable to Excess Aggregate Contributions merely because the income allocable to such Excess Aggregate Contributions is determined on a date that is no more than 7 days before the distribution.

(e)Accounting for Excess Aggregate Contributions.Excess Aggregate Contributions that are allocated to a Participant will be forfeited, if forfeitable, or will be distributed on a pro-rata basis from the Participant’s Voluntary Employee Contribution Account, Mandatory Employee Contribution Account, Matching Contribution Account and Qualified Matching Contribution Account (and if applicable, from the Participant’s Qualified Non-Elective Contribution Account, Pre-Tax Elective Deferral Account, Roth Elective Deferral Account, or any combination thereof).

(f)Source and Ordering of Distribution.Distribution of Excess Aggregate Contributions will be taken from a Participant’s investment options (if any) based on rules established by the Administrator. For purposes of determining the sources of a distribution of Excess Aggregate Contributions, the sources will be distributed in the following order (unless a policy for the order of the sources to distribute Excess Aggregate Contributions is established by the Administrator and such policy will control): (1) unmatched Voluntary Employee Contributions, (2) unmatched Mandatory Employee Contributions, (3) unmatched Elective Deferrals (that are tested in the ADP Test and that are utilized in (or shifted into) the ACP Test), (4) matched Voluntary Employee Contributions and the Matching Contributions that relate to such Voluntary Employee Contributions, (5) matched Mandatory Employee Contributions and the Matching Contributions that relate to such Mandatory Employee Contributions, (6) matched Elective Deferrals (that are tested in the ADP Test and that are utilized in (or shifted into) the ACP Test) and the Matching Contributions that relate to such Elective Deferrals, (7) Non-Safe Harbor Matching Contributions, (8) ACP Safe Harbor Matching Contributions (to the extent such contributions are subject to the ACP Test), (9) ADP Safe Harbor Matching Contributions (to the extent such contributions are subject to the ACP Test), (10) Qualified Matching Contributions, and (11) Qualified Non-Elective Contributions (to the extent that such contributions are  utilized in the ACP Test). With respect to Elective Deferrals that are tested in the ADP Test, that are utilized in (or shifted into) the ACP Test, and that become Excess Aggregate Contributions, then for Plan Years beginning

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after 2005, unless a different rule is established by the Administrator, distribution of Elective Deferrals that are Excess Aggregate Contributions will first be made from a Participant’s Roth Elective Deferral Account before the Participant’s Pre-Tax Elective Deferral Account, to the extent that Roth Elective Deferrals were made for the Plan Year, unless the Administrator permits the Participant to specify otherwise.

5.21Distribution of an Employee’s Rollover Contribution Account. An Employee’s Rollover Contribution Account will be distributed from the Plan in accordance with the following provisions:

(a)Time of Distribution.An Employee may request in writing a withdrawal of all or any portion of his or her Rollover Contribution Account at any time prior to becoming a Participant, and thereafter upon the earlier of (1) the date the Employee is entitled to a distribution of his or her Participant’s benefits under the provisions of Article 5, or (2) the soonest possible administratively practical date after the Participant’s Termination of Employment. In addition, an Employee may also withdraw all or any portion of his or her Rollover Contribution Account at such other time as elected in the Adoption Agreement. The Administrator may require advance notice of a reasonable period not to exceed 60 days prior to the requested date of withdrawal. Any amount withdrawn can only be redeposited to the Employee’s Rollover Contribution Account if so elected in the Adoption Agreement and if the withdrawn distribution continues to be deemed a Rollover (except for the fact that the amount originated from this Plan). A withdrawal of all or any portion of an Employee’s Rollover Contribution Account will not prevent an Employee from accruing any future benefit attributable to Employer contributions. The Administrator may establish rules or procedures regarding withdrawals from an Employee’s Rollover Contribution Account.

(b)Spousal Consent Requirements Upon Withdrawal.The following provisions apply to the requirement of consent by the Employee’s Spouse with respect to a withdrawal of all or any portion of an Employee’s Rollover Contribution Account:

(1)Normal Form of Distribution Is a QJSA. If the Plan is a money purchase pension plan or the Normal Form of Distribution as elected in the Adoption Agreement is a Qualified Joint and Survivor Annuity, then a withdrawal of all or any portion of an Employee’s Rollover Contribution Account will be subject to the Spousal consent requirements in Section 5.8 (pursuant to Revenue Ruling 2004-12), unless the distribution is made in the form of a Qualified Joint and Survivor Annuity.

(2)Normal Form of Distribution Is Not a QJSA. If the Plan is not a money purchase pension plan or the Normal Form of Distribution as elected in the Adoption Agreement is not a Qualified Joint and Survivor Annuity, then all or any portion of an Employee’s Rollover Contribution Account can be withdrawn from the Plan without the consent of the Employee’s Spouse.

(c)Form of Distribution.The following provisions apply to the form of distribution with respect to any withdrawal from the Rollover Contribution Account:

(1)Normal Form of Distribution Is a QJSA. If the Plan is a money purchase pension plan or the Normal Form of Distribution as elected in the Adoption Agreement is a Qualified Joint and Survivor Annuity, then a withdrawal of all or any portion of an Employee’s Rollover Contribution Account will be subject to the Qualified Joint and Survivor Annuity (QJSA) and Qualified Preretirement Survivor Annuity (QPSA) requirements of this Article 5 (even if the Rollover Contribution was not previously subject to the QJSA and QPSA rules); a withdrawal of all or any portion of an Employee’s Rollover Contribution Account may also be made in a lump-sum or in the same manner as the Participant Account under the other provisions of this Article 5, subject to the Spousal consent requirements of paragraph (b)(1).

(2)Normal Form of Distribution Is Not a QJSA. If the Plan is not a money purchase pension plan or the Normal Form of Distribution as elected in the Adoption Agreement is not a Qualified Joint and Survivor Annuity, then a withdrawal of all or any portion of an Employee’s Rollover Contribution Account prior to the time that the Employee is entitled to a distribution of his or her Participant Account will only be distributed in a single payment. Any amount remaining in an Employee’s Rollover Contribution Account at the time the Employee is entitled to a distribution of his or her Participant Account will be distributed, at the election of the Participant, in a lump-sum or in the same manner as the Participant Account under the other provisions of this Article 5.

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5.22Distribution of a Participant’s Transfer Contribution Account. A Participant’s Transfer Contribution Account will be distributed from the Plan at the same time and in the same manner as the Participant’s Account is distributed under Section 5.1, 5.2, 5.3, or 5.4, subject to the following rules:

(a)Spousal Consent Requirements Upon Withdrawal.The following provisions apply to the requirement of consent by the Participant’s Spouse with respect to a withdrawal of all or any portion of a Participant’s Transfer Contribution Account:

(1)Transfers Subject to Code §401(a)(11). If the Transfer Contribution was a direct or indirect transfer as defined in Code §401(a)(11) from a defined benefit, money purchase, or target benefit plan, or from a stock bonus or profit sharing plan that provided for a joint and survivor annuity or a life annuity form of payment to the Participant, then a withdrawal of all or any portion of such Transfer Contribution (and post-transfer earnings thereon)  is subject to the Spousal consent requirements set forth in Section 5.8.

(2)Transfers Not Subject to Code §401(a)(11). If the Transfer Contribution was not a direct or indirect transfer as defined in Code §401(a)(11) from a defined benefit, money purchase, or target benefit plan, or from a stock bonus or profit sharing plan that provided for a joint and survivor annuity or a life annuity form of payment to the Participant, then all or any portion of such Transfer Contribution (and post-transfer earnings thereon) can be withdrawn without the consent of the Participant’s Spouse.

(b)Form of Distribution.A withdrawal of all or any portion of a Participant’s Transfer Contribution Account will be made in the same manner as the Participant’s Account under the other provisions of this Article 5, subject to the Spousal consent requirements set forth in paragraph (a) above and Section 5.8. However, notwithstanding the foregoing sentence to the contrary, if the Transfer Contribution was a direct or indirect transfer as defined in Code §401(a)(11) from a defined benefit plan; a money purchase plan; a target benefit plan; or a stock bonus plan or a profit sharing plan that provided for a joint and survivor annuity or a life annuity form of payment to the Participant, then regardless of the Normal Form of Distribution, a withdrawal of all or any portion of such Transfer Contribution will be subject to the Qualified Joint and Survivor Annuity and Qualified Pre-Retirement Survivor Annuity requirements of Code §401(a)(11) and Code §417, and will be distributed in accordance with following provisions:

(1)Distributions Other Than Death. If the Participant is married on the Annuity Starting Date and has not died before such date, then such portion of the Participant’s Transfer Contribution Account will be distributed in the form of a Qualified Joint and Survivor Annuity. If the Participant is unmarried on the Annuity Starting Date and has not died before such date, then such portion of the Participant’s Transfer Contribution Account will be distributed as a life annuity. If a Participant elects not to receive the annuity form of payment described above, then such portion of the Participant’s Transfer Contribution Account will be distributed in the manner described in Sections 5.1 through 5.4, as applicable. Any such election by a Participant not to receive the annuity form of benefit described in this paragraph must be made in accordance with the provisions set forth in Section 5.8(b).

(2)Distributions Upon Death. Notwithstanding any other Beneficiary designation made by a Participant, if a Participant is married on the date of his or her death and dies before the Annuity Starting Date, then with respect to such portion of a deceased Participant’s Transfer Contribution Account, the Participant’s surviving Spouse will receive a minimum death benefit as a Qualified Pre-Retirement Survivor Annuity unless such annuity has been waived under Section 5.8(b) of the Plan, in which event such death benefit will be distributed to the surviving Spouse in the manner described in Section 5.2.

(c)Special Rule for Withdrawal of Elective Deferral Transfers.Notwithstanding anything in this Section to the contrary, if the Transfer Contributions are Elective Deferrals (including QNECs, QMACs, and ADP Safe Harbor Contributions) which are transferred to this Plan in a direct or indirect trustee-to-trustee transfer from another qualified plan and which are subject to the limitations in Regulation §1.401(k)-1(d), then the distribution of such Transfer Contributions (including post-transfer earnings thereon) will be subject to the limitations in Regulation §1.401(k)-1(d).

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5.23Distribution of Voluntary Employee Contributions. A Participant’s Voluntary Employee Contributions will be distributed from the Plan in accordance with the following provisions:

(a)Time of Distribution.A Participant’s Voluntary Employee Contribution Account will be distributed no later than the earlier of (1) the date the Employee is entitled to a distribution of his or her Participant’s Account balance under the provisions of Article 5, or (2) the soonest possible administratively practical date after the Participant’s Termination of Employment. In addition, an Employee may also withdraw all or any portion of his or her Voluntary Employee Contribution Account at such other time as elected in the Adoption Agreement. The Administrator may require advance notice of a reasonable period not to exceed 60 days prior to the requested date of withdrawal. Withdrawals from a Voluntary Employee Contribution Account will not prohibit a Participant from accruing any future benefit from Employer contributions. A Participant’s request to make a withdrawal from his or her Voluntary Employee Contribution Account must satisfy the applicable Spousal consent requirements in Section 5.8. A withdrawal attributable to pre-1987 Voluntary Employee Contributions need not include earnings thereon.

(b)Special Rule for Withdrawal of Post-1986 Contributions.Any distribution made under paragraph (a) which is attributable to post-1986 Voluntary Employee Contributions can only be made along with a portion of the earnings thereon, such earnings to be determined by the following formula: DA [1-(V - V+E)]. For purposes of applying the aforementioned formula, the term DA means the distribution amount, the term V means the amount of Voluntary Employee Contributions, and the term V+E means the amount of Voluntary Employee Contributions plus the earnings attributable thereto.

5.24Distribution of Mandatory Employee Contributions. A Participant’s Mandatory Employee Contributions will only be distributed after his or her Termination of Employment, will be used to provide additional benefits to the Participant, and will be distributed in the time and manner described in the other provisions of this Article 5.

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Article 6

Code §415 Limitations

6.1Maximum Annual Additions. Subject to Sections 6.2 and 6.3, the maximum Annual Additions made to a Participant’s various accounts maintained under the Plan for any Limitation Year will not exceed the lesser of the Dollar Limitation of paragraph (a) or the Compensation Limitation of paragraph (b) below, as follows:

(a)Dollar Limitation.For Limitation Years beginning on or after January 1, 2002, the Dollar Limitation is $40,000 as adjusted in accordance with Code §415(d).

(b)Compensation Limitation.For Limitation Years beginning on or after January 1, 2002, the Compensation Limitation is an amount equal to 100% of the Participant’s Code §415(c)(3) Compensation. However, this limitation will not apply to any contribution made for medical benefits within the meaning of Code §401(h) or Code §419A(f)(2) after Termination of Employment which is otherwise treated as an Annual Addition under Code §415(l)(1) or Code §419A(d)(2).

6.2Adjustments to Maximum Annual Additions. In applying the limitation on Annual Additions set forth in Section 6.1, the following adjustments must be made:

(a)Short Limitation Year.If a Limitation Year is less than 12 months, then the Dollar Limitation of Section 6.1(a) will be adjusted by multiplying the Dollar Limitation by a fraction, the numerator of which is the number of months (including any fractional parts of a month) in the short Limitation Year and the denominator of which is 12.

(b)Multiple Defined Contribution Plans.If a Participant participates in multiple defined contribution plans sponsored by the Employer which have different Anniversary Dates, the maximum Annual Addition in this Plan for the Limitation Year will be reduced by the Annual Additions credited to the Participant’s accounts in the other defined contribution plans during the Limitation Year unless otherwise elected in the Adoption Agreement. If a Participant participates in multiple defined contribution plans sponsored by the Employer which have the same Anniversary Date, then (1) if only one of the plans is subject to Code §412, Annual Additions will first be credited to the Participant’s accounts in the plan subject to Code §412; and (2) if none of the plans are subject to Code §412, the maximum Annual Addition in this Plan for a given Limitation Year will either (A) equal the product of (i) the maximum Annual Addition for such Limitation Year minus any other Annual Additions previously credited to the Participant’s account(s), multiplied by (ii) a fraction, the numerator of which is the Annual Additions which would be credited to a Participant’s accounts hereunder without regard to the Annual Additions limitation of Section 6.1 and the denominator of which is the Annual Additions for all plans described in this paragraph, or (B) be reduced by the Annual Additions credited to the Participant’s accounts in the other defined contribution plans for such Limitation Year, or (C) be reduced as elected otherwise in the Adoption Agreement.

6.3Multiple Plans and Multiple Employers. All defined contribution plans (whether terminated or not) sponsored by the Employer will be treated as one defined contribution plan. In addition, all Affiliated Employers will be considered a single Employer.

6.4Adjustment for Excess Annual Additions. For any Limitation Year, if the Annual Additions allocated to a Participant’s Account exceeds the Annual Additions limitation of Section 6.1 because of an allocation of Forfeitures, a reasonable error in estimating a Participant’s Compensation, a reasonable error in determining the amount of elective contributions (within the meaning of Code §402(g)(3)), or because of other limited facts and circumstances that the Commissioner finds justify the availability of the rules set forth in this Section, then such Participant’s Account will be adjusted as follows in order to reduce the Excess Annual Additions:

(a)Catch-Up Contributions.First, if Catch-Up Contributions are permitted, a catch-up eligible Participant who has Excess Annual Additions which include Elective Deferrals and who has not reached his or her Catch-Up Contribution Limit can recharacterize such Excess Annual Additions as Catch-Up Contributions.

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(b)Return of Employee Contributions and Elective Deferrals.Then, Voluntary Employee Contributions, if any, then Mandatory Employee Contributions, if any, and then, the amount of Elective Deferrals and corresponding Employer Matching Contributions, if any, to the extent that they would reduce the Excess Annual Additions, will be calculated. Such Voluntary Employee Contributions, Mandatory Employee Contributions, and Elective Deferrals plus attributable gains, will be distributed to the Participant. Any Employer Matching Contribution amount as determined above will be applied as described in (c) or (d) below, depending on whether the Participant is covered by the Plan at the end of the Limitation Year.

(c)Excess Used To Reduce Employer Contributions If Participant Is Still Covered By The Plan.If, after the application of paragraphs (a) and (b), Excess Annual Additions still exist and the Participant is covered by the Plan at the end of the Limitation Year, the Excess Annual Additions in the Participant’s Account will be used to reduce Employer contributions (including any allocation of Forfeitures) for such Participant in the next Limitation Year, and in each succeeding Limitation Year if necessary.

(d)Excess Used To Reduce Employer Contributions If Participant Is Not Covered By The Plan.If, after the application of paragraphs (a) and (b), Excess Annual Additions still exist and the Participant is not covered by the Plan at the end of a Limitation Year, the Excess Annual Additions will be held unallocated in a suspense account. The suspense account will be applied to reduce future Employer contributions (including the allocation of any Forfeitures) for all remaining Participants in the next Limitation Year, and in each succeeding Limitation Year if necessary.

(e)Suspense Account.If a suspense account is in existence at any time during a Limitation Year pursuant to this Section, then such suspense account will not participate in the allocation of the Trust’s investment gains and losses. If a suspense account is in existence at any time during a particular Limitation Year, then all amounts in the suspense account must be allocated and reallocated to Participants’ Accounts before any Employer Contributions or any Employee contributions may be made to the Plan for that Limitation Year. A suspense account may not be distributed to Participants or former Participants.

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Article 7

Loans, Insurance and Directed Investments

7.1Loans to Participants. If elected in the Adoption Agreement, loans may be made from the Trust Fund to Participants and Beneficiaries. If loans are available, then a Participant or Beneficiary may make application to the Administrator requesting a loan. The Administrator will have the sole right to approve or disapprove the application. All loans must be evidenced by a legally enforceable agreement (which may include more than one document) set forth in writing or in such other form as may be approved by the Internal Revenue Service, and the terms of such agreement must specify the amount and term of the loan, and the repayment schedule. Loans will only be made in accordance with a separate written loan program which satisfies the requirements of Code §72(p) and the Regulations promulgated thereunder, and the following provisions:

(a)General Rules. Loans (1) will be made available to all Participants and Beneficiaries on a reasonably equivalent, non-discriminatory basis; (2) will not be made available to HCEs in an amount greater than the amount made available to other Employees; (3) must be adequately secured and bear a reasonable interest rate; and (4) cannot exceed the present value of the Participant’s Vested Aggregate Account.

(b)Spousal Consent. If the Plan is subject to Code §401(a)(11) and Code §417, then a Participant must obtain the consent of his or her Spouse, if any, as set forth in Section 5.8 of the Plan, Code §401(a)(11), and Code §417 in order to use the remaining Vested Interest of the Participant’s Account balance as security for the loan. Spousal consent will be obtained no earlier than the beginning of the 90-day period that ends on the date on which the loan is to be so secured. The consent must be in writing, must acknowledge the effect of the loan, and must be witnessed by a Plan representative or notary public. Such consent will thereafter be binding upon the consenting Spouse or any subsequent Spouse with respect to that loan. A new consent will be required if the remaining Participant’s Account balance is used for renegotiation, extension, renewal, or other revision of the loan. If valid Spousal consent has been obtained in accordance with this paragraph, then, notwithstanding any other provision of this Plan to the contrary, the Vested portion of the Participant’s Account balance that is used as a security interest held by the Plan by reason of a loan that is outstanding to the Participant will be taken into account in determining the amount of the Vested portion of the Participant’s Account balance payable at the time of death or distribution, but only if the reduction is used as repayment of the loan. If less than 100% of the  Participant’s Account (determined without regard to the preceding sentence) is payable to the surviving Spouse, then the death benefit will be adjusted by first reducing the Vested portion of the Participant’s Account balance by the amount of the security that is used for the loan.

(c)Maximum Loan Amount. No loan to a Participant or Beneficiary can be made to the extent such loan, when added to the outstanding balance of all other loans to the Participant or Beneficiary, would exceed the lesser of (1) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans during the one-year period ending on the day before the loan is made, over the outstanding balance of loans from the Plan on the date the loan is made; or (2) one-half the present value of the Vested Portion of the Participant’s Vested Aggregate Account. However, notwithstanding the limitation in clause (2) of the preceding sentence, the written loan policy may permit a Participant whose Vested Aggregate Account balance is $20,000 or less to borrow an amount that does not exceed the lesser of $10,000 or 100% of the Participant’s Vested Aggregate Account balance if adequate security is provided on the loan amount in excess of that determined under clause (2). For the purpose of the limitations set forth in this paragraph, all loans from the plans (including this Plan) of the Sponsoring Employer and other Affiliated Employers are aggregated.

(d)Minimum Loan Amount. The written loan policy may provide for a minimum loan not to exceed $1,000.

(e)Loan Repayments. Any loan by its terms will require that repayment (of both principal and interest) be amortized in level payments, not less frequently than quarterly, over a period not extending beyond five years from the date of the loan, unless such loan is used to acquire a dwelling unit which within a reasonable time (determined at the time the loan is made) will be used as the principal residence of the Participant. In the event of default, then foreclosure on the note and attachment of security will not occur until a distributable event occurs in the Plan. However, notwithstanding the foregoing to the contrary, loan repayments will be suspended as permitted under Code §414(u)(4).

(f)Assignments and Pledges Treated as Loans. An assignment or pledge of any portion of the Participant’s interest in the Plan and a loan, pledge, or assignment with respect to any insurance contract purchased under the Plan, will be treated as a loan under this Section.

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(g)Certain Restrictions Eliminated. Effective for Plan loans made after December 31, 2001, any prior Plan provisions that prohibited or otherwise restricted loans to any owner-employee (as defined in Code §401(c)(3)) or shareholder-employee (as defined in Code §4975(f)(6)(C)) will cease to apply. For this purpose, a shareholder-employee means an Employee or officer of an electing small business (Subchapter S) corporation who owns (or is considered as owning within the meaning of Code §318(a)(1)), on any day during the taxable year of such corporation, more than 5% of the outstanding stock of the corporation.

7.2Insurance on Participants. If elected in the Adoption Agreement, and pursuant to any rules or procedures that are promulgated under Section 8.6 by the Administrator, the Trustee may purchase life insurance Policies on the life of a Participant and/or the Participant’s Spouse in accordance with the following:

(a)Ownership of Policies.All life insurance Policies will be vested exclusively in the Trustee and will be payable to the Trustee, subject to the rights of the Beneficiaries hereunder unless the Trustee permits the designation of a named beneficiary other than the Trustee. Notwithstanding the foregoing, no Trustee who is also a Participant may, except in a fiduciary capacity, exercise any ownership rights with respect to any Policy insuring the life of such Trustee in his or her capacity as a Participant.

(b)Primary Limit on Premiums.At the direction of the Administrator and/or the Participant, the Trustee will purchase Policies on the life of the Participant, provided that the aggregate premiums on ordinary life Policies must be less than 50% of the Participant’s Account balance; (2) the aggregate premiums on term Policies, universal Policies and all other Policies which are not ordinary life insurance Policies must be less than 25% of the Participant’s Account balance; and (3) the sum of one-half of the premiums on ordinary life insurance Policies and the total of all other life insurance premiums cannot exceed 25% of the Participant’s Account balance. For purposes of this Section, an ordinary life insurance Policy is an insurance policy that has a non-decreasing death benefit and also has a non-increasing premium.

(c)Alternate Limit on Premiums for Money Purchase Plans.Notwithstanding paragraph (b) above, if this is a money purchase pension plan, a Participant may, with the consent of the Administrator, elect that up to 100% of his or her Rollover Contribution Account and Voluntary Employee Contribution Account be used to purchase life insurance Policies on the life of the Participant, on the life of the Participant’s Spouse, and/or on the joint lives of the Participant and his or her Spouse.

(d)Alternate Limit on Premiums for 401(k) and Profit Sharing Plans.Notwithstanding paragraph (b) above, if this is a 401(k) plan or a profit sharing plan, a Participant may elect that up to 100% of his or her Rollover Contribution Account and Voluntary Employee Contribution Account, and up to 100% of the portion of his or her Vested Participant’s Account that has accumulated in the Plan for at least 2 years and is no longer subject to the distribution restrictions set forth in Code §401(k)(2)(B), be used to purchase Policies on the life of the Participant, the life of the Participant’s Spouse, and/or the joint lives of the Participant and the Participant’s Spouse. Likewise, a Participant who has participated in the Plan for at least 5 years may elect that up to 100% of his or her Rollover Contribution Account and Voluntary Employee Contribution Account, and up to 100% of his or her Vested Participant’s Account balance that is no longer subject to the distribution restrictions set forth in Code §401(k)(2)(B), be used to purchase Policies on the life of the Participant, the life of the Participant’s Spouse, and/or the joint lives of the Participant and his or her Spouse.

(e)Payment of Premiums.If Employer contributions are inadequate to pay premiums on Policies, the Trustees may, at the direction of the Administrator, utilize other amounts remaining in the Trust Fund to pay the premiums, allow the Policies to lapse, reduce the Policies to a level at which they may be maintained, or borrow against the Policies on a prorated basis if borrowing does not discriminate in favor of Policies issued on the lives of Highly Compensated Employees. The Trustees may also pay premiums from the loan values of the Policies themselves if (1) any loan is made against all of the Policies in proportion to their respective cash surrender values, and (2) all loans are repaid in proportion to the cash surrender value of such Policies.

(f)Policy Dividends.Any insurer payments which are paid to the Trustee on account of experience credits, dividends, or surrender or cancellation credits, will be applied by the Employer within the current or next succeeding Plan Year toward premiums due.

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(g)Disposition of Policies at Retirement.When a Participant retires, the Trustee, at the direction of the Administrator, must, with respect to any Policies that have been purchased on the life of such Participant under this Section, either (1) transfer them to the Participant, (2) with the Participant’s consent, borrow their cash surrender values and transfer them to the Participant subject to the loan, or (3) surrender them for their cash surrender values. If options (2) or (3) are elected, the cash surrender values will be added to the Participant’s Account for distribution in accordance with Section 5.1.

(h)Disposition of Policies Upon Termination.If a Terminated Participant’s Vested Interest equals or exceeds the cash surrender value of any Policies issued on his life, the Trustee, with the consent of both the Administrator and the Terminated Participant, will transfer such Policies to the Terminated Participant, together with any restrictions the Administrator may impose concerning the Terminated Participant’s right to surrender, assign, or otherwise realize cash on such Policies prior to his Normal Retirement Date. If the Terminated Participant’s Vested Interest is less than the cash surrender values of such Policies, the Administrator may permit him or her to pay the Trustee the sum required to make distribution equal to the value of the Policies being assigned or transferred, or the Trustee may borrow the cash surrender values of the Policies from the insurer and then assign the Policies to the Terminated Participant. Under no circumstances will the Trust (or custodial account) retain any part of the insurance Policy proceeds. If applicable to this Plan, then the provisions of this paragraph also apply to a Participant who Terminates Employment because of Disability.

(i)Protection of Fiduciaries and Insurers.Neither the Trustee, the Employer, the Administrator, nor any fiduciary (including any Named Fiduciary) will be responsible for the validity of any Policy or the failure of any insurer to make payments thereunder, or for the action of any person which may delay payment or render a Policy void in whole or in part. No insurer will be deemed a party to this Plan for any purpose or to be responsible for its validity; nor will it be required to look into the terms of the Plan nor to question any action of the Trustee. The obligations of the insurer will be determined solely by the Policy’s terms and any other written agreements between it and the Trustee. The insurer will act only at the written direction of the Trustee, and will be discharged from all liability with respect to any amount paid to the Trustee. The insurer will not be obligated to see that any money paid by it to the Trustee or any other person is properly applied.

(j)Non-Trusteed Plan. If the Plan is a non-trusteed Plan (a Plan designated only with Policies), then this paragraph applies to the Plan. No Policy will be purchased under the Plan unless such Policy or a separate definite written agreement between the Employer and the insurer provides that no value under Policies providing benefits under the Plan or credits determined by the insurer (on account of dividends, earnings, or other experience rating credits; or surrender or cancellation credits) with respect to such Policies may be paid or returned to the Employer or diverted to or used for other than the exclusive benefit of the Participants or their Beneficiaries. However, any contribution made by the Employer because of a mistake of fact must be returned to the Employer within one year of the contribution. If the Plan is funded by Policies that provide a Participant’s benefit under the Plan, such Policies will constitute the Participant’s Account balance. If the Plan is funded by group Policies, under a group annuity or group insurance Policy, then premiums or other consideration received by the insurance company must be allocated to Participants’ Accounts under the Plan.

(k)Conflict With Plan.If the provisions of any Policy purchased hereunder conflict with the terms of this Plan, the Plan provisions will control.

7.3Key Man Insurance. The Administrator may instruct the Trustee to purchase insurance Policies on the life of any Participant whose employment is deemed to be key to the Employer’s financial success. Such key man Policies will be deemed to be an investment of the Trust Fund and will be payable to the Trust Fund as the beneficiary thereof. The Trustee may exercise any and all rights granted under such Policies. Neither the Trustee, Employer, Administrator, nor any fiduciary (including any Named Fiduciary) will be responsible for the validity of any Policy or the failure of any insurer to make payments thereunder, or for the action of any person which delays payment or renders a Policy void in whole or in part. No insurer which issues a Policy will be deemed to be a party to this Plan for any purpose or to be responsible for its validity; nor will any such insurer be required to look into the terms of the Plan nor to question any action of the Trustee. The obligations of the insurer will be determined solely by the Policy’s terms and any other written agreements between it and the Trustee. The insurer will act only at the written direction of the Trustee, and will be discharged from all liability with respect to any amount paid to the Trustee. The insurer will not be obligated to see that any money paid by it to the Trustee or any other person is properly distributed or applied.

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7.4Directed Investment Accounts. Pursuant to any rules or procedures promulgated under Section 8.6 by the Administrator, Participants can direct the investment of a portion of (or all of) one or more of their accounts (hereafter called Directed Investment Accounts) established under the terms of the Plan. Investment directives will only be given in accordance with an administrative policy regarding Directed Investment Accounts that is promulgated under Section 8.6 by the Administrator. With respect to any Participant who fails to exercise the right to direct the investment of his or her Directed Investment Accounts, such Directed Investment Accounts will be invested by the Trustee at the direction of the Administrator in a “default investment,” selected by the Administrator, that is expected to produce a favorable rate of return and that minimizes the overall risk of losing money. With respect to Directed Investment Accounts, fiduciaries will only be protected by ERISA §404(c) for a Plan Year if all of the requirements of ERISA §404(c) and the Department of Labor Regulations thereunder are complied with on each day of the Plan Year.

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Article 8

Duties of the Administrator

8.1Appointment, Resignation, Removal and Succession. The Sponsoring Employer will serve as the Administrator, unless the Sponsoring Employer elects in the Adoption Agreement to appoint another Administrator. Each Administrator that is appointed will continue until his death, resignation, or removal, and any Administrator may resign by giving 30 days written notice to the Sponsoring Employer. If an Administrator dies, resigns, or is removed, his successor will be appointed as promptly as possible, and such appointment will become effective upon its acceptance in writing by such successor. Pending the appointment and acceptance of any successor Administrator, any then acting or remaining Administrator will have full power to act.

8.2General Powers and Duties. The powers and duties of the Administrator include (a) appointing the Plan’s attorney, accountant, actuary, or any other party needed to administer the Plan; (b) directing the Trustees with respect to payments from the Trust Fund; (c) deciding if a Participant is entitled to a benefit; (d) communicating with Employees regarding their participation and benefits under the Plan, including the administration of all claims procedures; (e) filing any returns and reports with the Internal Revenue Service, Department of Labor, or any other governmental agency; (f) reviewing and approving any financial reports, investment reviews, or other reports prepared by any party under clause (a) above; (g) establishing a funding policy and investment objectives consistent with the purposes of the Plan and the ERISA; (h) construing and resolving any question of Plan interpretation; and (i) making any findings of fact the Administrator deems necessary to proper Plan administration. Notwithstanding any contrary provision of this Plan, benefits under this Plan will be paid only if the Administrator decides in its discretion that the applicant is entitled to them. The Administrator’s interpretation of Plan provisions, and any findings of fact, including eligibility to participate and eligibility for benefits, are final and will not be subject to “de novo” review unless shown to be arbitrary and capricious.

8.3Functioning of the Committee. If a Committee is established, a member of the Committee will serve until his or her death, disability, removal by the Sponsoring Employer, or resignation. In the event of any vacancy arising from the death, disability, removal, or resignation of a member of the Committee, the Sponsoring Employer may, but is not required to, appoint a successor to serve in his or her place. The Committee will select a chairman and secretary from among its members. Members of the Committee will serve without compensation. The Committee will act by majority vote. The proper expenses of the Committee, and the compensation of its agents, if any, that are appointed pursuant to Section 8.7, will be paid directly by the Employer.

8.4Multiple Administrators. If more than one Administrator has been appointed by the Sponsoring Employer, the Administrators may delegate specific responsibilities among themselves, including the authority to execute documents unless the Sponsoring Employer revokes such delegation. The Sponsoring Employer and Trustee will be notified in writing of any such delegation of responsibilities, and the Trustee thereafter may rely upon any documents executed by the appropriate Administrator.

8.5Correcting Administrative Errors. The Administrator will take such steps as the Administrator considers necessary and appropriate to remedy administrative or operational errors, including, but not be limited to, the following: (a) any action pursuant to (1) any Employee Plans Compliance Resolution System (EPCRS) that is issued by the Internal Revenue Service, (2) any asset management or fiduciary conduct error correction program that is issued by the Department of Labor, or (3) any other correction program issued by any Department or governmental agency; (b) a reallocation of Plan assets; (c) an adjustment in the amount of future payments to any Participant, Beneficiary or Alternate Payee; and (d) the institution, prosecution, and/or settlement of legal actions to recover benefit payments made in error or on the basis of incorrect or incomplete information.

8.6Promulgating Notices and Procedures. The Sponsoring Employer and Administrator are given the power and responsibility to promulgate certain written notices, policies and/or procedures under the terms of the Plan and disseminate them to Participants, and the Administrator may satisfy such responsibility by the preparation of any such notice, policy and/or procedure in a written form which can be published and communicated to a Participant in one or more of the following ways: (a) by distribution in hard copy; (b) through distribution of a summary plan description or summary of material modifications thereto which sets forth the policy or procedure with respect to a right, benefit or feature offered under the Plan; (c) by e-mail, either to a Participant’s personal e-mail address or his or her Employer-maintained e-mail address; and (d) by publication on a web-site accessible by the Participant, provided the Participant is notified of said web-site publication. Any notice, policy and/or procedure provided through an electronic medium will only be valid if the electronic medium which is used is

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reasonably designed to provide the notice, policy and/or procedure in a manner no less understandable to the Participant than a written document, and under such medium, at the time the notice, policy and/or procedure is provided, the Employee may request and receive the notice, policy and/or procedure on a written paper document at no charge.

8.7Employment of Agents and Counsel. The Administrator may appoint such actuaries, accountants, custodians, counsel, agents, consultants, service companies and other persons deemed necessary or desirable in connection with the administration and operation of the Plan. Any person or company so appointed will exercise no discretionary authority over investments or the disposition of Trust assets, and their services and duties will be ministerial only and will be to provide the Plan with those things required by law or by the terms of the Plan without in any way exercising any fiduciary authority or responsibility under the Plan. The duties of a third party Administrator will be to safe-keep the individual records for all Participants and to prepare all required actuarial services and disclosure forms under the supervision of the Administrator and any fiduciaries of the Plan. It is expressly stated that the third party Administrator’s services are only ministerial in nature and that under no circumstances will such third party Administrator (a) exercise any discretionary authority whatsoever over Plan Participants, Plan investments, or Plan benefits; or (b) be given any authority or discretion concerning the management and operation of the Plan that would cause them to become fiduciaries of the Plan.

8.8Compensation and Expenses. The Administrator may receive such compensation as agreed upon between the Sponsoring Employer and the Administrator, provided that any person who already receives full-time pay from the Employer may not receive any fees from the Plan for services to the Plan as Administrator or in any other capacity, except for reimbursement for expenses actually and properly incurred. The Sponsoring Employer will pay all “settlor” expenses (as described in Department of Labor Advisory Opinion 2001-01-A) incurred by the Administrator, the Committee or any party that is appointed under Section 8.7 in the performance of their duties. The Sponsoring Employer may pay, but is not required to pay, all “non-settlor” expenses incurred by the Administrator, the Committee, or any party that is appointed under Section 8.7 in the performance of their duties. Any “non-settlor” expenses incurred by the Administrator, the Committee or any party that is appointed under Section 8.7 that the Sponsoring Employer elects not to pay will be reimbursed from Trust Fund assets. Any expenses paid from the Trust Fund will be charged to each Adopting Employer in the ratio that each Adopting Employer’s Participants’ Accounts bears to the total of all the Participants’ Accounts maintained by this Plan, or in any other reasonable method elected by the Administrator.

8.9Claims Procedures. The claims procedure required under ERISA §503 and Department of Labor Regulations thereunder is set forth in an administrative policy regarding claims procedures that is promulgated under Section 8.6 by the Administrator. Such administrative policy will be the sole and exclusive remedy for an Employee, Participant or Beneficiary (“Claimant”) to make a claim for benefits under the Plan.

8.10Qualified Domestic Relations Orders. A Qualified Domestic Relations Order, or QDRO, is a signed domestic relations order issued by a State or a Commonwealth court which creates, recognizes or assigns to an alternate payee(s) the right to receive all or part of a Participant’s Plan benefit. An alternate payee is a Spouse, former Spouse, child, or other dependent of a Participant who is treated as a Beneficiary under the Plan as a result of the QDRO. The Administrator will determine if a domestic relations order received by the Plan is a Qualified Domestic Relations Order based on an administrative policy regarding Qualified Domestic Relations Orders that is promulgated under Section 8.6 by the Administrator.

8.11Appointment of an Investment Manager. The Administrator, with the consent of the Sponsoring Employer, may appoint an Investment Manager to manage and control the investment of all or any portion of the assets of the Trust. Each Investment Manager must be a person (other than the Trustee) who (a) has the power to manage, acquire, or dispose of Plan assets, (b) is an investment adviser, a bank, or an insurance company as described in ERISA §3(38)(B), and (c) acknowledges fiduciary responsibility to the Plan in writing. The Administrator will enter into an agreement with an Investment Manager that specifies the duties and compensation of the Investment Manager and specifies any other terms and conditions under which the Investment Manager will be retained. The Trustee is not liable for any act or omission of an Investment Manager and is not liable for following an Investment Manager’s advice with respect to duties delegated by the Administrator to the Investment Manager. The Administrator can determine the portion of the Plan’s assets to be invested by a designated Investment Manager and can establish investment objectives and guidelines for the Investment Manager to follow.

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Article 9

Trustee Provisions

9.1Appointment, Resignation, Removal and Succession. The Trust established under the Plan will have one or more individual Trustees, a corporate Trustee, or any combination thereof, appointed as follows:

(a)Appointment.Each Trustee will be appointed and will serve until a successor has been named or until such Trustee’s resignation, death, incapacity, or removal, in which event the Sponsoring Employer will name a successor Trustee. The term Trustee will include the original and any successor Trustees.

(b)Resignation.A Trustee may resign at any time by giving written notice to the Sponsoring Employer, unless such notice is waived by the Sponsoring Employer. The Sponsoring Employer may remove a Trustee at any time by giving such Trustee written notice. Such removal may be with or without cause. Unless waived in writing by the Sponsor, if any Trustee who is an Employee or an elected or appointed official resigns or terminates employment with the Sponsoring Employer or an Adopting Employer, such termination will constitute an immediate resignation as a Trustee of the Plan.

(c)Successor Trustee.Each successor Trustee will succeed to the title to the Trust by accepting the appointment in writing and by filing such written acceptance with the former Trustee and the Sponsoring Employer. The former Trustee, upon receipt of such acceptance, will execute all documents and perform all acts necessary to vest the Trust Fund’s title of record in any successor Trustee. No successor Trustee will be personally liable for any act or failure to act of any predecessor Trustee.

(d)Merger.If any corporate Trustee, before or after qualification, changes its name, consolidates or merges with another corporation, or otherwise reorganizes, any resulting corporation that succeeds to the retirement plan trustee business of such Trustee will become a Trustee hereunder in lieu of such corporate Trustee.

9.2Powers and Duties of the Trustee. The specific powers and duties of the Trustee will be governed under the terms of a separate trust instrument entered into between the Sponsoring Employer and the Trustee.

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Article 10

Adopting Employers

10.1Plan Contributions. Unless otherwise agreed to by the parties, or unless otherwise required by law, no Employer will have any obligation to make contributions to this Plan for or on behalf of the Employees of any other Employer. If an Employee is employed by more than one Employer, any contributions made on his or her behalf will be prorated between those Employers on the basis of the Compensation that the Employee received from each Employer. If any Employer is unable to make a contribution for any Plan Year, any Employer which is an Affiliated Employer of such Employer may make an additional contribution to the Plan on behalf of any Employee of the non-contributing Employer.

10.2Plan Amendments. Any amendment to this Plan that is adopted by the Sponsoring Employer, at any time, will be deemed to be accepted by any Adopting Employer, unless such Adopting Employer is not an Affiliated Employer and elects not to adopt a discretionary Plan amendment.

10.3Plan Expenses. Any expenses paid from the Trust will be charged to each Adopting Employer in the ratio that each Adopting Employer’s Participants’ Accounts bears to the total of all the Participants’ Accounts maintained by this Plan, or in any other reasonable method elected by the Administrator.

10.4Employee Transfers. An Employee’s transfer to or from an Employer or Adopting Employer will not affect his or her Participant’s Account balance and total Years of Service or Periods of Service.

10.5Multiple Employer Provisions Under Code §413(c). Notwithstanding any other provision in the Plan, unless the Plan is a collectively bargained plan under Regulation §1.413-1(a), the following provisions apply to any Adopting Employer that is not also an Affiliated Employer:

(a)Instances of Separate Employer Testing.Employees of any such Adopting Employer will be treated separately for testing under Code §401(a)(4), §401(k), §401(m) and, if the Sponsoring Employer and the Adopting Employer do not share Employees, Code §416. Furthermore, the terms of Code §410(b) will be applied separately on an employer-by-employer basis by the Sponsoring Employer (and the Adopting Employers which are part of the Affiliated Group which includes the Sponsoring Employer) and each Adopting Employer that is not an Affiliated Employer of the Sponsoring Employer, taking into account the generally applicable rules described in Code §401(a)(5), §414(b) and §414(c).

(b)Instances of Single Employer Testing.Employees of the Adopting Employer will be treated as part of a single Employer plan for purposes of eligibility to participate under Article 2 and under the provisions of Code §410(a). Furthermore, the terms of Code §411 relating to Vesting will be applied as if all Employees of all such Adopting Employers and the Sponsoring Employer were employed by a single Employer, except that the rules regarding Breaks in Service will be applied under the Department of Labor Regulations.

(c)Common Trust.Contributions made by any Adopting Employer will be held in a common Trust Fund with contributions made by the Sponsoring Employer, and all such contributions will be available to pay the benefits of any Participant (or Beneficiary thereof) who is an Employee of the Sponsoring Employer or any such Adopting Employer.

(d)Common Disqualification Provision.The failure of the Sponsoring Employer or an Adopting Employer to satisfy the qualification requirements under the provisions of Code §401(a), as modified by the provisions of Code §413(c), will result in the disqualification of the Plan for all such Employers maintaining the Plan.

(e)Plan Becomes Individually Designed.If the combination of the Sponsoring Employer and/or any Adopting Employer createsamultipleemployerplanasdefinedinCode§413(c)andanyapplicabletransitionperiodofCode§410(b)(6)(C)has expired, then this Plan will be deemed to be an individually designed plan.

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10.6Termination of Adoption. An Adopting Employer may terminate its adoption of the Plan by delivering written notice to the Sponsoring Employer, to the Administrator and to the Trustee (but in accordance with Article 11, only the Sponsoring Employer can terminate the Plan). Upon any such termination of adoption by an Adopting Employer, the Adopting Employer may request a transfer of Trust Fund assets attributable to its Employees from this Plan to a successor qualified retirement plan maintained by the Adopting Employer or its successor. If such request is not made by the Adopting Employer, or if the Administrator refuses to make the transfer because in its opinion a transfer would operate to the detriment of any Participant, would jeopardize the continued qualification of the Plan, or would not comply with any requirements of the Code, Regulations, or rules promulgated by the Department of Treasury or Internal Revenue Service, then termination of adoption by an Adopting Employer as described in this Section will not be considered a distributable event;  distribution of a Participant’s Account of an Employee of the Adopting Employer will be made in accordance with the provisions of Article 5 upon the death, retirement, Disability, or the Termination of Employment from the Adopting Employer or former Adopting Employer, as if such termination of adoption by the Adopting Employer had not occurred.

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Article 11

Amendment, Termination, Merger and Elective Transfers

11.1Plan Amendment. The Basic Plan and Adoption Agreements can be amended at any time, and from time to time, in accordance with the following provisions:

(a)Amendment by the Mass Submitter.Subject to the requirements and limitations set forth in paragraphs (d) and (e) below, the Mass Submitter may amend any part of the Basic Plan and the Adoption Agreements. For purposes of this Plan, the Mass Submitter is AccuDraft, Inc.

(b)Amendment by the Prototype Sponsor.Subject to the requirements and limitations set forth in paragraphs (d) and (e) below, the Prototype Sponsor may amend any part of the Basic Plan and Adoption Agreements on behalf of each Employer maintaining the Plan at the time of the amendment. Any amendment to the Basic Plan does not require consent of an Employer, nor does an Employer have to reexecute its Adoption Agreement with respect to an amendment. The Prototype Sponsor will provide each Employer a copy of the amended Basic Plan (either by providing substitute or additional pages, or by providing a restated Basic Plan). An amendment by the Prototype Sponsor to an Adoption Agreement offered under the Prototype Plan is not effective with respect to an Employer’s Plan unless the Employer reexecutes the amended Adoption Agreement. For purposes of amendments made by the Prototype Sponsor, the Mass Submitter will be recognized as the agent of the Prototype Sponsor. If the Prototype Sponsor does not adopt the amendments made by the Mass Submitter, it will no longer be identical to or a minor modifier of the Mass Submitter plan.

(c)Amendment by the Sponsoring Employer.Subject to the requirements and limitations set forth in paragraphs (d) and (e) below, the Sponsoring Employer may amend any part of the Basic Plan and the Adoption Agreements in accordance with the following provisions:

(1)Permissible Amendments.The Sponsoring Employer will have the right at any time to amend the Adoption Agreement in the following manner without affecting the Plan’s status as a Prototype Plan: (A) the Sponsoring Employer may change any optional selections under the Adoption Agreement; (B) the Sponsoring Employer may add additional language where authorized under the Adoption Agreement, including language necessary to satisfy Code §415 or Code §416 due to the aggregation of multiple plans; (C) the Sponsoring Employer may change the addendums to the Adoption Agreement from time to time without having to reexecute the signature page of the Adoption Agreement; (D) the Sponsoring Employer may adopt any model, sample and/or “good faith” amendments promulgated/suggested by the IRS, for which the IRS has provided guidance that their adoption will not cause the Plan to be treated as an individually designed plan; (E) the Sponsoring Employer may adopt any amendments that it deems necessary to resolve qualification failures under any Employee Plans Compliance Resolution System (EPCRS) that is promulgated by the Internal Revenue Service; and (F) the Sponsoring Employer may adopt an amendment to cure a coverage or nondiscrimination testing failure, as permitted under applicable Regulations. The Sponsoring Employer may also amend the Plan at any time for any other reason, including a waiver of the minimum funding requirement under Code §412(d); however, such an amendment will cause the Plan to lose its status as a Prototype Plan and become an individually designed plan. The ability to amend the Plan as authorized under this Section applies only to the Sponsoring Employer that executes the signature page of the Adoption Agreement. Any amendment to the Plan by the Sponsoring Employer under this Section applies to any Affiliated Employer that participates under the Plan as an Adopting Employer. The Sponsoring Employer’s amendment of the Plan from one type of defined contribution plan (e.g., a money purchase plan) into another type of defined contribution plan (e.g., a profit sharing plan) will not result in a partial termination or any other event that would require full Vesting of some or all Plan Participants.

(2)Manner of Amending Adoption Agreements.The Sponsoring Employer can at any time change any election previously made in an Adoption Agreement (or any addendum previously attached thereto) by (A) substituting pages with the new elections (or new addendum) and executing an “Amendment By Page Substitution” and attaching it as part of the Adoption Agreement; (B) executing an “Amendment By Section Replication” in which the Section or Sections (or addendum or addendums) to be changed are reproduced with the new elections selected, and attaching it

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as part of the Adoption Agreement; (C) executing a properly worded resolution, certificate of action, or meeting minutes and attaching it as part of the Adoption Agreement; or (D) creating and distributing a Safe Harbor Notice (other than a contingent Safe Harbor Notice as described in Section 3.20(d)) to Safe Harbor Participants.

(d)General Requirements.An amendment of the Basic Plan or Adoption Agreement by the Mass Submitter, the Prototype Sponsor, or the Sponsoring Employer must be in writing. However, no such amendment or modification (1) can increase the responsibilities of the Trustee or Administrator without their written consent; (2) can deprive any Participant or Beneficiary of the benefits to which he or she is entitled from the Plan; (3) can result in a decrease in the amount of any Participant’s Account except as may be permitted under the terms of Code §412(c)(8) if applicable; or (4) can, except as otherwise provided, permit any part of the Trust Fund (other than as required to pay taxes and administration expenses) to be used for or diverted to purposes other than the exclusive benefit of the Participants or their Beneficiaries, or cause or permit any portion of the Trust Fund to revert to or become the property of the Employer. In addition, unless the provisions of paragraph (e) are satisfied, no amendment to the Plan will have the effect of eliminating or restricting the ability of a Participant or other payee to receive payment of his or her Account balance or benefit entitlement under a particular optional form of benefit provided under the Plan.

(e)Elimination of Optional Forms of Benefit.No Plan amendment will be effective to eliminate or restrict an optional form of benefit. The preceding sentence will not apply to a Plan amendment that eliminates or restricts the ability of a Participant to receive payment of the Participant’s Account balance under a particular optional form of benefit (including annuities and installments) if the amendment provides a single-sum distribution form that is otherwise identical to the optional form of benefit being eliminated or restricted. For this purpose, a single-sum distribution form is otherwise identical only if the single-sum distribution form is identical in all respects to the eliminated or restricted optional form of benefit (or would be identical except that it provides greater rights to the Participant) except with respect to the timing of payments after commencement. With respect to the modification or elimination of an optional form of benefit under which benefits are distributable to a Participant in a medium other than cash, the following provisions will apply:

(1)Eliminating Distributions Payable in Marketable Securities (other than Employer Securities). If the Plan includes an optional form of benefit under which benefits are distributed in the form of Marketable Securities (other than Securities of the Employer), then that optional form of benefit may be eliminated by a Plan amendment (or the Plan’s amendment and restatement) by substituting cash for the Marketable Securities as the medium of distribution.

(2)Amendments to Specify Medium of Distribution.If the Plan includes an optional form of benefit under which benefits are distributable to a Participant in a medium other than cash, then the Plan may be amended (or may be amended and restated) to limit the types of property in which distributions may be made to the Participant to the types of property specified in the amendment (or the amendment and restatement). For this purpose, the types of property specified in the amendment (or the amendment and restatement) must include all types of property (other than marketable securities that are not securities of the Employer) that are allocated to the Participant’s Account on the effective date of the amendment (or the amendment and restatement) and in which the Participant would be able to receive a distribution immediately before the effective date of the amendment (or the amendment and restatement) if a distributable event occurred. In addition, a Plan amendment (or the Plan’s amendment and restatement) may provide that the Participant’s right to receive a distribution in the form of specified types of property is limited to the property allocated to the Participant’s Account at the time of distribution that consists of property of those specified types.

(3)In-Kind Distributions after Plan Termination.If the Plan includes an optional form of benefit under which benefits are distributed in specified property, then that optional form of benefit may be modified for distributions after Plan termination by substituting cash for the specified property as the medium of distribution to the extent that, on Plan termination, an Employee has the opportunity to receive the optional form of benefit in the form of the specified property. However, if the Employer that maintains the terminating Plan also maintains another plan that provides an optional form of benefit under which benefits are distributed in the specified property, then this exception is not available.

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(4)Definitions of Marketable Securities and Securities of the Employer. For purposes of this paragraph, the term “Marketable Securities” means marketable securities as defined in Code §731(c)(2). The term “Securities of the Employer” means securities of the Employer as defined in Code §402(e)(4)(E)(ii).

(f)Certain Corrective Amendments.To satisfy the minimum coverage requirements of Code §410(b), the nondiscriminatory amount requirement of Regulation §1.401(a)(4)-1(b)(2), or the nondiscriminatory plan amendment requirement of Regulation §1.401(a)(4)-1(b)(4), a corrective amendment or change of the choice of options in the Adoption Agreement may retroactively increase allocations for Employees who benefited under the Plan during the Plan Year being corrected, or may grant allocations to Employees who did not benefit under the Plan during the Plan Year being corrected. To satisfy the nondiscriminatory current availability requirement of Regulation §1.401(a)(4)-4(b) for benefits, rights or features, a corrective amendment or change of the choice of options in the Adoption Agreement may make a benefit, right or feature available to Employees to whom it was previously not available. A corrective amendment or change of the choice of options in the Adoption Agreement will not be effective prior to the date of adoption unless it satisfies the applicable requirements of Regulation §1.401(a)(4)-11(g)(3)(ii) through (vii), including the requirement that, in order to be effective for the preceding Plan Year, such amendment or change of the choice of options in the Adoption Agreement must be adopted by the 15th day of the 10th month after the close of the preceding Plan Year.

11.2Termination of the Plan. The Sponsoring Employer at any time can terminate the Plan and Trust in whole or in part in accordance with the following provisions:

(a)Termination of Plan.The Sponsoring Employer can terminate the Plan and Trust by filing written notice thereof with the Administrator and Trustee and by completely discontinuing contributions to the Plan. Upon any such termination, the Trust Fund will continue to be administered until complete distribution has been made to the Participants and other payees, which distribution must occur as soon as administratively feasible after the termination of the Plan, and must be made in accordance with the provisions of Article 5 of the Plan, including Section 5.6 where applicable. However, the Administrator may elect not to distribute the Accounts of Participants and other payees upon termination of the Plan but instead to transfer the entire Trust Fund assets and liabilities attributable to this terminated Plan to another qualified plan maintained by the Employer or its successor.

(b)Vesting Requirement upon Complete Termination or Discontinuance of Contributions.Upon a complete termination of the Plan, or, in the case of a Plan to which Code §412 does not apply, upon a complete discontinuance of contributions under the Plan, then (1) any Participant who is affected by such complete termination or, if applicable, such complete discontinuance of contributions; (2) any Participant who has not Terminated Employment with the Employer; (3) any Participant who has Terminated Employment with the Employer and has not received a complete distribution of the Participant’s Vested Aggregate Account; and (4) any Participant who has Terminated Employment but has not incurred five consecutive Breaks in Service; will have a 100% Vested Interest in his or her unpaid Participant’s Account.

(c)Vesting Requirement upon Partial Termination Upon partial termination of the Plan, only a Participant who has Terminated Employment because of the event which causes the partial termination but who has not incurred five consecutive Breaks in Service will have a 100% Vested Interest in his or her unpaid Participant’s Account as of the date of partial termination.

(d)Discontinuance of Contributions.The Sponsoring Employer may at any time completely discontinue contributions to the Plan but continue the Plan in operation in all other respects, in which event the Trust Fund will continue to be administered until eventual full distribution of all benefits has been made to the Participants and other payees in accordance with Article 5 after their Termination of Employment for any reason. Discontinuance of contributions without an additional notice of termination from the Sponsoring Employer to the Administrator and Trustee will not constitute a termination of the Plan.

11.3Merger or Consolidation. This Plan and Trust may not be merged or consolidated with, nor may any of its assets or liabilities be transferred to, any other plan, unless the benefits payable to each Participant if the Plan was terminated immediately after such action would be equal to or greater than the benefits to which such Participant would have been entitled if this Plan had been terminated immediately before such action. For purposes of this Section, the term “Code §410(b)(6)(C) Transaction” means an asset or stock acquisition, merger, or similar transaction involving a change in the employer of the employees of a

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business. If the Employer acquires another company in a Code §410(b)(6)(C) Transaction, employees of the acquired company may be excluded from this Plan regardless of the provisions of Sections 2.1 and 2.2 of the Plan and the Adoption Agreement during the period beginning on the date of the transaction and ending on the last day of the Plan Year that begins after the date of the Code §410(b)(6)(C) Transaction.

11.4Plan-to-Plan Elective Transfers. To permit Participants to consolidate all qualified defined contribution plan accounts into a single plan for investments, distributions, loans and other administrative purposes, the Sponsoring Employer may permit Participants to transfer amounts to and from this Plan under the following rules:

(a)Transfers to This Plan.If permitted by the Sponsoring Employer and subject to the provisions of this Section, then a Participant may request that such Participant’s entire account balance (both the vested interest and the non-vested interest) in another qualified defined contribution plan maintained by the Sponsoring Employer (or an Adopting Employer) be transferred in cash or in property into this Plan. Such transferred amount into this Plan will be considered a Transfer Contribution.

(b)Transfers from This Plan.If permitted by the Sponsoring Employer, then a Participant may request that such Participant’s Account balance (both the Vested Interest and the Non-Vested Interest) in this Plan be transferred in cash or in property into another qualified defined contribution plan of the Sponsoring Employer (or an Adopting Employer).

(c)Limitation on Transfers.A transfer into or from this Plan pursuant to this Section is only permitted if the Participant is ineligible to actively participate at the same time in the Sponsoring Employer’s (or an Adopting Employer’s) plan from which the transfer is being made (the transferor plan) and the Sponsoring Employer’s (or an Adopting Employer’s) plan into which the transfer is being made (the transferee plan).

(d)Plan Accounts.Transfer Contributions from another qualified defined contribution plan into this Plan will maintain their identity as Elective Deferrals, Matching Contributions, Voluntary Employee Contributions, Deductible Employee Contributions, Non-Elective Contributions, Qualified Non-Elective Contributions, Qualified Matching Contributions, Safe Harbor 401(k) Contributions, and Rollover Contributions in this Plan. Such Transfer Contributions will be accounted for separately in this Plan.

(e)Protected Benefits.Any Transfer Contributions into this Plan that have benefits, rights and features (including, but not limited to, certain optional forms of benefit payments, such as annuities) required to be preserved by Code §411(d)(6) will continue to be preserved and protected in this Plan to the extent required by Code §411(d)(6). The Sponsoring Employer (or an Adopting Employer) reserves the right to eliminate any benefits, rights and features (including, but not limited to, certain optional forms of benefit payments) of any Transfer Contributions into this Plan, to the extent permitted under Code §411(d)(6).

(f)Vesting.Transfer Contributions into this Plan must Vest at least as rapidly under this Plan (the transferee plan) as they would Vest under the plan from which the transfer is being made (the transferor plan), as if the transfer had not occurred. If this Plan is the transferee plan and the Vesting schedule under the transferor plan for a specific source of transferred amounts (Matching Contributions or Non-Safe Harbor Non-Elective Contributions) is less favorable than the Vesting schedule that applies to the same component (Matching Contributions or Non-Safe Harbor Non-Elective Contributions) in this Plan, the Administrator may apply, in a non-discriminatory manner, the Vesting schedule of this Plan’s component (Matching Contributions or Non-Safe Harbor Non-Elective Contributions) to that portion of the Transfer Contributions.

(g)Transfer Requests Subject to Administrative Approval.Any transfer into or from this Plan must be made in cash or property acceptable to the Trustee. Any benefits, rights and features of a Transfer Contribution required to be protected by Code §411(d)(6) must be acceptable to and approved by the Administrator.

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Article 12

Miscellaneous Provisions

12.1No Contract of Employment. Except as otherwise provided by law, neither the establishment of this Plan, any modification hereto, the creation of any fund or account, nor the payment of any benefits, will be construed as giving any Participant or other person any legal or equitable rights against the Employer, any officer or Employee thereof, or the Trustee, except as herein provided. Further, under no circumstances will the terms of employment of any Participant be modified or otherwise affected by this Plan.

12.2Title to Assets. No Participant or Beneficiary will have any right to, or any interest in, any assets of the Trust upon separation from service with the Employer, Affiliated Employer, or Adopting Employer, except as otherwise provided by the terms of the Plan.

12.3Qualified Military Service. Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code §414(u).

12.4Domestic Partner’s Rights. If elected in the Adoption Agreement, then a Domestic Partner will be afforded the same rights as a Spouse for purposes of this Plan. However, until such time as ERISA recognizes Federal enforcement rights of a Domestic Partner, enforcement of these rights by a Domestic Partner will be based on a State’s (or Commonwealth’s) contract law (without the necessity of proving adequate consideration or actual damages under contract law) or other applicable law.

12.5Fiduciaries and Bonding. Fiduciaries (including Named Fiduciaries) of the Plan will have only those powers and duties specifically given to them under the terms of this Plan. Every fiduciary other than a bank, an insurance company, or a fiduciary of an Employer which has no common-law employees, will be bonded in an amount not less than 10% of the amount of funds under the fiduciary’s supervision, but the bond will not be less than $1,000 or more than $500,000 or such other amount that may be required by law. The bond will provide protection to the Plan against any loss for acts of fraud or dishonesty by a fiduciary acting alone or in concert with others. The cost of such bond will be an expense of either the Employer or the Trust, at the election of the Sponsoring Employer.

12.6Severability of Provisions. If any Plan provision is held invalid or unenforceable, such invalidity or unenforceability will not affect any other provision of this Plan, and this Plan will be construed and enforced as if such provision had not been included.

12.7Interpretation of the Plan and Trust.The following provisions apply to the interpretation of the Plan and Trust:

(a)Names. Names that are used in this Plan should be used consistently in any appendixes, policies, procedures, and/or any other documents which are legally binding upon the Plan. However, in documents that are not considered to be part of this Plan, appendixes, policies or procedures that are not legally binding upon the Plan; and that may be are distributed to individuals (such as the SPDs, SMMs, notices, and election forms), names may use plain English terms. These terms include, but are not limited to, the following: in the case of a profit sharing plan, the Non-Elective Contribution may be called the Employer contribution or the profit sharing contribution. Similarly, the Non-Elective Contribution Account may be called the Participant’s Account or the Participant’s profit sharing account.

(b)Gender. Words that are used in the masculine gender may be construed as though they are also used in the feminine or neuter gender, where applicable (and vice versa).

(c)Number.Words that are used in the singular form may be construed as though they are also used in the plural form, where applicable (and vice versa).

(d)Headings and Subheadings.Headings and subheadings are inserted for convenience of reference. Headings and subheadings constitute no part of this Plan and/or Trust and are not to be considered in its construction or interpretation.

(e)Single Subparagraphs. This Plan and/or Trust may have Sections and/or paragraphs that contain a single subparagraph; such document construction will not constitute a Scrivener’s error.

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(f)Application of Law. This Plan and/or Trust will be construed and interpreted in accordance with the Code and ERISA. However, if the Plan needs to be construed and interpreted according to a State’s or Commonwealth’s laws (to the extent that such laws are not preempted by the provisions of the Code and ERISA), then this Plan will be construed and interpreted according to the laws of the State or Commonwealth in which the Sponsoring Employer maintains its principal place of business. Unless the Trust otherwise provides, if the Trust needs to be construed and interpreted according to a State’s or Commonwealth’s laws (to the extent that such laws are not preempted by the provisions of the Code and ERISA), then the Trust will be construed and interpreted according to the laws of the State or Commonwealth in which the Sponsoring Employer maintains its principal place of business.

(g)Effective Dates. This Plan and Trust contains various effective dates, which include, but are not limited to: (1) the effective date of the Plan and, if applicable, the effective date of the amended and restated Plan; (2) the effective dates of legally required or permitted provisions; (3) the effective dates of various provisions in the Adoption Agreement; and (4) the effective dates of the Effective Date Addendum (including, but not limited to, the effective date of the freezing of the Plan, if applicable).

12.8Costs and Expenses of Legal Action. Unless otherwise prohibited by law, either the Sponsoring Employer or the Trust, in the sole discretion of the Sponsoring Employer, will reimburse the Trustee and/or the Administrator for all costs, attorneys fees and other expenses associated with any claim, suit or proceeding.

12.9Qualified Plan Status. This Plan, the related Trust agreement and the related Adoption Agreement are intended to be a qualified retirement plan under the provisions of Code §401(a) and §501(a).

12.10Mailing of Notices to Administrator, Employer or Trustee. Notices, documents or forms required to be given to or filed with the Administrator, the Employer or the Committee will be either hand delivered or mailed by first class mail, postage prepaid, to the Committee or the Employer, at the Employer’s principal place of business. Any notices, documents or forms required to be given to or filed with the Trustee will be either be hand delivered or mailed by first class mail, postage prepaid, to the Trustee at its principal place of business.

12.11Participant Notices and Waivers of Notices. Whenever written notice is required to be given under the terms of this Plan, such notice will be deemed to be given on the date that such written notice is either hand delivered to the recipient or deposited at a United States Postal Service Station, first class mail, postage paid. Notice may be waived by any party entitled to receive written notice concerning any matter under the terms of this Plan.

12.12Evidence Furnished Conclusive. Anyone required to give evidence under the terms of the Plan may do so by certificate, affidavit, document or other information that the person to act in reliance may consider pertinent, reliable and genuine, and to have been signed, made or presented by the proper party or parties. The fiduciaries of the Plan will be fully protected in acting and relying upon any evidence described under this Section.

12.13Release of Claims. Any payment to a Participant or Beneficiary, his or her legal representative, or to a guardian or committee appointed for such Participant or Beneficiary, will, to the extent thereof, be in full satisfaction of all claims hereunder against the Administrator and the Trustee, either of whom may require such Participant, legal representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as determined by the Administrator or the Trustee.

12.14Deductible Employee Contributions. This Plan will not permit a Participant to make Deductible Employee Contributions to the Plan for any Plan Year beginning on or after January 1, 1987, but any Deductible Employee Contributions which were made to the Plan prior to such date will continue to be maintained in the Participant’s Deductible Employee Contributions Account in which the Participant will have a 100% Vested Interest. Except for that portion which a Participant self-directs pursuant to Section 7.4, the Administrator may choose for investment purposes to either segregate such accounts into separate interest bearing accounts or invest them as part of the general Trust Fund, in which case such accounts will share in the allocation of earnings and losses under Section 3.12 as non-segregated accounts. However, no portion of a Participant’s Deductible Employee Contributions can be invested in life insurance Policies under Section 7.2. A Participant may withdraw amounts from his or her Deductible Employee Contributions Account only if all other amounts credited to the Plan on his or her behalf, other than his Participant’s Account, have been distributed to the Participant. Distributions will be made pursuant to Article 5. Notwithstanding anything in this Section to the contrary, if elected in the Adoption Agreement, then each Participant may make Deemed IRA Contributions to the Plan, pursuant to Section 3.17.

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12.15No Duplication of Benefits. There will be no duplication of benefits under the Plan because of employment by more than one participating Employer.

12.16Discontinued Contributions. Any Participants’ Accounts (or sub-Accounts) that were established for specific contributions to the Plan which are (or were) subsequently discontinued will continue to be administered in accordance with the Vesting and Forfeiture provisions of the Plan in effect on the date that such contributions are (or were) discontinued.

12.17Multiple Copies of Plan, Trust and/or Adoption Agreement. This Plan, the related Trust agreement and the related Adoption Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which will constitute one and the same Agreement or Trust agreement, as the case may be, and will be binding on the respective successors and assigns of the Employer and all other parties.

12.18Loss of Prototype Status. If the Prototype Sponsor terminates the services of the Mass Submitter, then this Plan will no longer qualify as a Prototype Plan and will be considered an individually-designed plan.

12.19Limitation of Liability and Indemnification. In addition to and in furtherance of any other limitations provided in the Plan, and to the extent permitted by applicable law, the Employer will indemnify and hold harmless its board of directors (collectively and individually), if any, the Administrative/Advisory Committee (collectively and individually), if any, and its officers, Employees, and agents against and with respect to any and all expenses, losses, liabilities, costs, and claims, including legal fees to defend against such liabilities and claims, arising out of their good-faith discharge of responsibilities under or incident to the Plan, excepting only expenses and liabilities resulting from willful misconduct. This indemnity will not preclude such further indemnities as may be available under insurance purchased by the Employer or as may be provided by the Employer under any by-law, agreement, vote of shareholders or disinterested directors, or otherwise, as such indemnities are permitted under state law. Payments with respect to any indemnity and payment of expenses or fees under this Section will be made only from assets of the Employer, and will not be made directly or indirectly from assets of the Trust.

12.20Written Elections and Forms. Whenever the word “written” or the words “in writing” are used, such words will include any method of communication permitted by the DOL with respect to such documentation. In a similar manner, the word “form” will include any other method of election permitted under current law. Such alternative methods will include, but not be limited to, electronic modes to the extent permitted by law.

12.21Assignment and Alienation of Benefits. Except as may otherwise be permitted under Code §401(a)(13)(C), as may otherwise be permitted under a Qualified Domestic Relations Order as provided in Section 8.10, or as may otherwise be permitted under Section 7.1 relating to loans to Participants, no right or claim to, or interest in, any part of the Trust Fund, or any payment therefrom, will be assignable, transferable, or subject to sale, mortgage, pledge, hypothecation, commutation, anticipation, garnishment, attachment, execution, or levy of any kind, and the Trustees will not recognize any attempt to assign, transfer, sell, mortgage, pledge, hypothecate, commute, or anticipate the same, except to the extent required by law.

12.22Exclusive Benefit Rule. All contributions made by the Employer or an Affiliated Employer to the Trust Fund will be used for the exclusive benefit of the Participants who are Employees of the Employer or Affiliated Employer and for their Beneficiaries and will not be used for nor diverted to any other purpose except the payment of the costs of maintaining the Plan. All contributions made by an Adopting Employer who is not an Affiliated Employer will be used for the exclusive benefit of the Participants who are Employees of the Adopting Employer and for their Beneficiaries and will not be used for nor diverted to any other purpose except the payment of the Adopting Employers’ proportionate costs of maintaining the Plan.

12.23Prior Provisions of Amended and Restated Plans. If the Plan’s effective date is prior to the first day of the first Plan Year beginning on or after January 1, 2002 and this is an amendment and restatement of the Plan, then the provisions of the prior Plan document in effect prior to the first day of the first Plan Year beginning on or after January 1, 2002 will apply to this Plan; however, if any provisions of the prior Plan document contradict any provisions of this Plan, then the provisions of this Plan will apply.

12.24Dual and Multiple Trusts. Plan assets may be held in two or more separate trusts, or in trust and by an insurance company or by a trust and under a custodial agreement. Plan assets may also be held in a common trust.

126

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-4 No. 333-144435) of Michaels Stores, Inc. and in the related Prospectus of our reports dated April 1, 2009, with respect to the consolidated financial statements of Michaels Stores, Inc., and the effectiveness of internal control over financial reporting of Michaels Stores, Inc., included in this Annual Report (Form 10-K) for the year ended January 31, 2009.

/s/ Ernst & Young LLP

Dallas, Texas

April 1, 2009

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Brian C. Cornell, certify that:

1.I have reviewed this annual report on Form 10-K of Michaels Stores, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 2, 2009	/s/ Brian C. Cornell
	Brian C. Cornell
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Elaine D. Crowley, certify that:

1.I have reviewed this annual report on Form 10-K of Michaels Stores, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 2, 2009	/s/ Elaine D. Crowley
	Elaine D. Crowley
	Executive Vice President - Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO § 906
OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Annual Report on Form 10-K of Michaels Stores, Inc., a Delaware corporation (the “Company”), for the year ended January 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

Date: April 2, 2009	/s/ Brian C. Cornell
	Brian C. Cornell
	Chief Executive Officer
	(Principal Executive Officer)
	/s/ Elaine D. Crowley
	Elaine D. Crowley
	Executive Vice President - Chief Financial Officer
	(Principal Financial Officer)

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.