-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WfMJQ+E4oSqX0vAzf58e0o3DTODYheMjFYPIQdZChkbElBA5R5wxemiDRxIRujiu sgrV4JOQfjVep1aqABU9jQ== /in/edgar/work/20000629/0000004457-00-000067/0000004457-00-000067.txt : 20000920 0000004457-00-000067.hdr.sgml : 20000920 ACCESSION NUMBER: 0000004457-00-000067 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERCO /NV/ CENTRAL INDEX KEY: 0000004457 STANDARD INDUSTRIAL CLASSIFICATION: [7510 ] IRS NUMBER: 880106815 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11255 FILM NUMBER: 664802 BUSINESS ADDRESS: STREET 1: 1325 AIRMOTIVE WY STE 100 CITY: RENO STATE: NV ZIP: 89502 BUSINESS PHONE: 7756886300 MAIL ADDRESS: STREET 1: 1325 AIRMOTIVE WAY STREET 2: SUITE 100 CITY: RENO STATE: NV ZIP: 89502 FORMER COMPANY: FORMER CONFORMED NAME: AMERCO DATE OF NAME CHANGE: 19770926 10-K 1 0001.txt AMERCO 10-K 03/31/00 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K - Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2000 ----------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________ to _______________________ Commission Registrant, State of Incorporation I.R.S. Employer File Number Address and Telephone Number Identification No. - ----------- ----------------------------------- ------------------ 1-11255 AMERCO 88-0106815 (A Nevada Corporation) 1325 Airmotive Way, Suite 100 Reno, Nevada 89502-3239 Telephone (775) 688-6300 2-38498 U-Haul International, Inc. 86-0663060 (A Nevada Corporation) 2727 N. Central Avenue Phoenix, Arizona 85004 Telephone (602) 263-6645 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Registrant Title of Class on Which Registered - ---------- -------------- ---------------------- AMERCO Series A 8 1/2% New York Stock Exchange Preferred Stock U-Haul International, Inc. None Securities registered pursuant to Section 12(g) of the Act: Registrant Title of Class ---------- -------------- AMERCO Common U-Haul International, Inc. None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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. [ ] 22,379,787 shares of AMERCO common stock, $0.25 par value, were outstanding at June 29, 2000. The aggregate market value of AMERCO common stock held by non-affiliates (i.e., stock held by persons other than officers, directors and 5% shareholders of AMERCO) was $152,957,730. The aggregate market value was computed using the closing price for the common stock trading on NASDAQ on June 26, 2000. 5,385 shares of U-Haul International, Inc. common stock, $0.01 par value, were outstanding at June 29, 2000. None of these shares were held by non-affiliates. U-Haul International, Inc. meets the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format. Portions of AMERCO's Proxy Statement relating to its Annual Meeting of Stockholders to be held on September 8, 2000, are incorporated by reference in Part III hereof. 2 TABLE OF CONTENTS PAGE NO. PART I ITEM 1. BUSINESS...................................... 3 A. AMERCO................................... 3 B. HISTORY.................................. 3 C. MOVING AND STORAGE OPERATIONS............ 4 D. REAL ESTATE OPERATIONS................... 5 E. INSURANCE OPERATIONS..................... 6 ITEM 2. PROPERTIES.................................... 9 ITEM 3. LEGAL PROCEEDINGS............................. 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................. 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............... 10 ITEM 6. SELECTED FINANCIAL DATA....................... 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................... 13 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................. 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................... 23 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ................................... 23 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS............................... 24 ITEM 11. EXECUTIVE COMPENSATION........................ 24 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................... 24 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................. 24 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............. 25 3 PART I ITEM 1. BUSINESS A. AMERCO AMERCO, a Nevada corporation (AMERCO), is the holding company for U-Haul International, Inc. (U-Haul), Amerco Real Estate Company (Real Estate), Republic Western Insurance Company (Republic) and Oxford Life Insurance Company (Oxford). Throughout this Form 10-K, unless the context otherwise requires, the term "AMERCO" includes all of its subsidiaries. AMERCO's executive offices are located at 1325 Airmotive Way, Suite 100, Reno, Nevada 89502-3239, and the telephone number is (775) 688-6300. As used in this Form 10-K, all references to a fiscal year refer to AMERCO's fiscal year ended March 31 of that year. Republic and Oxford are consolidated on the basis of calendar years ended December 31. Accordingly, all references to the years 1999, 1998 and 1997 correspond to AMERCO's fiscal years 2000, 1999 and 1998, respectively. AMERCO has four industry segments represented by Moving and Storage Operations (U-Haul), Real Estate, Property and Casualty Insurance (Republic) and Life Insurance (Oxford). See Note 21 of Notes to Consolidated Financial Statements in Item 8 for financial information regarding the industry segments. Moving and Storage Operations Moving and self-storage operations consist of the rental of trucks and trailers, sale of moving aids such as boxes and the rental of self- storage spaces to the do-it-yourself mover. Operations are conducted using the registered tradename U-Haul throughout the United States and Canada. Real Estate Operations Real Estate owns approximately 90% of U-Haul's real estate assets, including U-Haul Center and Storage locations. The remainder of the real estate assets are owned by various U-Haul entities. Real Estate is responsible for managing all of the properties including the environmental risks of the properties. Real Estate is responsible for the purchase of all properties used by AMERCO or any of its subsidiaries. Real Estate also handles all the dispositions (sale or lease) of unused real estate. Property and Casualty Insurance Republic originates and reinsures property and casualty-type insurance products for various market participants, including independent third parties, U-Haul's customers, independent dealers and AMERCO. Life Insurance Oxford originates and reinsures annuities, life, credit life and disability, health and Medicare supplement insurance. Oxford also administers the self-insured employee health and dental plans for AMERCO. On November 21, 1997, Oxford purchased all of the issued and outstanding shares of Encore Financial, Inc. and its subsidiaries (Encore). Encore's primary subsidiary is North American Insurance Company (NAI). NAI's premium volume is primarily from the sale of credit life and disability products, and Medicare supplement insurance. NAI owns all of the issued and outstanding common shares of North American Fire & Casualty Insurance Company (NAFCIC), a property and casualty company. In December 1998, NAFCIC was sold to Republic. On November 24, 1997, Oxford purchased all of the issued and outstanding shares of Safe Mate Life Insurance Company (Safe Mate). As of November 1, 1998, Safe Mate merged into Oxford. Safe Mate's business was the sale of credit life and disability products. B. HISTORY U-Haul was founded in 1945 under the name "U-Haul Trailer Rental Company". From 1945 to 1974, U-Haul rented trailers and, starting in 1959, trucks on a one-way and In-Town basis through independent dealers. Since 1974, U-Haul has developed a network of owned rental centers (U-Haul Centers) through which U-Haul rents its trucks and trailers and provides related products and services (e.g., the sale and installation of hitches, as well as the sale of boxes and moving supplies). At March 31, 2000, U-Haul's distribution network included 1,200 U-Haul Centers and 14,500 independent dealers. 4 C. MOVING AND STORAGE OPERATIONS Business Strategies The U-Haul business strategy remains focused on do-it-yourself moving and self-storage customers. U-Haul believes that customer access, in terms of truck or trailer availability and proximity of rental locations, is critical to its success. Under the U-Haul name, our strategy is to offer, in an integrated manner over an extensive and geographically diverse network of 15,700 Company-owned Centers and independent dealers, a wide range of products and services to do-it- yourself moving and self-storage customers. Moving Operations U-Haul has a variety of product offerings. Rental trucks are designed with do-it-yourself customers in mind. U-Haul trailers are suited to the low profile of many newly manufactured automobiles. As of March 31, 2000, the U-Haul rental equipment fleet consisted of 97,000 trucks, 80,300 trailers and 19,200 tow dollies. Additionally, U-Haul provides support rental items such as furniture pads and bumper hitches. Approximately 90% of U-Haul's rental revenue is from do-it-yourself movers. Moving rentals include: (i) In-Town rentals, where the equipment is returned to the originating U-Haul location and (ii) one-way rentals, where the equipment is returned to a U-Haul location in another city. U-Haul's truck and trailer rental business tends to be seasonal, with proportionally more transactions and revenues generated in the spring and summer months than during the balance of the year. U-Haul also sells a wide selection of moving supplies that include boxes, tape and packaging materials. U-Haul Centers also sell and install hitches and towing systems, and sell propane. U-Haul offers protection packages such as: (i) Safemove - which provides moving customers with a damage waiver, cargo protection and medical and life coverage and (ii) Safestor - which provides self-storage rental customers with various types of protection for their goods in storage. Independent dealers receive U-Haul equipment on a consignment basis and are paid a commission on gross revenues generated from their rentals. U-Haul maintains contracts with its independent dealers that may typically be terminated upon 30 days written notice by either party. U-Haul designs and manufactures its truck van boxes, trailers and various other support rental equipment items. Truck chassis are manufactured by both foreign and domestic truck manufacturers. These chassis receive certain post-delivery modifications and are joined with van boxes at strategically located Company-owned manufacturing and assembly facilities in the United States. U-Haul services and maintains its trucks and trailers through an extensive preventive-maintenance program, generally performed at Company- owned facilities located at or near U-Haul Centers. Major repairs are performed either by the chassis manufacturers' dealers or by Company- owned repair shops, and U-Haul takes advantage of manufacturers' warranties. Competition The moving truck and trailer rental market is highly competitive and dominated by national operators in both the In-Town and one-way markets. Recently two major competitors combined. Budget Rent-A-Car acquired Ryder TRS (Ryder Truck Rentals). Management believes that this merger will not have a material adverse effect on AMERCO's financial position or operating results. Management believes that there are two distinct users of rental trucks: commercial users and do-it-yourself users. U-Haul focuses on the do-it-yourself mover. U-Haul believes that the principal competitive factors are convenience of rental locations, availability of quality rental equipment and price. 5 Self-Storage Business U-Haul entered the self-storage business in 1974 and since then has increased the rentable square footage of its storage locations through the acquisition of existing facilities and new construction. Ten percent of U-Haul's rental revenue is generated from storage. In addition, U-Haul has entered into management agreements to manage self-storage properties owned by others. U-Haul has also entered into a strategic and financial partnership with Private Mini Storage Realty, L.P., a Texas-based operator of self-storage properties. Through over 900 owned or managed storage locations in the United States and Canada, U-Haul offers for rent more than 29.1 million square feet of self-storage space. U-Haul's self-storage facility locations range in sizes up to 152,000 square feet of storage space, with individual storage units in sizes from 15 square feet to 400 square feet. The primary market for storage rooms is the storage of household goods. With the addition of over 20,000 storage rooms during fiscal year 2000, the average occupancy rate of facilities operating over one year was 84.1%, with modest seasonal variations. During fiscal year 2000, delinquent rentals as a percentage of total storage rentals were approximately 6.8%. U-Haul considers this rate to be satisfactory. Competition The primary competition for a U-Haul self-storage location is other storage facilities within a trade area offering a comparable level of convenience to the customer. Employees As of March 31, 2000, U-Haul's non-seasonal work force consisted of 15,800 full and part-time employees. D. REAL ESTATE OPERATIONS Real Estate Operations Real Estate has responsibility for actively marketing properties available for sale or lease. Real Estate is also responsible for managing any environmental risks associated with AMERCO's real estate. Environmental Matters Compliance with environmental requirements of federal, state and local governments significantly affects Real Estate's business operations. Among other things, these requirements regulate the discharge of materials into the water, air and land and govern the use and disposal of hazardous substances. Real Estate is aware of issues regarding hazardous substances on the properties. Real Estate regularly makes capital and operating expenditures to stay in compliance with environmental laws. Since 1988, Real Estate has managed a testing and removal program for underground storage tanks. Under this program, over 3,000 tanks have been removed at a cost of $40.0 million. A subsidiary of U-Haul, INW Company (INW), owns one property located within two different state hazardous substance sites in the State of Washington. The sites are referred to as the "Yakima Valley Spray Site" and the "Yakima Railroad Area." INW has been named as a "potentially liable party" (PLP) under state law with respect to this property as it relates to both sites. Based upon the information currently available to Real Estate, compliance with the environmental laws and its share of the costs of investigation and cleanup of known hazardous waste sites are not expected to have a material adverse effect on AMERCO's financial position or operating results. 6 E. INSURANCE OPERATIONS Business Strategies Republic's principal business strategy is to provide specialty insurance for personal, commercial and reinsurance markets. Republic focuses on selected regional and under-served customers through managing general agents, independent agents and brokers. Oxford's business strategy is long-term capital growth through direct writing of annuity, credit life and disability, universal life and Medicare supplement insurance. Currently, Oxford is pursuing this growth strategy of increased direct writing via acquisitions of small insurance companies, expanded distribution channels and product enhancement and diversity. The acquisitions of North American Insurance Company and Safe Mate Life Insurance Company in 1997 represent a significant movement toward this long-term goal. Oxford has significantly expanded its distribution channels and administrative capabilities through these acquisitions. Investments Republic and Oxford investments must comply with the insurance laws of the state of domicile. These laws prescribe the type, quality and concentration of investments that may be made. Moreover, in order to be considered an acceptable reinsurer by cedents and intermediaries, a reinsurer must offer financial security. The quality and liquidity of invested assets are important considerations in determining such security. The investment philosophies of Republic and Oxford emphasize protection of principal through the purchase of investment grade fixed- income securities. Approximately 88.0% of Republic's and 88.2% of Oxford's fixed-income securities consist of investment grade securities (NAIC-2 or greater). The maturity distributions are designed to provide sufficient liquidity to meet future cash needs. Reinsurance Republic and Oxford assume and cede insurance from and to other insurers and members of various reinsurance pools and associations. Reinsurance arrangements are utilized to provide greater diversification of risk and to minimize exposure to large risks. However, the original insurer retains primary liability to the policyholder should the assuming insurer not be able to meet its obligations under the reinsurance agreements. Regulation Republic and Oxford are subject to regulation throughout the United States. The regulation extends to such matters as licensing companies and agents, restricting the types, quality or quantity of investments, regulating capital and surplus and actuarial reserve maintenance, setting solvency standards, filing of annual and other reports on financial position, and regulating trade practices. State laws also regulate transactions and dividends between an insurance company and its parent or affiliates, and generally require prior approval or notification for any change in control of the insurance subsidiary. Republic's unpaid loss and loss expenses are certified annually by an independent actuarial consulting firm as required by state regulation. In the past few years, the insurance and reinsurance regulatory framework has been subjected to increased scrutiny by the National Association of Insurance Commissioners (NAIC), federal and state legislatures and insurance regulators. These regulators are considering increased regulations, with an emphasis on insurance company investment and solvency issues. It is not possible to predict the future impact of changing state and federal regulations on the operations of Republic and Oxford. Republic and Oxford are in compliance with NAIC minimum risk-based capitalization requirements for insurance companies as of December 31, 1999. Competition The highly competitive insurance industry includes a large number of property and casualty insurance companies and life insurance companies. In addition, the marketplace now includes financial service firms offering both insurance and financial products. Many competitors have been in business for a longer period of time or possess substantially greater financial resources. Competition in the insurance business is based upon price, product design and services rendered to producers and policyholders. 7 Employees Republic's non-seasonal work force consists of 386 full and part- time employees. Oxford's non-seasonal work force consists of 160 full and part-time employees. Life Insurance Oxford offers annuities, life, credit life and disability, and Medicare supplement insurance products, both as a direct writer and as an assuming reinsurer. In addition, Oxford administers self-insured group health and dental plans for AMERCO. Reinsurance arrangements are entered into with unaffiliated reinsurers. Oxford's subsidiary, North American Insurance Company underwrites credit life and disability and Medicare supplement insurance. Property and Casualty Republic's business activities consist of three basic areas: U-Haul, direct and assumed reinsurance underwriting. U-Haul underwritings include coverage for U-Haul customers, independent dealers and employees of AMERCO. For the year ended December 31, 1999, approximately 18.3% of Republic's written premiums resulted from U-Haul underwriting activities. Republic's direct underwriting is done through company-employed underwriters and selected general agents. The products provided include liability coverage for rental vehicle lessees, storage rental properties, coverage for commercial multiple peril, nonstandard auto, mobile homes and excess workers' compensation. Republic's assumed reinsurance underwriting is done via broker markets. In an effort to decrease risk, Republic has entered into various catastrophe cover policies to limit its exposure. The liability for reported and unreported losses is based on both Republic's historical and industry averages. Unpaid loss adjustment expenses are based on historical ratios of loss adjustment expenses paid to losses paid. The liability for unpaid claims and unpaid claims expenses is based on estimates of the amount necessary to settle all claims as of the statement date. Both reported and unreported losses are included in the liability. Republic updates the liability estimate as additional facts regarding claim costs become available. These estimates are subject to uncertainty and variation due to numerous factors. In estimating reserves, no attempt is made to isolate inflation from the combined effect of other factors including inflation. Unpaid losses and unpaid loss expenses are not discounted. Activity in the liability for unpaid claims and claim adjustment expenses is summarized as follows: 1999 1998 1997 --------------------------- (in thousands) Balance at January 1 $ 344,748 384,816 332,674 Less reinsurance recoverable 68,135 75,286 60,319 --------------------------- Net balance at January 1 276,613 309,530 272,355 Incurred related to: Current year 135,382 116,069 132,291 Prior years 8,468 (8,827) 23,192 --------------------------- Total incurred 143,850 107,242 155,483 Paid related to: Current year 55,136 36,407 28,972 Prior years 94,606 103,752 89,336 --------------------------- Total paid 149,742 140,159 118,308 Net balance at December 31 270,721 276,613 309,530 Plus reinsurance recoverable 64,137 68,135 75,286 --------------------------- Balance at December 31 $ 334,858 344,748 384,816 =========================== As a result of changes in estimates of insured events in prior years, the provision for unpaid loss and loss adjustment expenses (net of reinsurance recoveries of $27.9 million) increased by $8.4 million in 1999. The table on page 8 illustrates the change in unpaid loss and loss adjustment expenses. First line - reserves as originally reported at the end of the stated year. Second section, reading down, - cumulative amounts paid as of the end of successive years with respect to that reserve. Third section, reading down, - revised estimates of the original recorded reserve as of the end of successive years. Last section - compares the latest revised estimated reserve amount to the reserve amount as originally established. This last section is cumulative and should not be summed. 8
Unpaid Loss and Loss Adjustment Expenses December 31 - -------------------------------------------------------------------------------------------------------------------------- 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 - -------------------------------------------------------------------------------------------------------------------------- (in thousands) Unpaid Loss and Loss Adjustment Expenses: $207,939 226,324 236,019 238,762 314,482 329,741 341,981 332,674 384,816 344,748 334,858 Paid (Cumulative) as of: One year later 50,992 55,128 65,532 83,923 70,382 86,796 89,041 89,336 103,752 94,606 Two years later 87,850 97,014 105,432 123,310 115,467 139,247 150,001 161,613 178,455 Three years later 116,043 120,994 126,390 153,030 146,640 173,787 195,855 208,168 Four years later 132,703 133,338 143,433 173,841 166,068 198,434 226,815 Five years later 142,159 144,764 153,730 181,677 181,174 219,425 Six years later 151,227 152,424 160,875 191,938 194,652 Seven years later 158,043 157,979 168,975 200,281 Eight years later 162,038 163,860 175,364 Nine years later 167,122 169,681 Ten years later 171,744 Reserve Reestimated as of: One year later 206,701 229,447 231,779 251,450 321,058 338,033 353,508 354,776 357,733 339,602 Two years later 206,219 221,450 224,783 254,532 323,368 340,732 369,852 342,164 364,894 Three years later 199,925 211,998 223,403 253,844 309,936 349,459 328,445 346,578 Four years later 198,986 207,642 214,854 231,536 317,687 302,808 331,897 Five years later 197,890 200,629 198,320 239,888 267,005 300,180 Six years later 194,601 189,601 210,872 263,843 262,517 Seven years later 189,175 200,556 231,407 259,798 Eight years later 199,075 217,005 227,603 Nine years later 212,331 213,981 Ten years later 209,693 Cumulative Redundancy (Deficiency) $ (1,754) 12,343 8,416 (21,036) 51,965 29,561 10,084 (13,904) 19,922 5,146 Retro Premium Recoverable $ 10,277 7,241 2,329 (1,206) 6,044 4,430 10,803 7,956 4,918 6,797 Reestimated Reserve: Amount (Cumulative) $ 8,523 19,584 10,745 (22,242) 58,009 33,991 20,887 (5,948) 24,840 11,943
9 ITEM 2. PROPERTIES AMERCO subsidiaries own property, plant and equipment that are utilized in the manufacture, repair and rental of U-Haul equipment and that provide office space for the Company. Such facilities exist throughout the United States and Canada. The majority of land and buildings used by U-Haul is owned in fee and is substantially unencumbered. U-Haul also manages storage facilities owned by others. In addition, U-Haul owns certain real estate not currently used in its operations. U-Haul operates 1,200 U-Haul Centers (including Company-owned storage locations), manages 206 storage centers and operates 12 manufacturing and assembly facilities. U-Haul also operates 100 repair facilities located at or near a U-Haul Center. ITEM 3. LEGAL PROCEEDINGS In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or cleanup of underground fuel storage tanks. It is the opinion of management that none of the suits, claims or proceedings involving AMERCO, individually or in the aggregate, are expected to result in a material loss. See "Item 1. Business - Environmental Matters". Reference is made to Note 15 in Notes to Consolidated Financial Statements for a discussion of stockholder litigation and California overtime litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of the security holders during the fourth quarter of the fiscal year covered by this report, through the solicitation of proxies or otherwise. 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of June 29, 2000, there were approximately 3,400 holders of record of AMERCO's common stock. AMERCO's common stock has been traded on NASDAQ National Market (NASDAQ) since November 1994 under the symbol "UHAL". The following table sets forth the high and low closing prices of the common stock of AMERCO trading on NASDAQ for the periods indicated. For the Years Ended March 31, -------------------------------------------- 2000 1999 -------------------------------------------- High Low High Low -------------------------------------------- First quarter 25 1/2 20 3/8 33 9/16 28 5/8 Second quarter 28 9/16 22 1/4 29 1/2 21 1/8 Third quarter 29 3/4 23 3/8 29 20 1/8 Fourth quarter 26 63/64 16 1/2 29 20 11/16 AMERCO has not declared any cash dividends to common stockholders for the two most recent fiscal years. AMERCO does not have a formal dividend policy. AMERCO's Board of Directors periodically considers the advisability of declaring and paying dividends in light of existing circumstances. AMERCO does not intend to pay dividends in the foreseeable future. See Note 20 of Notes to Consolidated Financial Statements in Item 8 for a discussion of certain statutory restrictions on the ability of the insurance subsidiaries to pay dividends to AMERCO. See Note 16 of Notes to Consolidated Financial Statements in Item 8 for a discussion of AMERCO's non-cash dividends. See Note 6 of Notes to Consolidated Financial Statements in Item 8 for a discussion of changes to common shares outstanding. The common stock of U-Haul is wholly-owned by AMERCO. As a result, no active trading market exists for the purchase and sale of such common stock. No cash dividends were declared to AMERCO by U-Haul during the two most recent fiscal years. 11
ITEM 6. SELECTED FINANCIAL DATA AMERCO AND CONSOLIDATED SUBSIDIARIES For the Years Ended March 31, ------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------------------------------------------------------------- (in thousands, except share, per share data and ratios) Summary of Operations: Rental revenue and net sales $ 1,339,348 1,255,493 1,194,948 1,146,751 1,107,782 Premiums, net investment and interest income 344,022 299,286 230,308 238,628 217,309 --------- --------- --------- --------- --------- 1,683,370 1,554,779 1,425,256 1,385,379 1,325,091 --------- --------- --------- --------- --------- Operating expenses and cost of sales (5) 1,030,821 983,422 920,284 882,472 853,427 Benefits, losses and amortization of deferred acquisition costs 244,579 208,281 189,770 190,623 154,795 Lease expense 136,044 118,742 89,879 85,973 69,097 Depreciation, net (3) 87,647 73,066 69,655 66,742 83,989 --------- --------- --------- --------- --------- 1,499,091 1,383,511 1,269,588 1,225,810 1,161,308 --------- --------- --------- --------- --------- Earnings 184,279 171,268 155,668 159,569 163,783 Interest expense 81,532 73,658 79,369 76,041 67,557 --------- --------- --------- --------- --------- Pretax earnings 102,747 97,610 76,299 83,528 96,226 Income tax expense (36,922) (35,101) (27,643) (29,344) (35,832) --------- --------- --------- --------- --------- Earnings from operations before extraordinary loss on early extinguishment of debt 65,825 62,509 48,656 54,184 60,394 Extraordinary loss on early extinguishment of debt, net (8) (9) (10) (11) (334) - (13,672) (2,319) - --------- --------- --------- --------- --------- Net earnings $ 65,491 62,509 34,984 51,865 60,394 ========= ========= ========= ========= ========= Earnings per common share (both basic and diluted): Earnings from operations before extraordinary loss on early extinguishment of debt per common share (2) (4) $ 2.39 2.07 1.28 1.44 1.33 Net earnings (2) (4) (8) (9) (10) (11) 2.37 2.07 .66 1.35 1.33 Weighted average common shares outstanding (4) 21,934,390 21,937,686 21,896,101 25,479,651 35,736,335 Cash dividends declared: Preferred stock $ 13,641 17,414 20,766 16,875 12,964 Common stock - - - - - Ratio of earnings to fixed charges (1) 1.71 1.73 1.56 1.64 1.90
12
ITEM 6. SELECTED FINANCIAL DATA, continued AMERCO AND CONSOLIDATED SUBSIDIARIES For the Years Ended March 31, ------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------------------------------------------------------------- (in thousands, except share, per share data and ratios) Balance Sheet Data: Property, plant and equipment, net $ 1,382,662 1,294,824 1,275,756 1,247,066 1,316,715 Total assets 3,125,225 3,087,503 2,913,277 2,718,994 2,823,407 Notes and loans payable 1,137,840 1,114,748 1,025,323 983,550 998,220 Stockholders' equity (4) (11) 585,294 616,025 595,059 602,320 649,548 Other information: EBITDAR (6) 455,804 404,112 359,369 339,906 335,307 Operating profit margin (7) 13.6% 13.6% 13.0% 13.6% 14.1% (1) For purposes of computing the ratio of earnings to fixed charges, "earnings" consists of pretax earnings from operations plus total fixed charges excluding interest capitalized during the period and "fixed charges" consists of interest expense, preferred stock dividends, capitalized interest, amortization of debt expense and discounts and one-third of the Company's annual rental expense (which AMERCO believes is a reasonable approximation of the interest factor of such rentals). (2) Earnings and net earnings per common share were computed after giving effect to the dividends on the Company's Series B floating rate stock for the years ended March 31, 2000, 1999, 1998 and 1997. (3) Reflects the change in estimated residual value during the years ended March 31, 1998 and 1996. (4) Reflects the acquisition of treasury shares acquired pursuant to the Shoen Litigation as discussed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Stockholder Litigation". (5) Reflects the adoption of Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" during the year ended March 31, 1998. (6) EBITDAR is defined as earnings before interest expense, taxes, depreciation, amortization and lease expense (100%). EBITDAR is presented because the Company believes it is a widely accepted financial indicator of an entity's ability to incur and service debt. (7) Operating profit margin - Earnings from operations plus 1/3 lease expense divided by total revenues. (8) Reflects the early extinguishment of debt with notional amounts totaling $76.0 million and $255.0 million during fiscal year 1998. (9) Reflects the early extinguishment of debt and long-term notes with notional amounts totaling $76.3 million and $86.2 million, respectively, during fiscal year 1997. (10) Reflects the early extinguishment of Medium-Term Notes and Bond Backed Asset Trust certificates with notional amounts totaling $50.0 million and $100.0 million, respectively, during fiscal year 2000. (11) Reflects the redemption of $25 million, $50 million and $25 million of Series B Preferred Stock in fiscal years 2000, 1999 and 1998, respectively.
13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This report contains forward-looking statements. Additional written or oral forward-looking statements may be made by AMERCO from time to time in filings with the Securities and Exchange Commission or otherwise. Management believes such forward-looking statements are within the meaning of the safe-harbor provisions. Such statements may include, but not be limited to, projections of revenues, income or loss, estimates of capital expenditures, plans for future operations, products or services and financing needs or plans, as well as assumptions relating to the foregoing. The words "believe", "expect", "anticipate", "estimate", "project" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. The following disclosures, as well as other statements in this report and in the Notes to AMERCO's Consolidated Financial Statements, describe factors, among others, that could contribute to or cause such differences, or that could affect AMERCO's stock price. General Information on fiscal year and industry segments is incorporated by reference to "Item 8. Financial Statements and Supplementary Data - Notes 1, 20 and 21 of Notes to Consolidated Financial Statements". The notes discuss the principles of consolidation, summarized consolidated financial information and industry segment and geographic area data, respectively. In consolidation, all intersegment premiums are eliminated and the benefits, losses and expenses are retained by the insurance companies. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities was $237.7 million, $159.5 million and $180.6 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follows: Moving and Storage Operations Cash provided by operating activities was $147.5 million, $128.5 million and $109.8 million in fiscal years 2000, 1999 and 1998, respectively. The increase from fiscal year 1999 to fiscal year 2000 is partially due to an increase in net income. The increase from fiscal year 1998 to fiscal year 1999 is also partially due to increased net income. Real Estate Operations Cash provided by operating activities was $24.8 million, $38.0 million and $92.5 million in fiscal years 2000, 1999 and 1998, respectively. The decrease in fiscal year 2000, is due to a decrease in the intercompany payable. In fiscal year 1999, proceeds received from the sale of real estate was used to pay down the intercompany payable. Property and Casualty Cash provided (used) by operating activities was $(11.1) million, $(21.7) million and $23.8 million for the years ended December 31, 1999, 1998 and 1997, respectively. The 1999 to 1998 change resulted mainly from the increased funds withheld liability, decreased paid losses recoverable and a smaller decrease in loss and loss adjustment expense reserves. This was offset by increased premiums and agent's balances and the intercompany receivable due from affiliates. The 1998 to 1997 change resulted mainly from an increase in paid losses recoverable and the change in loss and loss expense reserves partially offset by increased net income and decreased accounts receivable. Republic's cash and cash equivalents and short-term investment portfolio were $6.0 million, $6.1 million and $16.3 million at December 31, 1999, 1998 and 1997, respectively. This balance reflects funds in transition from maturity proceeds to long-term investments. This level of liquid assets, combined with budgeted cash flow, is adequate to meet periodic needs. Capital and operating budgets allow Republic to schedule cash needs in accordance with investment and underwriting proceeds. 14 Life Insurance Cash provided by operating activities was $22.2 million, $34.6 million and $8.2 million for the years ended December 31, 1999, 1998 and 1997, respectively. The decrease in cash flows from operating activities in 1999 relates to paid loss experience. The increase in cash flows from operating activities in 1998 relates to the increased premium production in the credit insurance and Medicare supplement areas. Oxford's primary sources of cash are premiums, receipts from interest-sensitive products and investment income. The primary uses of cash are operating costs and benefit payments to policyholders. Matching the investment portfolio to the cash flow demands of the types of insurance being written is an important consideration. Benefit and claim statistics are continually monitored to provide projections of future cash requirements. In addition to cash flows from operating and financing activities, a substantial amount of liquid funds is available through Oxford's short- term portfolio. Short-term investments aggregated $30.7 million, $63.4 million and $13.4 million at December 31, 1999, 1998 and 1997, respectively. Management believes that the overall sources of liquidity will continue to meet foreseeable cash needs. Consolidated Group To meet the needs of its customers, U-Haul must maintain a large inventory of fixed asset rental items. At March 31, 2000, net property, plant and equipment represented approximately 66.6% of total assets from non-insurance operations and approximately 44.2% of consolidated assets. In fiscal year 2000, gross capital expenditures for property, plant and equipment were $417.6 million, as compared to $298.5 million and $392.3 million in fiscal years 1999 and 1998, respectively. These expenditures primarily reflect the replacement of certain rental trucks and trailers. The capital needs required to fund these acquisitions were funded with internally generated funds from operations and lease financings. During each of the fiscal years ending March 31, 2001, 2002 and 2003, U-Haul estimates gross capital expenditures will average approximately $325 million primarily reflecting rental fleet rotation. This level of capital expenditures, combined with a potential range of $30-$115 million in annual long-term debt maturities, are expected to create annual average funding needs of approximately $355-$440 million. Management estimates that U-Haul will fund 100% of these requirements with leases and internally generated funds, including proceeds from the disposition of older trucks and other asset sales. Moving and Storage Operations U-Haul's stockholder's equity was $435.4 million, $384.7 million and $342.9 million in fiscal years 2000, 1999 and 1998, respectively. The increase in fiscal year 2000 was due to earnings. The increase in fiscal year 1999 was due to earnings and to the sale of property to a related party recorded in the Consolidated Statements of Changes in Stockholders' Equity. The increase in fiscal year 1998 was due to increased earnings. Real Estate Operations Real Estate stockholder's equity was $95.6 million, $79.5 million and $45.5 million in fiscal years 2000, 1999 and 1998, respectively. The increase in fiscal year 2000 was due to earnings. The increase in fiscal year 1999 was due to earnings and to the sale of property to a related party recorded in the Consolidated Statements of Changes in Stockholders' Equity. The increase in fiscal year 1998 was due to increased earnings. 15 Property and Casualty Republic maintains a diversified securities investment portfolio, primarily in bonds at varying maturity levels with 88.0% of the fixed- income securities consisting of investment grade securities. The maturity distribution is designed to provide sufficient liquidity to meet future cash needs. Current liquidity remains strong, with current invested assets equal to 92.9% of total liabilities. The liability for reported and unreported losses are based upon both Republic's historical and industry averages. Unpaid loss adjustment expenses are based on historical ratios of loss adjustment expenses paid to losses paid. Unpaid loss and loss expenses are not discounted. Republic's stockholder's equity was $208.5 million, $211.4 million and $195.4 million at December 31, 1999, 1998 and 1997, respectively. Republic considers current stockholder's equity to be adequate to support future growth and absorb unforeseen risk events. Republic does not use debt or equity issues to increase capital and therefore has no exposure to capital market conditions. Life Insurance Oxford's stockholder's equity was $88.1 million, $93.6 million and $85.8 million in 1999, 1998 and 1997, respectively. Oxford did not pay dividends to its parent during 1999, 1998 or 1997. Applicable laws and regulations of the State of Arizona require Republic and Oxford to maintain minimum capital determined in accordance with statutory accounting practices. Such amount is $1.0 million and $0.4 million, for Republic and Oxford, respectively. In addition, the amount of dividends that can be paid to stockholders by insurance companies domiciled in the State of Arizona is limited. Any dividend in excess of the limit requires prior regulatory approval. Statutory surplus which can be distributed as dividends without regulatory approval at December 31, 1999 is $16.1 million and $1.4 million for Republic and Oxford, respectively at December 31, 1999. These restrictions are not expected to have a material adverse effect on the ability of the Company to meet its cash obligations. Oxford issued a surplus note to AMERCO on December 31, 1998 for $10.0 million. Approval by the Arizona Department of Insurance is required prior to payment of principal and interest. Credit Agreements AMERCO's operations are funded by various credit and financing arrangements, including unsecured long-term borrowings, unsecured medium- term notes and revolving lines of credit with domestic and foreign banks. To finance its fleet of trucks and trailers, U-Haul routinely enters into sale and leaseback transactions. As of March 31, 2000, AMERCO had $1,137.8 million in total notes and loans outstanding and unutilized committed lines of credit of approximately $241.0 million. Certain of AMERCO's credit agreements contain restrictive financial and other covenants, including, among others, covenants with respect to incurring additional indebtedness, issuing mandatory repayment preferred stock, maintaining certain financial ratios and placing certain additional liens on its properties and assets. At March 31, 2000, AMERCO was in compliance with these covenants. Reference is made to Note 5 of Notes to Consolidated Financial Statements. Results of Operations - Consolidated Rental Revenue Rental revenue, net of commission expense was $1,150.5 million, $1,074.2 million and $1,018.7 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Moving and Storage Operations Rental revenue was $1,148.2 million, $1,072.1 million and $1,016.2 million in fiscal years 2000, 1999 and 1998, respectively. The increase from fiscal year 1999 to fiscal year 2000 was primarily due to the growth in truck rental revenues which benefited from transactional growth and reflects a higher average revenue per transaction. The increase from fiscal year 1998 to fiscal year 1999 also reflects a growth in truck rental revenues benefiting from transactional growth reflecting increased utilization. 16 Real Estate Operations Rental revenue, before intercompany eliminations, were $73.4 million, $74.0 million and $69.9 million in fiscal years 2000, 1999 and 1998, respectively. Intercompany rental revenue was $71.0 million, $71.9 million and $67.4 million in fiscal years 2000, 1999 and 1998, respectively. The decrease from fiscal year 1999 to fiscal year 2000 was $0.6 million. Rental revenue was consistent between fiscal year 1999 and fiscal year 2000. The increase from 1998 to 1999 reflects the addition of new system operating companies. Net Sales Net sales revenues were $188.8 million, $181.3 million and $176.2 million in fiscal years 2000, 1999 and 1998, respectively. Revenue growth from the sale of moving support items (i.e. boxes, etc.) and propane resulted in the increase for each year. Premiums Premium revenues, after intercompany eliminations, were $262.1 million, $226.8 million and $164.6 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Property and Casualty Premium revenues, before intercompany eliminations, were $173.8 million, $145.3 million and $155.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. The 1999 premium increase resulted from assumed treaty reinsurance which increased to $80.7 million, $51.2 million and $49.1 million in the years ended December 31, 1999, 1998 and 1997, respectively. Republic underwrites professional reinsurance via broker markets and premiums in this area increased due to the agricultural reinsurance business. Direct multiple peril and general agency premium increased to $25.0 million and $17.8 million in 1999 compared to $21.0 million and $6.5 million in 1998, and $16.5 million and $5.8 million in 1997, respectively. This increase was reduced by rental industry earnings, which decreased to $50.3 million in 1999 from $66.6 million in 1998 and $84.5 million in 1997, respectively. This decrease results from the restructuring of the U-Haul Business Auto General Liability policy. The deductible was changed at April 1, 1999 from a flat deductible to a 95% deductible. This reduced premium by $19.6 million in 1999 as compared to 1998. This resulted in a savings of $0.6 million in premium taxes for policy year 1999. Life Insurance Premium revenues, before intercompany eliminations, were $96.4 million, $94.5 million and $29.7 million for the years ended December 31, 1999, 1998 and 1997, respectively. During 1999, Oxford realized premium increases from 1998 and 1997 in the areas of Medicare supplement, credit life and disability, and single premium whole life insurance products. Oxford increased Medicare supplement premium through the reinsurance of a block of policies and by adding direct premium from the acquisition of NAI in 1997, increasing premiums by $6.7 million from 1998 and $35.4 million from 1997. Oxford's single premium whole life product accounts for an additional $2.9 million of premiums in 1999 over 1998 and $5.5 million over 1997. In the area of credit insurance, Oxford increased direct writings as well as reduced the amount ceded to outside reinsurers. These factors contributed to a $3.5 million increase in premium from 1998 and $28.4 million from 1997. As expected, premium decreases resulted from the termination of non-essential NAI lines, fewer annuitizations and from the sale of NAFCIC. These changes accounted for an $11.2 million decrease in premiums in 1999 from 1998 and $2.6 million decrease from 1997. Net Investment and Interest Income Net investment and interest income was $82.0 million, $72.4 million and $65.7 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Moving and Storage Operations Interest income was $19.5 million, $12.9 million and $13.1 million in fiscal years 2000, 1999 and 1998, respectively. The increase during fiscal year 2000 in interest reflects higher average note receivable balances. Real Estate Operations Net investment and interest income was $7.0 million, $4.5 million and $0.6 million in fiscal years 2000, 1999 and 1998, respectively. The increase in fiscal year 2000 is due to interest income received on notes receivable. The increase in fiscal year 1999 was due to the realized gain on the sale of property acquired through foreclosure. 17 Property and Casualty Net investment income was $33.0 million, $35.9 million and $31.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. The decrease in 1999 from 1998 is attributable to a decrease in invested assets and a lower yield on reinvested funds. The increase in 1998 over 1997 resulted from enhanced yield provided by an increased investment in preferred stock. Life Insurance Net investment income was $21.3 million, $19.1 million and $17.8 million for the years ended December 31, 1999, 1998 and 1997, respectively. The increase is due to improved interest rate spreads on the retirement savings products. This improvement was realized as a result of better returns on the investment portfolio. Operating Expenses Operating expenses were $918.8 million, $876.6 million and $818.6 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Moving and Storage Operations Operating expenses, before intercompany eliminations, were $931.1 million, $893.0 million and $857.9 million in fiscal years 2000, 1999 and 1998, respectively. The increased expense is due to increased personnel cost and other administrative costs. Increased liability insurance, due to transactional growth, continued for fiscal year 2000 from fiscal years 1999 and 1998. Real Estate Operations Operating expenses, before intercompany eliminations, were $4.0 million, $6.2 million and $7.7 million in fiscal years 2000, 1999 and 1998, respectively. Real Estate benefited from a reduction in intercompany management fees charged by an affiliated segment company during fiscal year 2000 compared to the prior two years. Property and Casualty Operating expenses, before intercompany eliminations, were $35.0 million, $35.6 million and $12.6 million for the years ended December 31, 1999, 1998 and 1997, respectively. The 1998 to 1999 decrease resulted from a $2.9 million write off of a commission in 1997 on an excess of loss reinsurance contract. Lease expenses increased to $1.9 million for 1999 as compared to $1.3 million and $0.3 million for 1998 and 1997 respectively. All other underwriting expenses consisted of $13.9 million, $15.5 million and $8.2 million for 1999, 1998 and 1997, respectively. Life Insurance Operating expenses, before intercompany eliminations, were $22.8 million, $19.5 million and $6.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. Commissions increased $1.8 million in 1999 in proportion to the increase in new premium. Operating expenses, still within budgeted expectations, have increased in 1999 due to the expansion of business volume. The increase from 1997 to 1998 is due to the commissions and operating expenses related to the acquisition of NAI and SML. Cost of Sales Cost of sales was $112.0 million, $106.8 million and $101.7 million in fiscal years 2000, 1999 and 1998, respectively. Increased material costs and a higher sales volume related to moving support items contributed to the fiscal year 2000 increase over fiscal years 1999 and 1998. Benefits and Losses Benefits and losses were $209.6 million, $176.6 million and $175.6 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Property and Casualty Benefits and losses incurred were $150.5 million, $118.9 million and $165.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. The increase from 1998 to 1999 resulted from the increase in assumed treaty reinsurance claims. The decrease from 1997 to 1998 is due mainly to the reduction in insurance transactions with U-Haul. This corresponds to the decrease in the liabilities for unpaid claims and estimated future losses for current and prior policies for those transactions. 18 Life Insurance Benefits incurred were $59.1 million, $57.7 million and $24.4 million for the years ended December 31, 1999, 1998 and 1997, respectively. This increase is primarily due to Medicare supplement, which accounts for $4.4 million of benefit increase from 1998 and $27.0 million from 1997. However, in relation to premium, the percentage of Medicare supplement benefits dropped by two percentage points in 1999 from 1998. Increases in policyholder reserves for the new whole life product increased benefits $2.1 million from 1998 and $3.8 million from 1997. Credit insurance benefits increased from 1998 by $0.8 million and from 1997 by $6.2 million due to increased volume written and retained; loss ratios for this line have decreased from 1998 and 1997. Annuity benefits combined with the elimination of non-focused NAI health lines and NAFCIC reduced benefits from 1998 by $6.0 million and 1997 by $2.4 million. Amortization of Deferred Acquisition Costs Amortization of deferred acquisition costs (DAC) and the value of business acquired (VOBA) was $35.0 million, $31.7 million and $14.2 million in fiscal years 2000, 1999 and 1998, respectively. DAC consists of commissions and other policy acquisition costs, which vary with and are primarily related to the production of new business. The prior year end commissions and other related expenses are recognized ratably over the remainder of the policy year. The VOBA asset relates to the future profits of the credit insurance policies in force when Oxford acquired NAI. Details by material segment follow: Property and Casualty The amortization of DAC for December 31, 1999, 1998 and 1997 was $13.4 million, $7.4 million and $8.6 million, respectively. The increase from 1998 to 1999 is due mainly to NAFCIC related DAC expense following Republic's purchase of NAFCIC from Oxford in December 1998, which increased to $3.8 million from $0.2 million in 1998. Also contributing was a $1.9 million increase in the nonaffiliated agents' expense. Field underwriting expenses increased due to an increase in 1998 written and unearned premiums. Excess worker's compensation program increased due to 1998 commission expenses relating to a settlement agreement with the previous general agent. The decrease from 1997 to 1998 is due to the assumed reinsurance DAC expense and relates to the decrease in unearned premiums. Life Insurance Amortization of DAC and VOBA was $21.6 million, $24.3 million and $5.6 million for the years ended December 31, 1999, 1998 and 1997, respectively. Oxford defers commissions and other policy acquisition costs on single premium business. These costs are amortized as the premium is earned over the term of the policy. Oxford continues to increase its single premium credit business in force, thus increasing both the deferred costs on the balance sheet and the subsequent amortization. After Oxford purchased NAI in 1997, Oxford began amortizing the VOBA asset recognized at purchase. In 1999, Oxford did not have DAC amortization charges related to NAFCIC that were present in 1998; 1998 amortization was $3.0 million. The increase from 1997 was due primarily to the credit insurance assumed after the purchase of NAI. Lease Expense Lease expense was $135.7 million, $118.7 million and $89.9 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Moving and Storage Operations Lease expense was $132.0 million, $118.4 million and $89.9 million in fiscal years 2000, 1999 and 1998, respectively. The continued increase reflects additional leasing activity. Real Estate Operations Lease expense for real estate operations was $3.0 million, $0.1 million and $0.1 million for fiscal years 2000, 1999 and 1998, respectively. The increase in fiscal year 2000 over the prior years reflects payments under an operating lease facility with a number of financial institutions whereby the Company is both lessee and construction agent developing storage properties. 19 Depreciation Expense, net Depreciation expense, net was $88.3 million, $73.1 million and $69.7 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Moving and Storage Operations Depreciation expense, net before intercompany elimination was $79.0 million, $61.0 million and $64.6 million in fiscal years 2000, 1999 and 1998, respectively. The increase in fiscal year 2000 reflects an increase in depreciation expense on the rental truck fleet. The decrease in fiscal year 1999 reflects an increase in the gains from the disposition of property, plant and equipment. During fiscal year 1999, based on an in-depth market analysis, the estimated salvage value and useful lives of certain rental equipment was increased. The effect of the change decreased depreciation expense by $11.1 million in fiscal year 1998. The adjustment reflects management's best estimate, based on information currently available, of the estimated salvage value and useful lives of this rental equipment. Real Estate Operations Depreciation expense, net before intercompany elimination was $9.3 million, $12.0 million and $6.4 million in fiscal years 2000, 1999 and 1998, respectively. The decrease in fiscal year 2000 reflects an increase in gains from the disposition of property, plant and equipment and a decrease in depreciation on buildings and non-rental equipment. The increase in fiscal year 1999 reflects a decrease in the gains from the disposition of property, plant and equipment as well as the increased depreciation expense relating to the addition of new facilities for operating system companies. Earnings from Operations Earnings from operations were $183.9 million, $171.3 million and $155.7 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Moving and Storage Operations Earnings from operations were $102.4 million, $87.0 million and $78.7 million in fiscal years 2000, 1999 and 1998, respectively. Increased rental transactions, partially offset by corresponding expenses, contributed to the earnings gain for the past two fiscal years. Real Estate Operations Earnings from operations before intercompany elimination were $64.0 million, $60.3 million and $58.1 million in fiscal years 2000, 1999 and 1998, respectively. A decrease in intercompany management fees charged contributed to the earnings increase for fiscal year 2000 compared to the prior two fiscal years. Property and Casualty Earnings from operations were $7.9 million, $19.1 million and $0.7 million for the years ended December 31, 1999, 1998 and 1997, respectively. The 1998 to 1999 decrease resulted mainly from Republic's writing off the 1995 American Bonding receivable, lower than forecasted premium volume in 1999 and higher than expected losses on the agricultural business. The 1997 to 1998 increase is due to decreased underwriting expenses and increased realized gains. Life Insurance Earnings from operations were $14.2 million, $12.2 million and $10.6 million for the years ended December 31, 1999, 1998 and 1997, respectively. The increase over prior years reflects improved investment returns, improving loss ratios in the Medicare supplement business and better than expected loss experience for the credit business. Interest Expense Interest expense was $81.5 million, $73.7 million and $79.4 million in fiscal years 2000, 1999 and 1998, respectively. The increase can be attributed to an increase in the average cost of debt in fiscal year 2000 over the past two fiscal years. The average debt level outstanding increased in fiscal year 2000 compared to fiscal year 1999, and decreased in fiscal year 1999 compared to fiscal year 1998. 20 Extraordinary Loss on the Extinguishment of Debt During fiscal year 2000, AMERCO extinguished $100.0 million of 6.65% Bond Backed Asset Trust certificates (BATs) originally due in fiscal year 2030 and $50.0 million of 7.05% to 7.10% Medium-Term notes originally due in fiscal year 2007. This resulted in an extraordinary loss of $0.3 million, net of tax of $0.2 million ($0.02 per share). During fiscal year 1998, AMERCO extinguished $76.0 million of 10.27% interest-bearing notes originally due in fiscal year 1999 through fiscal year 2002. This resulted in an extraordinary loss of $4.0 million, net of tax of $2.4 million ($0.18 per share). AMERCO also extinguished $255.0 million of 6.43% to 8.13% interest-bearing notes originally due in fiscal year 1999 through fiscal year 2010. This resulted in an extraordinary loss of $9.7 million, net of tax of $5.6 million ($0.44 per share). Earnings of the Consolidated Group As a result of the foregoing, pretax earnings totaled $102.7 million, $97.6 million and $76.3 million in fiscal years 2000, 1999 and 1998, respectively. After providing for income taxes, earnings from operations were $65.8 million, $62.5 million and $48.7 million in fiscal years 2000, 1999 and 1998, respectively. Following deductions for an extraordinary loss from the early extinguishment of debt, net earnings were $65.5 million, $62.5 million and $35.0 million in fiscal years 2000, 1999 and 1998, respectively. Quarterly Results The table on page 21 presents unaudited quarterly results for the eight quarters in the period beginning April 1, 1998 and ending March 31, 2000. AMERCO believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with generally accepted accounting principles, the selected quarterly information when read in conjunction with the consolidated financial statements incorporated herein by reference. U-Haul moving and storage operations are seasonal and proportionally more of AMERCO's revenues and net earnings from its U-Haul moving and storage operations are generated in the first and second quarters of each fiscal year (April through September). The operating results for the periods presented are not necessarily indicative of results for any future period. 21 Quarter Ended ---------------------------------------------- Jun 30 Sep 30 Dec 31 Mar 31 1999 1999 1999 2000 ---------------------------------------------- (in thousands, except share and per share data) Total revenues $ 439,640 462,696 382,496 398,538 Earnings from operations before extraordinary loss on early extinguishment of debt (2) $ 42,307 42,127 (9,325) (9,284) Net earnings (loss) $ 42,307 42,127 (9,325) (9,618) Weighted average common shares outstanding Basic 21,953,199 21,964,452 21,975,889 21,844,020 Diluted 22,953,199 22,131,119 - - Earnings (loss) from operations before extraordinary loss on early extinguishment of debt per common share (1) (2) (3) $ 1.77 1.77 (0.57) (0.58) Earnings (loss) per common share Basic $ 1.77 1.77 (0.57) (0.60) Diluted $ 1.70 1.76 - - Quarter Ended ---------------------------------------------- Jun 30 Sep 30 Dec 31 Mar 31 1998 1998 1998 1999 ---------------------------------------------- (in thousands, except share and per share data) Total revenues $ 393,744 444,233 373,119 343,683 Net earnings (loss) $ 31,230 42,171 2,478 (13,370) Weighted average common shares outstanding 21,924,749 21,935,854 21,942,190 21,947,951 Net earnings (loss) per common share (both basic and diluted) (1) (3) $ 1.21 1.71 (0.07) (0.78) _______________ (1) Net earnings (loss) per common share amounts were computed after giving effect to the dividends on AMERCO's Preferred Stock. (2) During fiscal year 2000, AMERCO extinguished $100.0 million of 6.65% BATs originally due in fiscal year 2030 and $50.0 million of 7.05% to 7.10% Medium-Term Notes originally due in fiscal year 2007. This resulted in an extraordinary loss of $0.3 million, net of tax of $0.2 million ($0.02 per share). (3) Reflects the redemption of $25 million and $50 million shares of Series B preferred stock in fiscal years 2000 and 1999, respectively. 22 Year 2000 Disclosure In preparation for any potential Year 2000 processing problems, AMERCO worked since 1997 to identify any changes necessary to its existing computerized business systems to make these systems compliant for Year 2000 processing. AMERCO has spent approximately $2.8 million to date in its Year 2000 compliance efforts. Since January 1, 2000, AMERCO has been assessing its information technology systems and has found no major Year 2000 processing problems. Stockholder Litigation AMERCO has deducted for income tax purposes approximately $372.0 million of the payments made to former shareholders in a stockholder lawsuit. While AMERCO believes that such income tax deductions are appropriate, there can be no assurance that such deductions ultimately will be allowed in full. Reference is made to Note 15 in Notes to Consolidated Financial Statements for a discussion of the stockholder litigation. Other New pronouncements issued by the Financial Accounting Standards Board adopted during the year are not material to the consolidated financial statements of AMERCO. Further, pronouncements with future effective dates are either not applicable or not material to the consolidated financial statements of AMERCO. 23 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk In the normal course of business, AMERCO is exposed to fluctuations in interest rates. AMERCO manages such exposure by the use of a variety of derivative financial instruments when deemed prudent. AMERCO does not enter into leveraged financial transactions or use derivative financial instruments for trading purposes. The exposure to market risk for changes in interest rates relates primarily to debt obligations. AMERCO's objective is to mitigate the impact of changes in interest rates on its variable rate debt. AMERCO uses interest rate swap agreements to provide for matching the gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of hedged asset or liability attributable to the hedged risk or the earnings effect of the hedged forecasted transaction. See Note 5 of Notes to Consolidated Financial Statements. A fluctuation of the interest rate by 100 basis points would change AMERCO's interest expense by $1.1 million. Foreign Currency Exchange Rate Risk AMERCO's earnings are affected by fluctuations in the value of foreign currency exchange rates. Approximately 2.0% of AMERCO's revenue is generated in Canada. The result of a uniform 10% change in the value of the U.S. dollar relative to the Canadian dollar would not be material. AMERCO does not typically hedge any foreign currency risk since the exposure is not considered material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Report of Independent Accountants and Consolidated Financial Statements of AMERCO, including the notes to such statements and the related schedules, are set forth on pages 28 through 77 and are thereby incorporated herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Registrants have had no disagreements with their independent accountants in regard to accounting and financial disclosure matters and have not changed their independent accountants during the two most recent fiscal years. 24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS Information regarding (i) directors and executive officers of AMERCO is set forth under the captions "Election of Directors", "Executive Officers of AMERCO", and "Shoen Litigation" and (ii) compliance with Section 16(a) is set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in AMERCO's Proxy Statement relating to the 2000 Annual Meeting of Stockholders (the "2000 Proxy Statement") portions of which are incorporated by reference into this Form 10-K Report, which will be filed with the Securities and Exchange Commission in accordance with Rule 14a-6 promulgated under the Securities Exchange Act of 1934, as amended. With the exception of the foregoing information and other information specifically incorporated by reference into this report, the 2000 Proxy Statement is not being filed as a part hereof. ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is set forth under the caption "Executive Compensation" in the 2000 Proxy Statement, which information is incorporated herein by reference; provided, however, that the "Board Report on Executive Compensation" and the "Performance Graph" contained in the 2000 Proxy Statement are not incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management is set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the 2000 Proxy Statement, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions of management is set forth under the captions "Certain Relationships and Related Transactions" and "Shoen Litigation" in the 2000 Proxy Statement, which information is incorporated herein by reference. 25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: Page No. -------- 1. Financial Statements Report of Independent Accountants 28 Consolidated Balance Sheets - March 31, 2000 and 1999 29 Consolidated Statements of Earnings - Years ended March 31, 2000, 1999 and 1998 31 Consolidated Statements of Changes in Stockholders' Equity - Years ended March 31, 2000, 1999 and 1998 33 Consolidated Statements of Comprehensive Income - Years ended March 31, 2000, 1999 and 1998 35 Consolidated Statements of Cash Flows - Years ended March 31, 2000, 1999 and 1998 36 Notes to Consolidated Financial Statements 38 2. Additional Information Summary of Earnings of Independent Trailer Fleets 70 Notes to Summary of Earnings of Independent Trailer Fleets 71 3. Financial Statement Schedules required to be filed by Item 8 and Paragraph (d) of this Item 14 Condensed Financial Information of Registrant -- Schedule I 73 Supplemental Information (For Property-Casualty Insurance Underwriters) -- Schedule V 77 All other schedules are omitted as the required information is not applicable or the information is presented in the financial statements or related notes thereto. (b) A report on Form 8-K dated February 4, 2000 was filed in connection with the Company's issuance of $200,000,000 of 8.80% Senior Notes due 2005. 26 (c) Exhibits Exhibit No. Description ----------- ----------- 2.1 Order Confirming Plan (1) 2.2 Second Amended and Restated Debtor's Plan of Reorganization Proposed by Edward J. Shoen (1) 3.1 Restated Articles of Incorporation (2) 3.2 Restated By-Laws of AMERCO as of August 27, 1996 (3) 4.1 Debt Securities Indenture dated May 1, 1996 (1) 4.2 First Supplemental Indenture, dated as of May 6, 1996 (4) 4.3 Rights Agreement, dated as of August 7, 1998 (13) 4.5 Second Supplemental Indenture, dated as of October 22, 1997 (11) 4.6 Calculation Agency Agreement (11) 4.7 6.65%-AMERCO Series 1997 A Bond Backed Asset Trust Certificates ("BATs") due October 15, 1999 (11) 4.8 Indenture dated September 10, 1996 (9) 4.9 First Supplemental Indenture dated September 10, 1996 (9) 4.10 Senior Indenture dated April 1, 1999 (14) 4.11 First Supplemental Indenture dated April 5, 1999 (14) 4.12 Second Supplemental Indenture dated February 4, 2000 (15) 10.1* AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan 10.1A* First Amendment to the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan 10.2 U-Haul Dealership Contract (5) 10.3 Share Repurchase and Registration Rights Agreement with Paul F. Shoen (5) 10.4 AMERCO Stock Option and Incentive Plan (5) 10.5 ESOP Loan Credit Agreement (6) 10.6 ESOP Loan Agreement (6) 10.7 Trust Agreement for the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan (6) 10.8 Amended Indemnification Agreement (6) 10.9 Indemnification Trust Agreement (6) 10.10 Promissory Note between SAC Holding Corporation and a subsidiary of AMERCO (12) 10.11 Promissory Notes between Four SAC Self-Storage Corporation and a subsidiary of AMERCO (12) 10.12 Management Agreement between Three SAC Self-Storage Corporation and a subsidiary of AMERCO (12) 10.13 Management Agreement between Four SAC Self-Storage Corporation and a subsidiary of AMERCO (12) 10.14 Agreement, dated October 17, 1995, among AMERCO, Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty (8) 10.15 Directors' Release, dated October 17, 1995, executed by Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty in favor of AMERCO (8) 10.16 AMERCO Release, dated October 17, 1995, executed by AMERCO in favor of Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty (8) 10.21 Management Agreement between Five SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.22 Management Agreement between Eight SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.23 Management Agreement between Nine SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.24 Management Agreement between Ten SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.25 Management Agreement between Six-A SAC Self-Storage Corporation and a subsidiary of AMERCO 10.26 Management Agreement between Six-B SAC Self-Storage Corporation and a subsidiary of AMERCO * Indicates compensatory plan arrangement 27 (c) Exhibits, continued 10.27 Management Agreement between Six-C SAC Self-Storage Corporation and a subsidiary of AMERCO 10.28 Management Agreement between Eleven SAC Self-Storage Corporation and a subsidiary of AMERCO 12 Statements Re: Computation of Ratios 21 Subsidiaries of AMERCO 23 Consent of Independent Accountants 27 Financial Data Schedule ________________ (1) Incorporated by reference to AMERCO's Registration Statement on Form S-3, Registration no. 333-1195. (2) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, file no. 1-11255. (3) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, file no. 1-11255. (4) Incorporated by reference to AMERCO's Current Report on Form 8-K, dated May 6, 1996, file no. 1-11255. (5) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 1993, file no. 1-11255. (6) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 1990, file no. 1-11255. (7) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, file no. 1-11255. (8) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, file no. 1-11255. (9) Incorporated by reference to AMERCO's Current Report on Form 8-K dated September 6, 1996, file no. 1-11255. (10) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, file no. 1-11255. (11) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997, file no. 1-11255. (12) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 1997, file no. 1-11255. (13) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, file no. 1-11255. (14) Incorporated by reference to AMERCO's Current Report on Form 8-K dated April 5, 1999, file no. 1-11255. (15) Incorporated by reference to AMERCO's Current Report on Form 8-K dated February 4, 2000, file no. 1-11255. (16) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 1999, file no. 1-11255. 28 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Stockholders of AMERCO In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 25 present fairly, in all material respects, the financial position of AMERCO and its subsidiaries at March 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2000, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 14(a)(3) on page 25 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements, the Company implemented Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" in fiscal 1999. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The Summary of Earnings of Independent Trailer Fleets included on pages 70 through 72 of this Form 10-K is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. PricewaterhouseCoopers LLP Phoenix, Arizona June 26, 2000 29 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheets March 31, Assets 2000 1999 ------------------------- (in thousands) Cash and cash equivalents $ 48,435 44,505 Trade receivables, net 197,992 173,050 Notes and mortgage receivables, net 204,394 217,910 Inventories, net 84,614 80,159 Prepaid expenses 17,822 16,363 Investments, fixed maturities 884,824 900,995 Investments, other 166,167 181,892 Deferred policy acquisition costs 88,402 81,689 Other assets 49,913 96,116 ------------------------- Property, plant and equipment, at cost: Land 197,956 196,960 Buildings and improvements 853,403 806,421 Furniture and equipment 263,694 234,894 Rental trailers and other rental equipment 210,472 186,660 Rental trucks 1,035,585 992,418 ------------------------- 2,561,110 2,417,353 Less accumulated depreciation 1,178,448 1,122,529 ------------------------- Total property, plant and equipment 1,382,662 1,294,824 ------------------------- Total Assets $ 3,125,225 3,087,503 ========================= The accompanying notes are an integral part of these consolidated financial statements. 30 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheets, continued March 31, Liabilities and Stockholders' Equity 2000 1999 ------------------------- (in thousands, except share and per share data) Liabilities: Accounts payable and accrued expenses $ 152,654 169,185 Notes and loans payable 1,137,840 1,114,748 Policy benefits and losses, claims and loss expenses payable 548,043 546,599 Liabilities from premium deposits 461,673 457,759 Cash overdraft 30,460 28,169 Other policyholders' funds and liabilities 70,207 48,889 Deferred income 29,641 41,549 Deferred income taxes 109,413 64,580 ------------------------- Stockholders' equity: Serial preferred stock, with or without par value, 50,000,000 shares authorized - Series A preferred stock, with no par value, 6,100,000 shares authorized; 6,100,000 shares issued and outstanding as of March 31, 2000 and 1999 - - Series B preferred stock, with no par value, 100,000 shares authorized; none and 25,000 shares issued and outstanding as of March 31, 2000 and 1999, respectively - - Serial common stock, with or without par value, 150,000,000 shares authorized - Series A common stock of $0.25 par value, 10,000,000 shares authorized; 5,762,495 shares issued as of March 31, 2000 and 1999 1,441 1,441 Common stock of $0.25 par value, 150,000,000 shares authorized; 36,487,505 issued as of March 31, 2000 and 1999 9,122 9,122 Additional paid-in capital 275,242 299,905 Accumulated other comprehensive income (42,317) (17,740) Retained earnings 755,172 703,322 ------------------------- 998,660 996,050 Less: Cost of common shares in treasury, net (19,840,613 and 19,635,913 shares as of March 31, 2000 and 1999, respectively) 397,000 363,533 Unearned employee stock ownership plan shares 16,366 16,492 ------------------------- Total stockholders' equity 585,294 616,025 Contingent liabilities and commitments ------------------------- Total Liabilities and Stockholders' Equity $ 3,125,225 3,087,503 ========================= The accompanying notes are an integral part of these consolidated financial statements. 31 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings Years ended March 31, 2000 1999 1998 ------------------------------------ (in thousands, except share and per share data) Revenues Rental revenue $ 1,150,532 1,074,220 1,018,699 Net sales 188,816 181,273 176,249 Premiums 262,057 226,847 164,613 Net investment and interest income 81,965 72,439 65,695 ------------------------------------ Total revenues 1,683,370 1,554,779 1,425,256 Costs and expenses Operating expenses 918,846 876,633 818,585 Cost of sales 111,975 106,789 101,699 Benefits and losses 209,592 176,560 175,576 Amortization of deferred acquisition costs 34,987 31,721 14,194 Lease expense 136,044 118,742 89,879 Depreciation, net 87,647 73,066 69,655 ------------------------------------ Total costs and expenses 1,499,091 1,383,511 1,269,588 Earnings from operations 184,279 171,268 155,668 Interest expense 81,532 73,658 79,369 ------------------------------------ Pretax earnings 102,747 97,610 76,299 Income tax expense (36,922) (35,101) (27,643) ------------------------------------ Earnings from operations before extraordinary loss on early extinguishment of debt 65,825 62,509 48,656 Extraordinary loss on early extinguishment of debt, net (334) - (13,672) ------------------------------------ Net earnings $ 65,491 62,509 34,984 ==================================== The accompanying notes are an integral part of these consolidated financial statements. 32 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings, continued Years ended March 31, 2000 1999 1998 ------------------------------------- (in thousands, except share and per share data) Basic earnings per common share: Earnings from operations before extraordinary loss on early extinguishment of debt $ 2.39 2.07 1.28 Extraordinary loss on early extinguishment of debt, net (0.02) - (0.62) ------------------------------------ Net earnings $ 2.37 2.07 0.66 ==================================== Diluted earnings per common share: Earnings from operations before extraordinary loss on early extinguishment of debt $ 2.38 2.07 1.28 Extraordinary loss on early extinguishment of debt, net (0.02) - (0.62) ------------------------------------ Net earnings $ 2.36 2.07 0.66 ==================================== Weighted average common shares outstanding: Basic 21,934,390 21,937,686 21,896,101 ==================================== Diluted 22,226,057 23,940,623 21,896,101 ==================================== The accompanying notes are an integral part of these consolidated financial statements. 33 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Years ended March 31, 2000 1999 1998 --------------------------------- (in thousands, except share and per share data) Series A common stock of $0.25 par value: 10,000,000 shares authorized; 5,762,495 shares issued in 2000, 1999 and 1998 Beginning and end of year $ 1,441 1,441 1,441 --------------------------------- Common stock of $0.25 par value: 150,000,000 shares authorized; 36,487,505 shares issued in 2000, 1999 and 1998 Beginning and end of year 9,122 9,122 9,122 --------------------------------- Additional paid-in capital: Beginning of year 299,905 313,444 337,933 Repurchase of preferred stock (25,000) (50,000) (25,000) Gain on sale of property to related party, net - 35,996 - Issuance of common shares under leveraged employee stock ownership plan 337 465 511 --------------------------------- End of year 275,242 299,905 313,444 --------------------------------- Accumulated other comprehensive income: Beginning of year (17,740) (9,384) (9,722) Foreign currency translation (2,899) (6,736) (4,542) Fair market value of cash flow hedge 2,192 (3,631) - Unrealized gain (loss) on investments (23,870) 2,011 4,880 --------------------------------- End of year (42,317) (17,740) (9,384) --------------------------------- The accompanying notes are an integral part of these consolidated financial statements. 34 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity, continued Years ended March 31, 2000 1999 1998 --------------------------------- (in thousands, except share and per share data) Retained earnings: Beginning of year 703,322 658,227 644,009 Net earnings 65,491 62,509 34,984 Preferred stock dividends paid: Series A ($2.13 per share for 2000, 1999 and 1998) (12,964) (12,964) (12,964) Series B ($27.14, $97.44 and $81.04 per share for 2000, 1999 and 1998, respectively) (677) (4,450) (7,802) --------------------------------- End of year 755,172 703,322 658,227 --------------------------------- Less Treasury stock: Beginning of year 363,533 359,723 359,723 Net increase 33,467 3,810 - --------------------------------- End of year 397,000 363,533 359,723 --------------------------------- Less Unearned employee stock ownership plan shares: Beginning of year 16,492 18,068 20,740 Purchase of shares 1,002 401 5 Repayments from loan (1,128) (1,977) (2,677) --------------------------------- End of year 16,366 16,492 18,068 --------------------------------- Total stockholders' equity $ 585,294 616,025 595,059 ================================= The accompanying notes are an integral part of these consolidated financial statements. 35 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Comprehensive Income Years ended March 31, 2000 1999 1998 -------------------------- (in thousands) Comprehensive income: Net earnings $ 65,491 62,509 34,984 Other comprehensive income Foreign currency translation (2,899) (6,736) (4,542) Fair market value of cash flow hedges 2,192 (3,631) - Unrealized gain (loss) on investments (23,870) 2,011 4,880 -------------------------- Total comprehensive income $ 40,914 54,153 35,322 ========================== The accompanying notes are an integral part of these consolidated financial statements. 36 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows Years ended March 31, 2000 1999 1998 --------------------------- (in thousands) Cash flows from operating activities: Net earnings $ 65,491 62,509 34,984 Depreciation and amortization 135,481 114,102 113,822 Provision for losses on accounts receivable 4,601 4,648 4,108 Net gain on sale of real and personal property (8,705) (524) (1,776) Gain on sale of investments (873) (3,372) (944) Changes in policy liabilities and accruals 15,326 (23,448) 37,021 Additions to deferred policy acquisition costs (31,804) (40,859) (10,010) Net change in other operating assets and liabilities 58,140 46,493 3,410 --------------------------- Net cash provided by operating activities 237,657 159,549 180,615 Cash flows from investing activities: Purchases of investments: Property, plant and equipment (417,647) (298,495) (392,298) Fixed maturities (158,304) (213,107) (123,832) Common stock - (2,553) (8,573) Preferred stock (369) (21,700) (4,054) Other asset investment - - (24,500) Real estate (70) (334) - Mortgage loans (27,367) (93,243) (42,125) Proceeds from sales of investments: Property, plant and equipment 242,699 205,211 291,321 Fixed maturities 133,915 223,114 131,334 Common stock - 2,571 - Preferred stock 968 3,538 1,015 Real estate 1,672 5,622 1,331 Mortgage loans 11,555 21,826 25,576 Changes in other investments 31,269 (37,232) (16,699) --------------------------- Net cash used by investing activities (181,679) (204,782) (161,504) The accompanying notes are an integral part of these consolidated financial statements. 37 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows, continued Years ended March 31, 2000 1999 1998 ---------------------------- (in thousands) Cash flows from financing activities: Net change in short-term borrowings (146,836) 135,836 122,500 Proceeds from notes 350,000 - 300,000 Debt issuance costs (8,285) (415) (2,956) Leveraged Employee Stock Ownership Plan: Purchase of shares (1,002) (401) (5) Repayments from loan 1,128 1,977 2,677 Principal payments on notes (180,072) (46,411) (380,727) Repurchase of preferred stock (25,000) (50,000) (25,000) Extraordinary loss on early extinguishment of debt, net (334) - (13,672) Net change in cash overdraft 2,291 6,755 (2,192) Preferred stock dividends paid (13,641) (17,414) (20,766) Treasury stock acquisitions, net (33,467) (3,810) - Investment contract deposits 63,978 93,688 51,943 Investment contract withdrawals (60,808) (61,673) (61,059) ---------------------------- Net cash provided (used) by financing activities (52,048) 58,132 (29,257) ---------------------------- Increase (decrease) in cash and cash equivalents 3,930 12,899 (10,146) Cash and cash equivalents at beginning of year 44,505 31,606 41,752 ---------------------------- Cash and cash equivalents at end of year $ 48,435 44,505 31,606 ============================ The accompanying notes are an integral part of these consolidated financial statements. 38 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AMERCO, a Nevada corporation (AMERCO), is the holding company for U-Haul International, Inc. (U-Haul), Amerco Real Estate Company (Real Estate), Republic Western Insurance Company (Republic) and Oxford Life Insurance Company (Oxford). All references to a fiscal year refer to AMERCO's fiscal year ended March 31 of that year. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the parent corporation, AMERCO, and its wholly-owned subsidiaries. All material intercompany accounts and transactions of AMERCO and its subsidiaries have been eliminated. Republic and Oxford have been consolidated on the basis of calendar years ended December 31. Accordingly, all references to the years 1999, 1998 and 1997 correspond to AMERCO's fiscal years 2000, 1999 and 1998, respectively. The operating results and financial position of AMERCO's consolidated insurance operations are determined as of December 31 of each year. There were no effects related to intervening events between January 1 and March 31 of 2000, 1999 or 1998 that would materially affect the consolidated financial position or results of operations for the financial statements presented herein. See Note 20 of Notes to Consolidated Financial Statements for additional information regarding the insurance subsidiaries. DESCRIPTION OF BUSINESS Moving and self-storage operations consist of the rental of trucks and trailers, sale of moving supplies such as boxes and the rental of self- storage spaces to the do-it-yourself mover. Operations are under the registered tradename U-Haul throughout the United States and Canada. Real Estate owns approximately 90% of AMERCO's real estate assets, including U-Haul's Center and Storage locations. The remainder of the properties are owned by various U-Haul entities. Real Estate is responsible for managing all of the properties including the environmental risks of the properties. Real Estate is responsible for the purchase of all properties used by AMERCO or any of its subsidiaries. Real Estate also handles all of the dispositions (sale and lease) of unused real estate. Republic originates and reinsures property and casualty type insurance products for various market participants, including independent third parties, U-Haul's customers, independent dealers and AMERCO. Oxford originates and reinsures annuities, credit life and disability, critical illness insurance, single premium whole life, group life and disability coverage, and Medicare supplement insurance. Oxford also administers the self-insured employee health and dental plans for AMERCO. FOREIGN CURRENCY The consolidated financial statements include the accounts of U-Haul Co. (Canada) Ltd., a subsidiary of U-Haul. The assets and liabilities, denominated in foreign currency, are translated into U.S. dollars at the exchange rate as of the balance sheet date. Revenue and expense amounts are translated at average monthly exchange rates. The related translation gains or losses are included in the Consolidated Statements of Changes in Stockholders' Equity and Consolidated Statements of Comprehensive Income. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. 39 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued CASH AND CASH EQUIVALENTS AMERCO considers liquid investments with an original maturity of three months or less to be cash equivalents (zero and $1,000,000 as of March 31, 2000 and 1999, respectively). RECEIVABLES Accounts receivable include trade accounts from customers and dealers. Republic and Oxford receivables include premiums and agents' balances due, net of commissions payable and amounts due from ceding reinsurers. Accounts receivable are reduced by amounts considered by management to be uncollectible based on historical collection loss experience and a review of the current status of existing receivables. Notes and mortgage receivables include accrued interest and are reduced by discounts and amounts considered by management to be uncollectible. INVENTORIES Inventories are valued at the lower of cost or market. Cost is primarily determined using the LIFO (last-in, first-out) method. INVESTMENTS Fixed maturities consist of bonds and redeemable preferred stocks. Fair values for investments are based on quoted market prices, dealer quotes or discounted cash flows. Fixed maturities are classified as follows: Held-to-maturity - recorded at cost adjusted for the amortization of premiums or accretion of discounts. Available-for-sale - recorded at fair value with unrealized gains or losses reported on a net basis in the Consolidated Statements of Changes in Stockholders' Equity. Gains and losses on the sale of these securities are reported as a component of revenues using the specific identification method. Trading portfolio - AMERCO does not currently maintain a trading portfolio. Mortgage loans & notes on real estate held by AMERCO's subsidiaries - at unpaid balances, net of allowance for possible losses and any unamortized premium or discount. Real estate - at cost less accumulated depreciation. Policy loans - at their unpaid balance. Investment income is recognized as follows: Interest on bonds and mortgage loans & notes - recognized when earned. Dividends on common and redeemable preferred stocks - recognized on ex-dividend dates. Realized gains and losses on the sale of investments - recognized at the trade date and included in revenues using the specific identification method. Short-term investments consist of other securities scheduled to mature within one year of their acquisition date. See Note 4 of Notes to Consolidated Financial Statements. DEFERRED POLICY ACQUISITION COSTS Commissions and other costs which vary with and are primarily related to the production of new business, have been deferred. Oxford - costs are amortized in relation to revenue such that profits are realized as a level percentage of revenue. Republic - costs are amortized over the related contract period which generally do not exceed one year. 40 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost and are depreciated on the straight-line and accelerated methods over the estimated useful lives of the assets. Building and non-rental equipment have estimated lives ranging from three to fifty-five years, while rental equipment have estimated lives ranging from one to twenty years. Maintenance is charged to operating expenses as incurred, while renewals and betterments are capitalized. Major overhaul costs are amortized over the estimated period benefited. Gains and losses on dispositions are netted against depreciation expense when realized. Interest costs incurred as part of the initial construction of assets are capitalized. Interest expense of $7,978,000, $909,000 and $2,210,000 was capitalized during fiscal years 2000, 1999 and 1998, respectively. During fiscal year 1998, based on an in-depth market analysis, U-Haul increased the estimated salvage value and useful lives of certain rental equipment. The effect of the change increased net earnings for fiscal year 1998 by $9,268,000 ($0.42 per share). The adjustment reflects management's best estimate, based on information available, of the estimated salvage value and useful lives of this rental equipment. AMERCO reviews property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable through expected undiscounted future operating cash flows. At March 31, 2000, the carrying value of AMERCO's real estate that is no longer necessary for use in its current operations, and available for sale/lease, was approximately $27,732,000. Such properties available for sale are carried at cost, less accumulated depreciation, which is less than fair market value. ENVIRONMENTAL COSTS Liabilities for future remediation costs are recorded when environmental assessments and remedial efforts, if applicable, are probable and the costs can be reasonably estimated. The liability is based on AMERCO's best estimate of undiscounted future costs. Certain recoverable environmental costs related to the removal of underground storage tanks or related contamination are capitalized and depreciated over the estimated useful lives of the properties. The capitalized costs improve the safety or efficiency of the property as compared to when the property was originally acquired or are incurred in preparing the property for sale. FINANCIAL INSTRUMENTS AMERCO enters into interest rate swap agreements to reduce its floating interest rate exposure and does not use the agreements for trading purposes. Although AMERCO is exposed to credit loss for the interest rate differential in the event of nonperformance by the counterparties to the agreements, it does not anticipate nonperformance by the counterparties. On October 1, 1999, AMERCO implemented Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". AMERCO designates its interest rate swaps as cash flow hedge instruments, which are measured at fair market value and recorded as assets or liabilities in the statement of financial position. Amounts to be paid or received under the agreements are accrued. Gains or losses on the interest rate swaps are matched with the timing of gain or loss recognition of the changes in the fair value of the hedged asset or liability attibutable to the hedged risk. Following implementation of this statement, AMERCO recorded an after tax adjustment as of March 31, 1999, of $3,631,000 to accumulated other comprehensive income recognizing the fair value of derivatives designated as cash flow hedges. In addition, Republic transferred $56,485,000 (carrying value) to available-for-sale from held-to-maturity at time of implementation. The market value of these securities was $60,314,000 at the date of transfer with a transition adjustment of $3,829,000. For the years ended March 31, 2000 and 1999, AMERCO recognized $27,000 as interest income and $89,000 as interest expense, respectively, representing the ineffectiveness of the cash flow hedging activity. 41 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued AMERCO has mortgage receivables which potentially expose AMERCO to credit risk. The portfolio of notes is principally collateralized by mini- warehouse storage facilities and other residential and commercial properties. AMERCO has not experienced losses related to the notes from individual notes or groups of notes in any particular industry or geographic area. The estimated fair values were determined using the discounted cash flow method, using interest rates currently offered for similar loans to borrowers with similar credit ratings. Fair value summary of note and mortgage receivables: March 31, 2000 March 31, 1999 ---------------------- ---------------------- Carrying Estimated Carrying Estimated value fair value value fair value ---------------------- ---------------------- (in thousands) (in thousands) $ 185,775 187,491 $ 214,521 216,389 ====================== ====================== Other financial instruments that are subject to fair value disclosure requirements are carried in the financial statements at amounts that approximate fair value, unless elsewhere disclosed. See below, as well as Notes 4 and 5 of Notes to Consolidated Financial Statements. AMERCO's financial instruments that are exposed to concentrations of credit risk consist primarily of temporary cash investments, trade receivables and notes receivable. AMERCO places its temporary cash investments with financial institutions and limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers and their dispersion across many different industries and geographic areas. As discussed in Note 2 of Notes to Consolidated Financial Statements, at March 31, 2000 and 1999, notes receivable are primarily due from one related party. POLICY BENEFITS AND LOSSES, CLAIMS AND LOSS EXPENSES PAYABLE Liabilities for policy benefits payable on traditional life and certain annuity policies are established in amounts adequate to meet estimated future obligations on policies in force. These liabilities are computed using mortality and withdrawal assumptions which are based upon recognized actuarial tables and contain margins for adverse deviation. At December 31, 1999, interest assumptions used to compute policy benefits payable range from 2.5% to 11.25%. The liability for annuity policies, which are accounted for as investment contract deposits, consists of policy account balances that accrue to the benefit of the policyholders, excluding surrender charges. Fair value of investment contract deposits were $461,673,000 and $457,759,000 at December 31, 1999 and 1998, respectively. Liabilities for health and disability and other policy claims and benefits payable represent estimates of payments to be made on insurance claims for reported losses and estimates of losses incurred but not yet reported. These estimates are based on past claims experience and consider current claim trends as well as social and economic conditions. Republic's liability for reported and unreported losses are based on Republic's historical and industry averages. The liability for unpaid loss adjustment expenses is based on historical ratios of loss adjustment expenses paid to losses paid. Amounts recoverable from reinsurers on unpaid losses are estimated in a manner consistent with the claim liability associated with the reinsured policy. Adjustments to the liability for unpaid losses and loss expenses as well as amounts recoverable from reinsurers on unpaid losses are charged or credited to expense in periods in which they are made. RENTAL REVENUE U-Haul recognizes its share of rental revenue less commission on the accrual basis pursuant to contractual arrangements between AMERCO and its fleet owners, rental dealers and customers. See Note 10 of Notes to Consolidated Financial Statements for further discussion. 42 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued PREMIUM REVENUE Credit life and disability, Medicare supplement and property-casualty gross premiums are earned on a pro rata basis over the term of the related contracts. The portion of premiums not earned at the end of the period is recorded as unearned premiums. Traditional life and annuity premiums are recognized as revenue when due from policyholders. Revenue for annuity policies which are accounted for as investment contracts are included in net investment income as investment margins until the policyholder annuitizes, at which time the policyholder's fund balance is recognized as premium. REINSURANCE Reinsurance premiums, commissions and expense reimbursements, related to ceded business, are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums ceded to other companies have been reported as a reduction of premium income. Assets and liabilities relating to ceded contracts are reported gross of the effects of reinsurance. See also "Policy Benefits And Losses, Claims And Loss Expenses Payable" above. INCOME TAXES AMERCO files a consolidated federal income tax return with its subsidiaries. In addition to charging income for taxes paid or payable, the provision for income taxes reflects deferred income taxes resulting from changes in temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. ADVERTISING COSTS AMERCO expenses advertising costs as incurred. Advertising expense of $38,642,000, $33,567,000 and $29,652,000 was charged to operations for fiscal years 2000, 1999 and 1998, respectively. NEW ACCOUNTING STANDARDS New pronouncements issued by the Financial Accounting Standards Board adopted during the year are not material to the consolidated financial statements of AMERCO. Further, pronouncements with future effective dates are either not applicable or not material to the consolidated financial statements of AMERCO. EARNINGS PER SHARE Basic earnings per common share are computed based on the weighted average number of shares outstanding for the year and quarterly periods, excluding shares of the employee stock ownership plan that have not been committed to be released. Preferred dividends include undeclared or unpaid dividends of AMERCO. Net income is reduced for preferred dividends for the purpose of the calculation. The calculation of diluted earnings per share in fiscal years 2000 and 1999 included assumed conversions of the Series B preferred stock into common stock. In fiscal year 2000, the assumed conversions have a dilutive effect; in fiscal year 1999 the assumed conversions had no effect on the calculated earnings per share amount. In fiscal year 1998, the assumed conversion of the Series B preferred stock was not included in the calculation of diluted earnings per share because it was antidilutive. Accordingly, basic and diluted earnings per share are equal for fiscal years 1999 and 1998. See Notes 6 and 8 of Notes to Consolidated Financial Statements for further discussion. COMPREHENSIVE INCOME Comprehensive income consists of net income, foreign currency translation adjustment, unrealized gains and losses on investments and fair market value of cash flow hedges. FINANCIAL STATEMENT PRESENTATION Certain reclassifications have been made to the financial statements for the fiscal years ended 1999 and 1998 to conform with the current year's presentation. 43 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 2. RECEIVABLES, NET A summary of trade receivables follows: March 31, -------------------- 2000 1999 -------------------- (in thousands) Trade accounts receivable $ 17,296 12,008 Premiums and agents' balances in course of collection 73,536 34,896 Reinsurance recoverable 80,180 100,662 Accrued investment income 14,304 14,032 Independent dealer receivable 2,551 4,076 Other receivables 12,085 9,382 ------------------- 199,952 175,056 Less allowance for doubtful accounts 1,960 2,006 ------------------- $ 197,992 173,050 =================== A summary of notes and mortgage receivables follows: March 31, -------------------- 2000 1999 -------------------- (in thousands) Notes receivable, including accrued interest from SAC Holding Corporation and its subsidiaries $ 158,648 186,332 Notes and mortgage receivables, net of discount 45,816 31,648 -------------------- 204,464 217,980 Less allowance for doubtful accounts 70 70 -------------------- $ 204,394 217,910 ==================== During fiscal year 2000, subsidiaries of AMERCO held various senior and junior notes with SAC Holding Corporation and its subsidiaries (SAC Holdings). The voting common stock of SAC Holdings is held by Mark V. Shoen, a major stockholder of AMERCO. AMERCO's subsidiaries received interest income of $20,111,000, $8,022,000 and $6,847,000 from SAC Holdings during fiscal years 2000, 1999 and 1998, respectively. Principal payments of $105,689,000, zero and $1,047,000 were received during fiscal years 2000, 1999 and 1998, respectively. The note receivable balance outstanding was, in the aggregate, $153,067,000 and $179,819,000 at March 31, 2000 and 1999, respectively, bearing interest rates ranging from 8.37% to 13.0%. The principal balance is due in full at maturity and interest is payable quarterly. Notes receivable from SAC Holdings include $547,000 at March 31, 2000 which is secured by land and buildings at various locations. The terms of the notes receivable are consistent with the terms of notes receivable held by U-Haul for other properties owned by unrelated parties and managed by U-Haul. During fiscal years 2000, 1999 and 1998, a subsidiary of AMERCO funded through notes receivable the purchase of properties and construction costs for SAC Holdings of $44,934,000, $26,116,000 and $24,574,000, respectively. In December 1998, U-Haul and Real Estate completed the sale of twenty- six storage properties to Six SAC Self-Storage Corporation, a subsidiary of SAC Holdings, for $99,685,000. Real Estate received cash and notes from the sale. The gain is reflected in the Consolidated Statements of Changes in Stockholders' Equity. U-Haul currently manages the properties owned by SAC Holdings under a management agreement, whereby U-Haul receives a management fee equal to 6% of the gross receipts from the properties. Management fees of $4,482,000, $2,483,000 and $1,860,000 were received during fiscal years 2000, 1999 and 1998, respectively. The 6% fee is consistent with the fees received by U-Haul for other properties owned by unrelated parties and managed by U-Haul. Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's-length transactions. 44 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 3. INVENTORIES, NET A summary of inventory components follows: March 31, -------------------- 2000 1999 -------------------- (in thousands) Truck and trailer parts and accessories $ 61,292 54,407 Hitches and towing components 14,112 15,738 Moving supplies and promotional items 9,210 10,014 -------------------- $ 84,614 80,159 ==================== Inventories are stated net of reserve for obsolescence of $3,321,000 at March 31, 2000 and 1999, respectively. Certain general and administrative expenses are allocated to ending inventories. Such costs remaining in inventory are estimated at $12,084,000 and $12,082,000 at March 31, 2000 and 1999, respectively. For fiscal years 2000, 1999 and 1998, aggregate general and administrative costs were $461,762,000, $566,592,000 and $526,431,000, respectively. LIFO inventories, which represent approximately 98% of total inventories at March 31, 2000 and 1999, would have been $4,957,000 and $4,835,000 greater at March 31, 2000 and 1999, respectively, if the consolidated group had used the FIFO (first-in, first-out) method. 45 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 4. INVESTMENTS A comparison of amortized cost to estimated market value for fixed maturities is as follows: December 31, 1999 - ----------------- Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Held-to-Maturity of shares cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 19,586 18,860 87 (437) 18,510 U.S. government agency mortgage- backed securities $ 18,538 18,448 51 (398) 18,101 Corporate securities $ 80,295 81,847 566 (2,050) 80,363 Mortgage-backed securities $ 35,960 35,284 298 (525) 35,057 Redeemable preferred stocks 4,561 115,253 41 (19,344) 95,950 ---------------------------------------- 269,692 1,043 (22,754) 247,981 ---------------------------------------- December 31, 1999 - ----------------- Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Available-for-Sale of shares cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 40,860 41,643 912 (1,206) 41,349 U.S. government agency mortgage- backed securities $ 36,998 36,709 221 (534) 36,396 Obligations of states and political subdivisions $ 19,320 19,585 323 (154) 19,754 Corporate securities $ 468,131 469,093 2,717 (17,791) 454,019 Mortgage-backed securities $ 36,834 36,574 259 (409) 36,424 Redeemable preferred stocks 1,311 32,675 49 (5,534) 27,190 ---------------------------------------- 636,279 4,481 (25,628) 615,132 ---------------------------------------- Total $ 905,971 5,524 (48,382) 863,113 ======================================== 46 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 4. INVESTMENTS, continued December 31, 1998 - ----------------- Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Held-to-Maturity of shares cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 23,248 22,518 449 (131) 22,836 U.S. government agency mortgage- backed securities $ 29,722 29,647 405 (166) 29,886 Obligations of states and political subdivisions $ 1,500 1,520 163 - 1,683 Corporate securities $ 99,068 100,254 3,100 (259) 103,095 Mortgage-backed securities $ 52,082 51,314 1,150 (52) 52,412 Redeemable preferred stocks 4,634 117,703 1,927 (1,589) 118,041 ---------------------------------------- 322,956 7,194 (2,197) 327,953 ---------------------------------------- December 31, 1998 - ----------------- Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Available-for-Sale of shares cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 32,660 33,507 2,572 - 36,079 U.S. government agency mortgage- backed securities $ 41,128 40,757 1,263 (1) 42,019 Obligations of states and political subdivisions $ 16,710 16,874 816 (17) 17,673 Corporate securities $ 396,024 398,828 15,402 (2,851) 411,379 Mortgage-backed securities $ 35,419 35,235 1,177 (12) 36,400 Redeemable preferred stocks 1,321 33,266 1,327 (104) 34,489 ---------------------------------------- 558,467 22,557 (2,985) 578,039 ---------------------------------------- Total $ 881,423 29,751 (5,182) 905,992 ======================================== Fixed maturities estimated market values are based on publicly quoted market prices at the close of trading on December 31, 1999 or December 31, 1998, as appropriate. 47 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 4. INVESTMENTS, continued The amortized cost and estimated market value of debt securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Consolidated December 31, 1999 December 31, 1998 - ------------ ----------------------- ---------------------- Held-to-Maturity Amortized Estimated Amortized Estimated cost market value cost market value ----------------------- ---------------------- (in thousands) (in thousands) Due in one year or less $ 18,813 18,899 12,455 12,479 Due after one year through five years 51,806 50,461 72,459 75,316 Due after five years through ten years 9,617 9,276 17,527 17,739 After ten years 206 242 2,850 3,007 -------------------- -------------------- 80,442 78,878 105,291 108,541 Mortgage-backed securities 73,997 73,153 99,962 101,371 Redeemable preferred stock 115,253 95,950 117,703 118,041 -------------------- -------------------- 269,692 247,981 322,956 327,953 -------------------- -------------------- Consolidated December 31, 1999 December 31, 1998 - ------------ ----------------------- ---------------------- Available-for-Sale Amortized Estimated Amortized Estimated cost market value cost market value ----------------------- ---------------------- (in thousands) (in thousands) Due in one year or less 40,778 40,642 17,562 17,704 Due after one year through five years 215,505 212,482 176,265 181,853 Due after five years through ten years 188,023 180,520 170,249 175,717 After ten years 86,015 81,477 85,133 89,856 -------------------- -------------------- 530,321 515,121 449,209 465,130 Mortgage-backed securities 73,283 72,821 75,992 78,420 Redeemable preferred stock 32,675 27,190 33,266 34,489 -------------------- -------------------- 636,279 615,132 558,467 578,039 -------------------- -------------------- Total $ 905,971 863,113 881,423 905,992 ==================== ==================== Proceeds from sales of investments in debt securities for the years ended December 31, 1999, 1998 and 1997 were $29,889,000, $53,948,000 and $69,252,000, respectively. Gross gains of $912,000, $1,472,000 and $1,132,000 and gross losses of $315,000, $164,000 and $515,000 were realized on those sales for the years ended December 31, 1999, 1998 and 1997, respectively. At December 31, 1999 and 1998 fixed maturities include bonds with an amortized cost of $15,696,000 and $15,434,000, respectively, on deposit with insurance regulatory authorities to meet statutory requirements. 48 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 4. INVESTMENTS, continued Investments, other consists of the following: March 31, ---------------------- 2000 1999 ---------------------- (in thousands) Short-term investments $ 32,490 67,021 Mortgage loans 73,716 56,898 Equity investment 24,500 24,500 Real estate, foreclosed properties 554 19,069 U.S. government securities mutual fund 5,638 5,805 Policy loans 6,594 7,217 Other 22,675 1,382 ---------------------- $ 166,167 181,892 ====================== A summary of net investment and interest income follows: Year ended December 31, ---------------------------- 1999 1998 1997 ---------------------------- (in thousands) Fixed maturities $ 66,747 67,812 64,114 Real estate 58 15 223 Policy loans 285 354 605 Mortgage loans 5,447 6,279 7,187 Short-term, amounts held by ceding reinsurers, net and other investments 7,140 5,965 2,797 ---------------------------- Investment income 79,677 80,425 74,926 Less investment expenses 23,965 23,733 24,584 ---------------------------- Net investment income 55,712 56,692 50,342 Interest income 26,253 15,747 15,353 ---------------------------- Net investment and interest income $ 81,965 72,439 65,695 ============================ Short-term investments consist primarily of fixed maturities of three months to one year from acquisition date. Mortgage loans, representing first lien mortgages held by the insurance subsidiaries, are carried at unpaid balances, less allowance for possible losses and any unamortized premium or discount. Equity investments and real estate obtained through foreclosures and held for sale are carried at the lower of cost or fair value. U.S. government securities mutual fund is carried at cost which approximates market value. Policy loans are carried at their unpaid balance. At December 31, 1999 and 1998, mortgage loans held as investments with a carrying value of $73,716,000 and $56,898,000, respectively, were outstanding. The estimated fair value of the mortgage loans at December 31, 1999 and 1998 aggregated $74,559,000 and $60,893,000, respectively. The estimated fair values were determined using the discounted cash flow method, using interest rates currently offered for similar loans to borrowers with similar credit ratings. Investments in mortgage loans, included as a component of investments, are reported net of allowance for possible losses of $225,000 and $81,000 in 1999 and 1998, respectively. In February 1997, AMERCO, through its insurance subsidiaries, invested in the equity of a limited partnership in a Texas-based self-storage corporation. Republic invested $13,500,000 and has a 22% limited partnership interest and Oxford invested $11,000,000 and has a 27% limited partnership interest. U-Haul is a 50% owner of a corporation which is a general partner in the Texas-based self-storage corporation. AMERCO has a $10,000,000 note receivable from PMSI Investors L.L.C., a 30% limited partner in the corporation. During 1997, the corporation secured a line of credit in the amount of $225,000,000 with a financing institution. Under the terms of this credit facility, AMERCO entered into a support party agreement with the corporation whereby upon default or noncompliance with debt covenants by the corporation, AMERCO assumes responsibility fulfulling all obligations related to this credit facility. 49 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 5. NOTES AND LOANS PAYABLE Notes and loans payable consist of the following: March 31, -------------------- 2000 1999 -------------------- (in thousands) Short-term borrowings, 6.32% interest rate $ 16,500 25,337 Notes payable to banks under revolving lines of credit, unsecured, 6.19% to 6.44% interest rates 159,000 297,000 Medium-term notes payable, unsecured, 6.71% to 8.08% interest rates, due through 2027 237,000 317,000 Notes payable under Bond Backed Asset Trust, unsecured, 6.89% to 7.14% interest rates, due through 2033 200,000 300,000 Notes payable to public, unsecured, 7.85% interest rate, due through 2004 175,000 175,000 Senior Note, unsecured, 7.20% interest rate, due through 2002 150,000 - Senior Note, unsecured, 8.80% interest rate, due through 2005 200,000 - Other notes payable, secured and unsecured, 7.00% to 11.25% interest rate, due through 2005 340 411 -------------------- $ 1,137,840 1,114,748 ==================== Other notes payable are secured by land and buildings at various locations with a net carrying value of $6,504,302 and $7,056,509 at March 31, 2000 and 1999, respectively. AMERCO has a revolving credit loan (long-term) available from participating banks under an agreement which provides for a credit line of $400,000,000 through June 30, 2002. Depending on the form of borrowing elected, interest will be based on the London Interbank Offering Rate (LIBOR), prime rate, the federal funds effective rate, or rates determined by a competitive bid. LIBOR loans include a spread based upon the senior debt rates of AMERCO. Facility fees paid are based upon the amount of credit line. At March 31, 2000, AMERCO had borrowed $16,500,000, representing short- term borrowings, from its total uncommitted lines of credit of $59,915,000. As of March 31, 2000, loans outstanding under the revolving credit line totaled $159,000,000. Management intends to refinance the borrowings on a long-term basis by either replacing them with long-term obligations, renewing or extending them.
Revolving credit activity Short-term borrowing Year ended Year ended --------------------------- -------------------------- 2000 1999 1998 2000 1999 1998 --------------------------- -------------------------- (in thousands, except interest rates) Weighted average interest rate during the year 5.90% 5.73% 5.95% 6.13% 5.63% 6.05% Interest rate at year end 6.26% 5.33% 5.90% 6.32% 6.19% 6.31% Maximum amount outstanding during the year $ 365,000 297,000 285,000 52,000 39,000 57,000 Average amount outstanding during the year $ 235,500 220,083 203,250 13,542 21,208 25,208 Facility fees $ 508 507 564 N/A N/A 58
50 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 5. NOTES AND LOANS PAYABLE, continued AMERCO has entered into interest rate swap agreements (SWAPS) to potentially mitigate the impact of changes in interest rates on its floating rate debt. These agreements effectively change AMERCO's interest rate exposure on $65,000,000 of floating rate notes to a weighted average fixed rate of 8.20%. The SWAPS mature at the time the related notes mature. Incremental interest expense associated with SWAP activity was $1,935,000, $2,593,000 and $2,687,000 during 2000, 1999 and 1998, respectively. At March 31, 2000, interest rate swap agreements with an aggregate notional amount of $65,000,000 were outstanding. Management estimates that at March 31, 2000 and 1999, AMERCO would be required to pay $1,888,000 and $5,674,000, respectively, to terminate the agreements. Such amounts were determined from current treasury rates combined with SWAP spreads on agreements outstanding. During April 1999, AMERCO issued $150,000,000 of 7.20% Senior Notes due 2002. During February 2000, AMERCO issued $200,000,000 of 8.80% Senior Notes due 2005. During fiscal year 2000, AMERCO extinguished $100,000,000 of BATs with interest of 6.65% originally due in fiscal year 2030, and $50,000,000 of 7.05% to 7.10% Medium-Term notes originally due in fiscal year 2007. This resulted in an extraordinary loss of $334,000, net of tax of $213,000 ($0.02 per share). During fiscal year 1998, AMERCO extinguished $76,000,000 of 10.27% interest-bearing notes originally due in fiscal year 1999 through fiscal year 2002. This resulted in an extraordinary loss of $4,044,000, net of tax of $2,371,000 ($0.18 per share). In October 1997, AMERCO issued $300,000,000 of BATs. The net proceeds were used to initially prepay floating rate indebtedness of AMERCO under revolving credit agreements. Subsequent to the funding of the BATs, AMERCO extinguished $255,071,000 of 6.43% to 8.13% interest-bearing notes originally due in fiscal year 1999 through fiscal year 2010. This resulted in an extraordinary loss of $9,628,000, net of tax of $5,645,000 ($0.44 per share). Certain of AMERCO's credit agreements contain restrictive financial and other covenants, including, among others, covenants with respect to incurring additional indebtedness, maintaining certain financial ratios and placing certain additional liens on its properties and assets. At March 31, 2000, AMERCO was in compliance with these covenants. The annual maturities of long-term debt for the next five years adjusted for subsequent activity (if the revolving credit lines are outstanding to maturity), are presented in the table below: Year Ended ------------------------------------------------ 2001 2002 2003 2004 2005 ------------------------------------------------ (in thousands) Mortgages $ 34 37 29 32 23 Medium-Term and Other Notes 11 77,512 150,014 175,015 205,001 Revolving Credit - - 159,000 - - ------------------------------------------------ $ 45 77,549 309,043 175,047 205,024 ================================================ Interest paid in cash amounted to $77,529,000, $74,026,000 and $76,035,000 for fiscal years 2000, 1999 and 1998, respectively. 51 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 6. STOCKHOLDERS' EQUITY AMERCO has authorized capital stock consisting of 150,000,000 shares of common stock, 150,000,000 shares of Serial common stock and 50,000,000 shares of Serial preferred stock. The Board of Directors (the Board) may authorize the Serial common stock to be issued in such series and on such terms as the Board shall determine. Serial preferred stock issuance may be with or without par value. AMERCO has issued 6,100,000 shares of 8.5% cumulative, no par, non- voting Series A preferred stock (Series A). The Series A is not convertible into, or exchangeable for, shares of any other class or classes of stock of AMERCO. Dividends are payable quarterly in arrears and have priority as to dividends over AMERCO's common stock. The Series A is not redeemable prior to December 1, 2000. On or after December 1, 2000, AMERCO, at its option, may redeem all or part of the Series A, for cash at $25.00 per share plus accrued and unpaid dividends to the redemption date. On August 30, 1996, AMERCO issued 100,000 shares of its Series B preferred stock with no par value for gross proceeds of $100,000,000. As of March 31, 2000, AMERCO has redeemed all 100,000 shares. During the year ended March 31, 1997, pursuant to a judgment in litigation with former shareholders, AMERCO repurchased 12,426,836 shares of common stock in exchange for $84,502,000, funded damages of $228,373,000 and paid statutory post-judgment interest of $689,000. The treasury share transaction was recorded net of tax of $80,997,000 for fiscal year 1997. AMERCO also placed funds of $48,234,000 into an escrow account pending the outcome of a dispute involving the entitlement of the plaintiffs to post-petition interest. The escrow account was transferred to the plaintiffs on February 2, 2000, after it was determined that the plaintiffs were entitled to such interest. The transfer was recorded net of tax of $18,570,000. The plaintiffs included the father, brothers and sisters of Mark V. and Paul F. Shoen who are major stockholders of AMERCO, and Edward J. and James P. Shoen who are major stockholders and directors of AMERCO. On December 31, 1998, in connection with the resolution of one of the remaining items associated with the treasury stock acquisitions, AMERCO remitted $6,000,000 plus interest to the plaintiffs in the Shoen litigation. The payment is reflected, net of taxes, in the Consolidated Statements of Changes in Stockholders' Equity. 52 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 7. ACCUMULATED OTHER COMPREHENSIVE INCOME A summary of accumulated comprehensive income components follows: Unrealized Fair market Accumulated Foreign gain/(loss) value of other currency on cash flow comprehensive translation investments hedge income -------------------------------------------------- (in thousands) Balance at March 31, 1999 $ (25,411) 11,302 (3,631) (17,740) Foreign currency translation (2,899) - - (2,899) Fair market value of cash flow hedge, net of taxes of $1,568 - - 2,192 2,192 Unrealized loss on investments, net of taxes of $11,442 - (23,870) - (23,870) -------------------------------------------- Balance at March 31, 2000 $ (28,310) (12,568) (1,439) (42,317) ============================================ Balance at March 31, 1998 $ (18,675) 9,291 - (9,384) Foreign currency translation (6,736) - - (6,736) Fair market value of cash flow hedge, net of taxes of $1,955 - - (3,631) (3,631) Unrealized gain on investments, net of taxes of $1,159 - 2,011 - 2,011 -------------------------------------------- Balance at March 31, 1999 $ (25,411) 11,302 (3,631) (17,740) ============================================ 8. EARNINGS PER SHARE The following table reflects the calculation of earnings per share: Income Shares Per Share (Numerator) (Denominator) Amount ------------------------------------- (in thousands, except share and per share data) Year ended March 31, 2000 Earnings from operations before extraordinary loss on early extinguishment of debt $ 65,825 Less: preferred stock dividends (13,499) ------ Basic earnings per share Earnings from operations before extraordinary loss on early extinguishment of debt available to common stockholders 52,326 21,934,390 $ 2.39 Extraordinary loss on early extinguishment of debt, net (334) (0.02) ------ ---- Net earnings 51,992 2.37 Effects of dilutive securities preferred stock conversion 537 291,667 ------ ---------- Diluted earnings per share Net earnings $ 52,529 22,226,057 $ 2.36 ====== ========== ==== 53 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 8. EARNINGS PER SHARE, continued Income Shares Per Share (Numerator) (Denominator) Amount ------------------------------------- (in thousands, except share and per share data) Year ended March 31, 1999 Earnings from operations before extraordinary loss on early extinguishment of debt $ 62,509 Less: preferred stock dividends (17,077) ------ Basic earnings per share Earnings from operations before extraordinary loss on early extinguishment of debt available to common stockholders 45,432 21,937,686 $ 2.07 Extraordinary loss on early extinguishment of debt, net - - ------ ---- Net earnings 45,432 2.07 Effects of dilutive securities Preferred stock conversion 4,006 2,002,937 ------ ---------- Diluted earnings per share Net earnings $ 49,438 23,940,623 $ 2.07 ====== ========== ==== Year ended March 31, 1998 Earnings from operations before extraordinary loss on early extinguishment of debt $ 48,656 Less: preferred stock dividends (20,664) ------ Basic earnings per share Earnings from operations before extraordinary loss on early extinguishment of debt available to common stockholders 27,992 21,896,101 $ 1.28 Extraordinary loss on early extinguishment of debt, net (13,672) (0.62) ------ ---- Net earnings 14,320 0.66 Effects of dilutive securities Preferred stock conversion - - ------ ---------- Diluted earnings per share Net earnings $ 14,320 21,896,101 $ 0.66 ====== ========== ==== 54 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 9. INCOME TAXES The components of the consolidated expense for income taxes applicable to operations are as follows: Year ended ------------------------------- 2000 1999 1998 ------------------------------- (in thousands) Current: Federal $ 1,192 2,490 2,098 State 1,068 406 406 Deferred: Federal 32,369 29,963 23,772 State 2,293 2,242 1,367 ------------------------------ $ 36,922 35,101 27,643 ============================== Income taxes paid in cash amounted to $1,522,000, $1,656,000 and $2,758,000 for fiscal years 2000, 1999 and 1998, respectively. Actual tax expense reported on earnings from operations differs from the "expected" tax expense amount (computed by applying the United States federal corporate tax rate of 35% in 2000, 1999 and 1998) as follows: Year ended ------------------------------- 2000 1999 1998 ------------------------------- (in thousands) Computed "expected" tax expense $ 35,962 34,163 26,705 Increases (reductions) in taxes resulting from: Tax-exempt interest income (145) (474) (676) Dividends received deduction (1) (52) (153) Canadian subsidiary (income)loss (536) 444 (524) True-up of prior year - - 950 Federal tax benefit of state and local taxes (1,176) (927) (620) Other (543) (701) 188 ------------------------------ Actual federal tax expense 33,561 32,453 25,870 State and local income tax expense 3,361 2,648 1,773 ------------------------------ Actual tax expense of operations $ 36,922 35,101 27,643 ============================== 55 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 9. INCOME TAXES, continued Deferred tax assets and liabilities are comprised as follows: March 31, ----------------- 2000 1999 ----------------- (in thousands) Deferred tax assets ------------------- Benefit of tax net operating loss and credit carryforwards $ 84,855 98,543 Accrued expenses 6,399 24,110 Deferred revenue from sale/leaseback 7,463 7,945 Policy benefits and losses, claims and loss expenses payable, net 20,236 18,780 Other 1,838 709 ----------------- Total deferred tax assets 120,791 150,087 ----------------- Deferred tax liabilities ------------------------ Property, plant and equipment 224,260 196,478 Deferred policy acquisition costs 5,944 18,189 ----------------- Total deferred tax liabilities 230,204 214,667 ----------------- Net deferred tax liability $ 109,413 64,580 ================= In light of AMERCO's history of profitable operations, management has concluded that it is more likely than not that AMERCO will ultimately realize the full benefit of its deferred tax assets. Accordingly, AMERCO believes that a valuation allowance is not required at March 31, 2000 and 1999. See also Note 15 of Notes to Consolidated Financial Statements. Under the provisions of the Tax Reform Act of 1984 (the Act), the balance in Oxford's account designated "Policyholders' Surplus Account" is frozen at its December 31, 1983 balance of $19,251,000. Federal income taxes (Phase III) will be payable thereon at applicable current rates if amounts in this account are distributed to the stockholder or to the extent the account exceeds a prescribed maximum. Oxford did not incur a Phase III liability for the years ended December 31, 1999, 1998 and 1997. The Internal Revenue Service has examined AMERCO's income tax returns for the years ended 1994 and 1995. All agreed issues have been provided for in the financial statements for the 1994 and 1995 audit period. On January 22, 1999, AMERCO was informed by the Internal Revenue Service that fiscal years 1996 and 1997 have been selected for audit. At March 31, 2000, AMERCO and Republic have non-life net operating loss carryforwards available to offset taxable income in future years of $183,130,000 for tax purposes. These carryforwards expire in 2011 through 2012. AMERCO has alternative minimum tax credit carryforwards of $16,440,000 which do not have an expiration date, but may only be utilized in years in which regular tax exceeds alternative minimum tax. The use of certain carryforwards may be limited or prohibited if a reorganization or other change in corporate ownership were to occur. During 1994, Oxford dividended its investment in Republic common stock to its parent at its book value. As a result of such dividend, a deferred intercompany gain arose due to the difference between the book value and fair value of such common stock. However, such gain can only be triggered if certain events occur. To date, no events have occurred which would trigger such gain recognition. No deferred taxes have been provided in the accompanying consolidated financial statements as management believes that no events have occurred to trigger such gain. 56 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 10. TRANSACTIONS WITH FLEET OWNERS AND OTHER RENTAL EQUIPMENT OWNERS Independent rental equipment owners (fleet owners) own approximately 7% of all U-Haul rental trailers and 0.01% of certain other rental equipment. There are approximately 2,600 fleet owners, including certain officers, directors, employees and stockholders of AMERCO. All rental equipment is operated under contract with U-Haul whereby U-Haul administers the operations and marketing of such equipment and in return receives a percentage of rental fees paid by customers. Based on the terms of various contracts, rental fees are distributed to U-Haul (for services as operators), to the fleet owners (including certain subsidiaries and related parties of U-Haul) and to Rental Dealers (including Company-operated U-Haul Centers). Republic insures and reinsures certain risks of U-Haul customers and independent fleet owners. Premiums earned on these policies were $22,700,000, $41,000,000 and $49,400,000 during the years ended December 31, 2000, 1999 and 1998, respectively. 11. EMPLOYEE BENEFIT PLANS AMERCO participates in the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan (the Plan) which is designed to provide all eligible employees with savings for their retirement and to acquire a proprietary interest in AMERCO. The Plan has three separate features: a profit sharing feature (the Profit Sharing Plan) under which the Employer may make contributions on behalf of participants; a savings feature (the Savings Plan) which allows participants to defer income under Section 401(k) of the Internal Revenue Code of 1986; and an employee stock ownership feature (the ESOP) under which AMERCO may make contributions of AMERCO common stock or cash to acquire such stock on behalf of participants. Generally, employees of AMERCO are eligible to participate in the Plan upon completion of a one year service requirement. No contributions were made to the profit sharing plan in fiscal year 2000, 1999, or 1998. AMERCO has arranged financing to fund the ESOP trust (ESOT) and to enable the ESOT to purchase shares. Below is a summary of the financing arrangements: Amount outstanding Financing as of Interest Payments Date March 31, 2000 2000 1999 1998 ---------------------------------------------------------------------- (in thousands) December 1989 $ - - 34 126 May 1990 117 16 24 35 June 1991 16,249 1,192 1,364 1,466 Shares are released from collateral and allocated to active employees based on the proportion of debt service paid in the plan year. Contributions to the ESOT charged to expense were $1,771,000, $2,804,000 and $3,588,000 for fiscal years 2000, 1999 and 1998, respectively. The shares held by ESOP as of March 31 were as follows: Shares issued Shares issued prior to subsequent to December 31, 1992 December 31, 1992 ------------------------------------------ 2000 1999 2000 1999 ------------------------------------------ (in thousands) Allocated shares 1,551 1,620 196 156 Shares committed to be released - - 11 11 Unreleased shares 338 379 679 668 Fair value of unreleased shares $ 4,157 4,485 12,470 14,370 ========================================== 57 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 11. EMPLOYEE BENEFIT PLANS, continued For purposes of the schedule, fair value of unreleased shares issued prior to December 31, 1992 is defined as the historical cost of such shares. Fair value of unreleased shares issued subsequent to December 31, 1992 is defined as the March 31 trading value of such shares for 2000 and 1999. Oxford insures various group life and group disability insurance plans covering employees of the consolidated group. Premiums earned were $1,276,000, $1,208,000 and $2,785,000 during the years ended December 31, 1999, 1998 and 1997, respectively, and were eliminated in consolidation. 12. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS AMERCO provides medical and life insurance benefits to retired employees and eligible dependents over age 65 if the employee meets specified age and service requirements. AMERCO uses the accrual method of accounting for postretirement benefits. AMERCO continues to fund medical and life insurance benefit costs as claims are incurred. The components of net periodic postretirement benefit cost for 2000, 1999 and 1998 are as follows: 2000 1999 1998 ---------------------------- (in thousands) Service cost for benefits earned during the period $ 330 296 260 Interest cost on accumulated postretirement benefit 338 327 301 Other components (239) (224) (239) --------------------------- Net periodic postretirement benefit cost $ 429 399 322 =========================== The 2000 and 1999 postretirement benefit liability included the following components: 2000 1999 ------------------ (in thousands) Beginning of year $ 4,886 4,739 Service cost 330 296 Interest cost 338 327 Benefit payments and expense (93) (88) Actuarial loss (1,846) (388) ----------------- Accumulated postretirement benefit obligation 3,615 4,886 Unrecognized net gain 5,232 3,624 ----------------- $ 8,847 8,510 ================= The discount rate assumptions in computing the information above were as follows: 2000 1999 1998 ----------------------------- Accumulated postretirement benefit obligation 7.75% 7.00% 7.00% The year-to-year fluctuations in the discount rate assumptions primarily reflect changes in U.S. interest rates. The discount rate represents the expected yield on a portfolio of high-grade (AA-AAA rated or equivalent) fixed-income investments with cash flow streams sufficient to satisfy benefit obligations under the plans when due. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 6.00% in 2000, declining annually to an ultimate rate of 4.20% in 2014. 58 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 12. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS, continued If the health care cost trend rate assumptions were increased by 1.00%, the accumulated postretirement benefit obligation as of March 31, 2000 would be increased by approximately $166,000 and a decrease of 1.00% would reduce the accumulated postretirement benefit obligation by $181,000. Postemployment benefits provided by AMERCO are not material. 13. REINSURANCE In the normal course of business, Republic and Oxford assume and cede reinsurance on both a coinsurance and risk premium basis. Republic and Oxford obtain reinsurance for that portion of risks exceeding retention limits. The maximum amount of life insurance retained on any one life is $150,000. A summary of reinsurance transactions by business segment follows: Percentage Ceded Assumed of amount Direct to other from other Net assumed to amount companies companies amount net ------------------------------------------ ----------- (in thousands) Year ended December 31, 1999 - ---------------------------- Life insurance in force $ 1,508,961 932,004 1,930,832 2,507,789 77% ============================================ Premiums earned: Life $ 26,745 2,527 6,480 30,698 21% Accident and health 43,833 15,121 29,377 58,089 51% Annuity 69 3 6,269 6,335 99% Property - casualty 111,488 27,004 89,319 173,803 51% -------------------------------------------- Total $ 182,135 44,655 131,445 268,925 ============================================ Percentage Ceded Assumed of amount Direct to other from other Net assumed to amount companies companies amount net ------------------------------------------ ----------- (in thousands) Year ended December 31, 1998 - ---------------------------- Life insurance in force $ 1,254,084 809,267 2,218,772 2,663,589 83% ============================================ Premiums earned: Life $ 20,554 6,403 11,480 25,631 45% Accident and health 32,668 10,875 29,973 51,766 58% Annuity 556 - 9,944 10,500 95% Property - casualty 110,080 32,047 60,917 138,950 44% -------------------------------------------- Total $ 163,858 49,325 112,314 226,847 ============================================ 59 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 13. REINSURANCE, continued Percentage Ceded Assumed of amount Direct to other from other Net assumed to amount companies companies amount net ------------------------------------------ ----------- (in thousands) Year ended December 31, 1997 - ---------------------------- Life insurance in force $ 1,601,840 224,893 2,219,393 3,596,340 62% ============================================ Premiums earned: Life $ 3,527 160 7,034 10,401 68% Accident and health 7,916 1,217 1,930 8,629 22% Annuity 106 - 8,868 8,974 99% Property - casualty 103,488 22,387 55,508 136,609 41% -------------------------------------------- Total $ 115,037 23,764 73,340 164,613 ============================================ In connection with Oxford's acquisitions during 1997 as disclosed in Note 20 of Notes to Consolidated Financial Statements, the level of life reinsurance transactions increased as of December 31, 1998. Republic is a reinsurer of municipal bond insurance through an agreement with MBIA, Inc. Premiums generated through this agreement are recognized on a pro rata basis over the contract coverage period. Unearned premiums on this coverage were $5,000,000 and $5,300,000 as of December 31, 1999 and 1998, respectively. Republic's share of case loss reserves related to this coverage was insignificant at December 31, 1999. Republic's aggregate exposure for Class 1 municipal bond insurance was $1,000,000,000 as of December 31, 1999. To the extent that a reinsurer is unable to meet its obligation under the related reinsurance agreements, Republic would remain liable for the unpaid losses and loss expenses. Pursuant to certain of these agreements, Republic holds letters of credit of $3,500,000 from reinsurers. Republic has issued letters of credit of approximately $2,700,000 in favor of certain ceding companies. Republic insures and reinsures general liability, auto liability and workers' compensation coverage for member companies of the consolidated group. Premiums earned by Republic on these policies were $6,878,000, $11,734,000 and $19,800,000 during the years ended December 31, 1999, 1998 and 1997, respectively, and were eliminated in consolidation. 14. CONTINGENT LIABILITIES AND COMMITMENTS AMERCO uses certain equipment and occupies certain facilities under operating lease commitments with terms expiring through 2079. Lease expense was $135,681,000, $118,742,000 and $89,879,000 for the years ended 2000, 1999 and 1998, respectively. During the year ended March 31, 2000, a subsidiary of U-Haul entered into twenty-two transactions and has subsequently entered into nine additional transactions, whereby AMERCO sold rental trucks, which were subsequently leased back. AMERCO has guaranteed $147,905,000 of residual values at March 31, 2000 and an additional $13,015,000 subsequent to March 31, 2000 for these assets at the end of the respective lease terms. Certain leases contain renewal and fair market value purchase options as well as mileage and other restrictions similar to covenants disclosed in Note 5 of Notes to Consolidated Financial Statements for notes payable and loan agreements. 60 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 14. CONTINGENT LIABILITIES AND COMMITMENTS, continued Following are the lease commitments for leases having terms of more than one year: March 31, 2000 --------------------------- Net activity Property, plant Rental subsequent to Year ended and other equipment fleet year end Total ------------------------------------------------------------------- (in thousands) 2001 $ 5,186 133,496 10,795 149,477 2002 2,870 117,890 12,393 133,153 2003 2,068 104,257 12,393 118,718 2004 1,881 78,771 12,393 93,045 2005 1,652 65,042 12,393 79,087 Thereafter 11,398 81,916 26,382 119,696 ----------------------------------------------- $ 25,055 581,372 86,749 693,176 =============================================== The Company, at the expiration of the lease, has the option to renew the lease, purchase the units for fair market value, or sell the units to a third party on behalf of the lessor. On or before a specific date prior to the expiration date of the lease, the Company has the ability to exercise a TRAC option. Under this provision the Company has the right to purchase the units at a specified price. At March 31, 2000, a subsidiary of U-Haul exercised its option in accordance with the operating lease TRAC provision for equipment contained in five lease agreements totaling $6,942,000. Subsequent to March 31, 2000, the Company exercised a similar provision totaling $10,944,000 in connection with seven additional leases. In December 1996, AMERCO executed a $100,000,000 Operating Lease Facility with a number of financial institutions which was amended and restated in July 1999 to $170,000,000. In September 1999, AMERCO entered into an additional $125,000,000 Operating Lease Facility. Under these facilities, the lessor acquires land to be developed for storage locations by AMERCO, as Construction Agent, or acquires existing storage locations with advances of funds (the Advances) made by certain parties to the facilities. AMERCO will separately lease land and improvements, including completed locations capitalized by the lessor, under the facilities and the respective lease supplements. Funding under the facilities totaled $174,900,000 at March 31, 2000. The facilities contain certain restrictions similar to those contained in Note 5. Upon occurrence of any event of default, the lessor may rescind or terminate any or all leases and, among other things, require AMERCO to repurchase any or all of the properties. The facilities have a three year term, subject to AMERCO's option, with the consent of other parties, to renew for successive one year terms. Upon the expiration of the facilities, AMERCO may either purchase all of the properties based on a purchase price equal to all amounts outstanding under the Advances, including the interest and yield thereon, or remarket all of the properties to a third party purchaser who may become a subsequent lessor to AMERCO. In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or cleanup of underground fuel storage tanks. It is the opinion of management that none of such suits, claims or proceedings involving AMERCO, individually or in the aggregate, are expected to result in a material loss. Also see Notes 13 and 15 of Notes to Consolidated Financial Statements. 61 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 15. LEGAL PROCEEDINGS On October 1, 1996, AMERCO made the final payment of approximately $448,100,000 to the plaintiffs (non-management shareholders and their affiliates) in the full settlement of a legal dispute related to control of AMERCO. As a result, the plaintiffs that owned AMERCO stock were required to transfer all of their shares of common stock to AMERCO. The total number of shares transferred was 18,254,976. On January 10, 2000 it was determined that the plaintiffs were entitled to post-petition interest at the rate of ten percent (10%) per year from February 21, 1995 until October 1, 1996. In 1996, AMERCO deposited approximately $48,200,000 into an escrow account to secure payment of the disputed interest, pending final resolution of this issue. The escrow account was reflected as a component of "Other assets" in AMERCO's consolidated financial statements. The amount deposited into the escrow account was transferred to the plaintiffs on February 2, 2000. The release of the escrow did not have the effect of increasing or decreasing AMERCO's net earnings, but reduced stockholders' equity. AMERCO has deducted for income tax purposes approximately $372,000,000 of payments previously made to the former shareholders. While AMERCO believes that such income tax deductions are appropriate, there can be no assurance that such deductions ultimately will be allowed in full. On June 24, 1997, five (5) current and/or former Moving Center General Managers (GMs) and one (1) Area Field Manager (AFM) filed suit in Marin County Superior Court, Case No. BC 203532, entitled Sarah Saunders, et al. ---------------------- vs. U-Haul Company of California, Inc., claiming that they were entitled to ---------------------------------- be compensated for all overtime hours worked in excess of forty (40) hours per week. In addition, these Plaintiffs sought class action status purporting to represent all persons employed in California as either a salaried GM or AFM since September 1993. On September 30, 1997, a virtually identical lawsuit was filed in Los Angeles County Superior Court, Case No. BC 178775, entitled Wyatt Crandall vs. U-Haul International, Inc. and U-Haul -------------- ------------------------------------- Co. of California. This action did not include AFMs, but did purport to be - ----------------- brought on behalf of GMs and GM trainees. These cases were consolidated by the Court in Los Angeles on October 15, 1998. On June 10, 1999, Plaintiff's motion to certify the AFMs as a class was denied and the motion to certify the GMs as a class was granted. Notice of certification was mailed on or about August 24, 1999. The class opt-out period ended on October 11, 1999. Trial is set for November 2000. Management does not expect the Plaintiffs' damage claims to result in a material loss, however, there remains the possibility that an adverse outcome could result in a material effect on AMERCO's results of operations for the year in which the decision is rendered. 62 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 16. PREFERRED STOCK PURCHASE RIGHTS AMERCO's Board of Directors adopted a stockholder-rights plan in July 1998. The rights were declared as a dividend of one preferred share purchase right for each outstanding share of AMERCO's common stock. The dividend distribution was payable on August 17, 1998 to the stockholders of record on that date. When exercisable, each right will entitle its holder to purchase from AMERCO one one-hundredth of a share of Series C Junior Participating Preferred Stock (Series C), no par value per share of AMERCO, at a price of $132.00 per one one-hundredth of a share of Series C, subject to adjustment. AMERCO has created a series of 3,000,000 shares of authorized but unissued preferred stock for the Series C stock authorized in this stockholder-rights plan. The rights will become exercisable if a person or group of affiliated or associated persons acquire or obtain the right to acquire beneficial ownership of 10% or more of the common stock without approval of a majority of the Board of Directors of AMERCO. The rights will expire on August 7, 2008 unless earlier redeemed or exchanged by AMERCO. In the event AMERCO is acquired in a merger or other business combination transaction after the rights become exercisable, each holder of a right would be entitled to receive that number of shares of the acquiring company's common stock equal to the result obtained by multiplying the then current Purchase Price by the number one one-hundredths of a share of Series C for which a right is then exercisable and dividing that product by 50% of the then current market price per share of the acquiring company. 63 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 17. STOCK OPTION PLAN AMERCO's stockholders approved a ten year incentive plan entitled the AMERCO Stock Option and Incentive Plan (the Plan) for officers and key employees in October 1992. No stock options or awards have been granted under this plan to date. The aggregate numbers of shares of stock subject to award under the Plan may not exceed 3,000,000. The stock subject to the Plan is AMERCO common stock unless prior to the date the first award is made under the Plan, a Committee of at least two Board members determines, in its discretion, to utilize another class of AMERCO stock. The features of the Plan are: Incentive Stock Options (ISO's) - as defined under the Internal Revenue Code and Non-qualified Stock Options under such terms and conditions as the Committee determines in its discretion. The ISO's may be granted at prices not less than one-hundred percent of the fair market value at the date of grant with a term not exceeding ten years. Stock Appreciation Right (SAR's) - subject to certain conditions and limitations to holders of options under the Plan. SAR's permit the optionee to surrender an exercisable option for an amount equal to the excess of the market price of the common stock over the option price when the right is exercised. Restricted Stock Award - a specified number of common shares may be granted subject to certain restrictions. Restriction violations during a specified period result in forfeiture of the stock. The Committee may, at its discretion, impose any restrictions on a Restricted Stock award. Dividend Equivalents - in connection with options. Dividend Equivalents are rights to receive additional shares of stock at the time of exercise of the option to which such Dividend Equivalents apply. Performance Share - deemed to be the equivalent of one share of stock and credited to a Performance Share account to be maintained for each Holder. The value of the shares at time of award or payment is the fair market value of an equivalent number of shares of stock. At the end of the award period, payment may be made subject to certain predetermined criteria and restrictions. 18. RELATED PARTY TRANSACTIONS AMERCO has related party transactions with certain major stockholders, directors and officers of the consolidated group as disclosed in Notes 2, 6, 10 and 16 of Notes to Consolidated Financial Statements. During fiscal year 2000, AMERCO sold $3,910,000 of remanufactured engines and small automtive parts and purchased $38,373,000 of automtive parts and tools from a company wherein a major stockholder, director and officer of AMERCO has a beneficial minority ownership interest. During fiscal year 2000, AMERCO purchased $2,508,000 of rebuilt torque converters and other related transmission parts from a company wherein an owner is a family member of a major stockholder, director and officer of AMERCO. During the years ended 2000, 1999 and 1998, AMERCO purchased $3,371,000, $3,070,000 and $2,816,000, respectively, of printing from a company wherein an officer is a major stockholder, director and officer of AMERCO. Management believes that these transactions were consummated on terms equivalent to those that prevail in arm's-length transactions. 64 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 19. SUPPLEMENTAL CASH FLOW INFORMATION The (increase) decrease in receivables, inventories and accounts payable and accrued expenses net of other operating and investing activities follows: Year ended --------------------------------------- 2000 1999 1998 --------------------------------------- (in thousands) Receivables $ (40,590) 676 (14,646) ======================================= Inventories $ (4,455) (11,272) (3,093) ======================================= Accounts payable and accrued expenses $ 20,146 12,668 11,123 ======================================= 20. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES A summarized consolidated balance sheet for Republic is presented below: December 31, ------------------- 1999 1998 ------------------- (in thousands) Investments, fixed maturities $ 399,445 421,346 Investments, other 24,591 23,812 Receivables 158,413 130,304 Deferred policy acquisition costs 15,130 12,299 Due from affiliate 28,054 18,259 Deferred federal income taxes 13,384 13,497 Other assets 25,770 19,460 ------------------- Total assets $ 664,787 638,977 =================== Policy liabilities and accruals $ 339,220 349,550 Unearned premiums 64,755 55,076 Other policyholders' funds and liabilities 52,307 22,905 ------------------- Total liabilities 456,282 427,531 Stockholder's equity 208,505 211,446 ------------------- Total liabilities and stockholder's equity $ 664,787 638,977 =================== A summarized consolidated income statement for Republic is presented below: Year ended December 31, ------------------------------- 1999 1998 1997 ------------------------------- (in thousands) Premiums $ 173,803 145,301 155,906 Net investment income 33,004 35,755 31,938 ------------------------------- Total revenue 206,807 181,056 187,844 Benefits and losses 150,543 118,870 165,890 Amortization of deferred policy acquisition costs 13,358 7,443 8,622 Operating expenses 34,972 35,637 12,596 ------------------------------- Total expenses 198,873 161,950 187,108 Income from operations 7,934 19,106 736 Income tax benefit (expense) (2,611) (5,976) 556 ------------------------------- Net income $ 5,323 13,130 1,292 =============================== 65 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 20. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES, continued A summarized consolidated balance sheet for Oxford is presented below: December 31, -------------------- 1999 1998 -------------------- (in thousands) Investments, fixed maturities $ 485,379 479,649 Investments, other 122,038 139,011 Receivables 19,021 28,138 Deferred policy acquisition costs 73,272 69,390 Other assets 32,270 31,097 ------------------- Total assets $ 731,980 747,285 =================== Policy liabilities and accruals $ 142,180 136,299 Premium deposits 461,673 457,759 Other policyholders' funds and liabilities 18,390 27,351 Due to affiliate 10,669 9,862 Deferred federal income taxes 10,975 22,389 ------------------- Total liabilities 643,887 653,660 Stockholder's equity 88,093 93,625 ------------------- Total liabilities and stockholder's equity $ 731,980 747,285 =================== A summarized consolidated income statement for Oxford is presented below: Year ended December 31, ------------------------------- 1999 1998 1997 ------------------------------- (in thousands) Premiums $ 96,406 94,488 29,731 Net investment income 21,293 19,147 17,811 ------------------------------- Total revenue 117,699 113,635 47,542 Benefits and losses 59,049 57,690 24,377 Amortization of deferred policy acquisition costs 21,629 24,278 5,572 Operating expenses 22,831 19,509 6,953 ------------------------------- Total expenses 103,509 101,477 36,902 Income from operations 14,190 12,158 10,640 Income tax expense (4,117) (3,423) (3,220) ------------------------------- Net income $ 10,073 8,735 7,420 =============================== 66 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 20. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES, continued Applicable laws and regulations of the State of Arizona require maintenance of minimum capital determined in accordance with statutory accounting practices in the amount of $450,000 for Oxford and $1,000,000 for Republic. In addition, the amount of dividends which can be paid to stockholders by insurance companies domiciled in the State of Arizona is limited. Any dividend in excess of the limit requires prior regulatory approval. Statutory surplus which can be distributed as dividends is $1,400,000 for Oxford and $16,100,000 for Republic at December 31, 1999. Audited statutory net income for Republic for the years ended December 31, 1999, 1998 and 1997 was $9,907,000, $12,382,000 and $2,124,000, respectively; audited statutory capital and surplus was $154,604,000 and $165,969,000 at December 31, 1999 and 1998, respectively. Audited statutory net income for Oxford for the years ended December 31, 1999, 1998 and 1997 was $1,599,000, $814,000 and $8,278,000, respectively; audited statutory capital and surplus was $57,689,000 and $64,084,000 at December 31, 1999 and 1998, respectively. On November 21, 1997, Oxford purchased all of the issued and outstanding shares of Encore Financial, Inc. and its subsidiaries (Encore) for $11,569,000. Encore's primary subsidiary is North American Insurance Company (NAI). NAI's premium volume is primarily from the sale of credit life and disability products. NAI owns all of the issued and outstanding common shares of North American Fire & Casualty Insurance Company, a property and casualty insurance company. In December 1998, North American Fire & Casualty Insurance Company was sold to Republic. On November 24, 1997, Oxford purchased all of the issued and outstanding shares of Safe Mate Life Insurance Company, for $2,243,000. As of November 1, 1998, Safe Mate merged into Oxford. Safe Mate's business was the sale of credit life and disability products. These purchases greatly increase Oxford's distribution channels and enhance administrative capabilities in these markets. 67 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 21. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA Industry Segment Data - AMERCO has four industry segments represented by Moving and Storage Operations (U-Haul), Real Estate, Property and Casualty Insurance (Republic) and Life Insurance (Oxford). See Note 1 of Notes to Consolidated Financial Statements for a description of the industry segments. Information concerning operations by industry segment follows:
Moving Property/ Adjustments and Storage Real Casualty Life and Operations Estate Insurance Insurance Eliminations Consolidated -------------------------------------------------------------------- (in thousands) Fiscal year 2000 - ---------------- Revenues: Outside $1,357,651 9,365 199,929 116,425 - 1,683,370 Intersegment - 71,021 6,878 1,274 (79,173) - --------- ------- ------- ------- -------- --------- Total revenue $1,357,651 80,386 206,807 117,699 (79,173) 1,683,370 Depreciation/ amortization $ 88,363 10,512 14,819 21,787 - 135,481 Interest expense $ 81,532 39,257 - - (39,257) 81,532 Pretax earnings $ 55,169 25,454 7,934 14,190 - 102,747 Income tax expense $ 21,264 8,930 2,611 4,117 - 36,922 Extraordinary loss on early extinguishment of debt, net $ (334) - - - - (334) Identifiable assets at March 31, 2000 $1,388,639 687,855 664,787 721,311 (337,367) 3,125,225 Fiscal year 1999 - ---------------- Revenues: Outside $1,266,372 6,658 169,322 112,427 - 1,554,779 Intersegment - 71,888 11,734 1,208 (84,830) - --------- ------- ------- ------- -------- --------- Total revenue $1,266,372 78,546 181,056 113,635 (84,830) 1,554,779 Depreciation/ amortization $ 72,325 10,990 9,190 21,597 - 114,102 Interest expense $ 73,658 40,595 - - (40,595) 73,658 Pretax earnings $ 46,679 19,667 19,106 12,158 - 97,610 Income tax expense $ 18,819 6,883 5,976 3,423 - 35,101 Identifiable assets at March 31, 1999 $1,339,312 708,756 638,977 737,423 (336,965) 3,087,503
68 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 21. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued
Moving Property/ Adjustments and Storage Real Casualty Life and Operations Estate Insurance Insurance Eliminations Consolidated -------------------------------------------------------------------- (in thousands) Fiscal year 1998 - ---------------- Revenues: Outside $1,205,985 4,908 167,398 46,318 - 1,424,609 Intersegment - 67,371 20,446 1,224 (89,041) - --------- ------- ------- ------- -------- --------- Total revenue $1,205,985 72,279 187,844 47,542 (89,041) 1,424,609 Depreciation/ amortization $ 89,940 7,824 10,807 5,251 - 113,822 Interest expense $ 37,146 42,223 - - - 79,369 Pretax earnings $ 49,036 15,887 736 10,640 - 76,299 Income tax expense (benefit) $ 19,166 5,813 (556) 3,220 - 27,643 Extraordinary loss on early extinguishment of debt, net $ (13,672) - - - - (13,672) Identifiable assets at March 31, 1998 $1,221,579 662,634 654,449 691,118 (316,503) 2,913,277
69 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 21. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued Geographic Area Data - United States Canada Consolidated (All amounts are in U.S. $'s) --------------------------------------- (in thousands) Fiscal year 2000 - ---------------- Total revenues $ 1,648,889 34,481 1,683,370 Depreciation/amortization $ 131,513 3,968 135,481 Interest expense $ 81,515 17 81,532 Pretax earnings $ 101,216 1,531 102,747 Income tax expense $ 36,992 - 36,992 Extraordinary loss $ (334) - (334) Identifiable assets at March 31, 2000 $ 3,075,095 50,130 3,125,225 Fiscal year 1999 - ---------------- Total revenues $ 1,525,006 29,773 1,554,779 Depreciation/amortization $ 110,817 3,285 114,102 Interest expense $ 73,641 17 73,658 Pretax earnings (loss) $ 98,878 (1,268) 97,610 Income tax expense $ 35,101 - 35,101 Identifiable assets at March 31, 1999 $ 3,046,247 41,256 3,087,503 Fiscal year 1998 - ---------------- Total revenues $ 1,394,189 31,067 1,425,256 Depreciation/amortization $ 111,072 2,750 113,822 Interest expense $ 79,340 29 79,369 Pretax earnings $ 74,801 1,498 76,299 Income tax expense $ 27,643 - 27,643 Extraordinary loss $ (13,672) - (13,672) Identifiable assets at March 31, 1998 $ 2,863,416 49,861 2,913,277 22. SUBSEQUENT EVENTS On May 2, 2000, AMERCO declared a cash dividend of $3,241,000 ($0.53125 per preferred share) to the Series A preferred stockholders of record as of May 12, 2000. See Note 14 of Notes to Consolidated Financial Statements for other subsequent event disclosures. 70 SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS Additional Information The following Summary of Earnings of Independent Trailer Fleets is presented for purposes of analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements by PricewaterhouseCoopers LLP, independent accountants, whose report thereon appears elsewhere herein.
Years Ended March 31, --------------------------------------------------------------------- 2000 1999 1998 1997 1996 --------------------------------------------------------------------- (in thousands, except earnings per $100 of average investment) Earnings data (Note A): Fleet Owner income: Credited to Fleet Owner gross rental income $ 1,977 2,191 2,317 3,214 4,181 Credited to Trailer Accident Fund (Notes D and E) 114 144 183 253 302 ----- ----- ----- ----- ----- Total Fleet Owner income 2,091 2,335 2,500 3,467 4,483 ----- ----- ----- ----- ----- Fleet Owner operation expenses: Charged to Fleet Owner (Note C) 999 873 1,144 1,639 2,182 Charged to Trailer Accident Fund (Notes D and F) 23 27 20 29 58 ----- ----- ----- ----- ----- Total Fleet Owner operation expenses 1,022 900 1,164 1,668 2,240 ----- ----- ----- ----- ----- Fleet Owner earnings before Trailer Accident Fund credit, depreciation and income taxes 978 1,318 1,173 1,575 1,999 Trailer Accident Fund credit (Note D) 91 117 163 224 244 ----- ----- ----- ----- ----- Net Fleet Owner earnings before depreciation and income taxes $ 1,069 1,435 1,336 1,799 2,243 ===== ===== ===== ===== ===== Investment data (Note A): Amount at end of year $ 2,654 3,272 3,875 5,402 6,871 ===== ===== ===== ===== ===== Average amount during year $ 2,963 3,574 4,639 6,137 7,732 ===== ===== ===== ===== ===== Net Fleet Owner earnings before depreciation and income taxes per $100 of average investment (Note B) $ 28.12 29.56 28.79 29.31 29.02 ===== ===== ===== ===== ===== The accompanying notes are an integral part of this Summary of Earnings of Independent Trailer Fleets.
71 NOTES TO SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS Additional Information (A) The accompanying Summary of Earnings of Independent Trailer Fleets includes the operations of trailers under the brand name of "U-Haul" owned by Independent Fleet Owners. Earnings data represent the aggregate results of operations before depreciation and taxes. Investment data represent the cost of trailers and investments before accumulated depreciation. Fleet Owner income is based on Independent Rental Dealer reports of rentals transacted through the day preceding the last Monday of each month and received by U-Haul International, Inc. by the end of the month and Company-Operated U-Haul Center reports of rentals transacted through the last day of each month. Payments to Fleet Owners for trailers lost or retired from rental service as a result of damage by accident have not been reflected in this summary because such payments do not relate to earnings before depreciation and income taxes but, rather, investment (depreciation). The investment data is based upon the cost of trailers to the Fleet Owners as reflected by sales records of the U-Haul manufacturing facilities. (B) The summary of earnings data stated in terms of amount per $100 of average investment represents the aggregate results of operations (earnings data) divided by the average amount of investment during the periods. The average amount of investment is based upon a simple average of the month-end investment during each period. Average earnings data is not necessarily representative of an individual Fleet Owner's earnings. (C) A summary of operations expenses charged directly to Independent Fleet Owners follows:
Year ended March 31, ---------------------------------------- 2000 1999 1998 1997 1996 ---------------------------------------- (in thousands) Licenses $ 150 159 285 434 436 Public liability insurance 126 134 156 198 264 Repairs and maintenance 723 580 703 1,007 1,482 --- --- ----- ----- ----- $ 999 873 1,144 1,639 2,182 === === ===== ===== ===== (D) The Fleet Owners and Subsidiary U-Haul Rental Companies forego normal commissions on a portion of gross rental fees designated for transfer to the Trailer Accident Fund. Trailer accident repair expenses, otherwise chargeable to Fleet Owners, are paid from these Funds to the extent of the financial resources of the Funds. The amounts designated "Trailer Accident Fund credit" in the accompanying summary of earnings represent Independent Fleetowner commissions foregone, which exceed expenses borne by the Funds.
72 NOTES TO SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS, continued Additional Information (E) Commissions foregone for transfer to the Trailer Accident Fund follows:
Fleet Owners Subsidiary ------------------------ U-Haul Subsidiary Companies Companies Independent Total -------------------------------------------------- (in thousands) Year ended: March 31, 2000 $ 6,061 3,150 114 9,325 March 31, 1999 6,081 3,131 144 9,356 March 31, 1998 6,299 3,208 183 9,690 March 31, 1997 6,262 3,119 253 9,634 March 31, 1996 5,682 2,757 302 8,741
(F) A summary of Independent Fleet Owner expenses borne by the Trailer Accident Fund follows:
Total Fleet Owners Trailer Subsidiary ------------------------ Trailer Accident U-Haul Subsidiary Sub Accident Repair Companies Companies Independent Total Retirements Expenses ------------------------------------------------------------------------------- (in thousands) Year ended: March 31, 2000 $ 1,233 641 23 1,897 354 2,251 March 31, 1999 1,148 591 27 1,766 342 2,108 March 31, 1998 682 347 20 1,049 408 1,457 March 31, 1997 722 360 29 1,111 246 1,357 March 31, 1996 1,089 528 58 1,675 305 1,980 (G) Certain reclassifications have been made to the Summary of Earnings of Independent Trailer Fleets for the fiscal years ended 1999, 1998, 1997 and 1996 to conform with the current year's presentation.
73 Schedule I Condensed Financial Information of Registrant AMERCO Balance Sheets March 31, 2000 1999 --------------------- (in thousands) Assets - ------ Cash $ 108 1,082 Investment in subsidiaries 844,115 785,616 Due from unconsolidated subsidiaries 1,042,992 1,021,146 Other assets 28,770 80,135 ---------------------- $ 1,915,985 1,887,979 ====================== Liabilities and Stockholders' Equity - ------------------------------------ Liabilities: Notes and loans payable $ 1,137,553 1,114,063 Other liabilities 176,889 141,634 ---------------------- Stockholders' equity: Preferred stock - - Common stock 10,563 10,563 Additional paid-in capital 275,242 299,905 Accumulated other comprehensive income (42,317) (17,740) Retained earnings: Beginning of year 703,322 658,227 Net earnings 65,491 62,509 Dividends paid (13,641) (17,414) ---------------------- 755,172 703,322 Less: Cost of common shares in treasury 397,000 363,533 Unearned employee stock ownership plan shares 117 235 ---------------------- Total stockholders' equity 601,543 632,282 ---------------------- $ 1,915,985 1,887,979 ====================== See accompanying notes to condensed financial information and notes to consolidated financial statements incorporated herein by reference. 74 Schedule I, continued Condensed Financial Information of Registrant AMERCO Statements of Earnings Years Ended March 31, 2000 1999 1998 ------------------------------------ (in thousands, except share and per share data) Revenues - -------- Net interest income from subsidiaries $ 53,504 57,500 64,751 Expenses - -------- Interest expense 77,561 73,960 76,969 Other expenses 5,823 7,394 6,040 ------------------------------------ Total expenses 83,384 81,354 83,009 ------------------------------------ Operating loss (29,880) (23,854) (18,258) Equity in earnings of unconsolidated subsidiaries 126,878 111,782 89,339 Income tax expense (31,173) (25,419) (25,615) Extraordinary loss on early extinguishment of debt, net (334) - (10,482) ------------------------------------ Net earnings $ 65,491 62,509 34,984 ==================================== Earnings per common share (both basic and diluted): Earnings from operations before extraordinary loss on early extinguishment of debt $ 2.39 2.07 1.28 Extraordinary loss on early extinguishment of debt, net (0.02) - (0.62) ------------------------------------ Net earnings $ 2.37 2.07 0.66 ==================================== Weighted average common shares outstanding 21,934,390 21,937,686 21,896,101 ==================================== See accompanying notes to condensed financial information and notes to consolidated financial statements incorporated herein by reference. 75 Schedule I, continued Condensed Financial Information of Registrant AMERCO Statements of Cash Flows Years Ended March 31, 2000 1999 1998 -------------------------------- (in thousands) Cash flows from operating activities: Net earnings $ 65,491 62,509 34,984 Amortization, net (569) (1,730) 270 Equity in earnings of subsidiaries 85,266 78,014 56,578 (Increase) decrease in amounts due from unconsolidated subsidiaries 14,150 (64,062) (74,909) Net change in operating assets and liabilities (83,449) (89,921) (69,642) Other, net (27,005) (4,695) 1,074 -------------------------------- Net cash provided (used) by operating activities 53,884 (19,885) (51,645) -------------------------------- Cash flows from financing activities: Net change in short term borrowings (146,500) 135,500 122,500 Proceeds from notes 350,000 - 300,000 Leveraged Employee Stock Ownership Plan-repayments from loan 118 1,017 1,717 Principal payments on notes (180,010) (45,008) (314,008) Debt issuance costs (6,024) (358) (2,664) Repurchase of preferred stock (25,000) (50,000) (25,000) Preferred stock dividends paid (13,641) (17,414) (20,766) Treasury stock purchase, net (33,467) (3,810) - Deferred tax-treasury stock - - - Escrow deposit - - - Extraordinary loss on early extinguishment of debt, net (334) - (10,482) -------------------------------- Net cash provided (used) by financing activities (54,858) 19,927 51,297 -------------------------------- Increase (decrease) in cash and cash equivalents (974) 42 (348) Cash and cash equivalents at beginning of year 1,082 1,040 1,388 -------------------------------- Cash and cash equivalents at end of year $ 108 1,082 1,040 ================================ Income taxes paid in cash amounted to $675,000, $1,425,000 and $2,588,000 for 2000, 1999 and 1998, respectively. Interest paid in cash amounted to $77,529,000, $74,026,000 and $76,035,000 for 2000, 1999 and 1998, respectively. See accompanying notes to condensed financial information and notes to consolidated financial statements incorporated herein by reference. 76 Schedule I, continued Condensed Financial Information of Registrant AMERCO Notes to Condensed Financial Information March 31, 2000, 1999 and 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AMERCO, a Nevada corporation, was incorporated in April, 1969, and is the holding company for U-Haul International, Inc., Republic Western Insurance Company, Oxford Life Insurance Company and Amerco Real Estate Company. The financial statements of the Registrant should be read in conjunction with the Consolidated Financial Statements and notes thereto included in this Form 10-K. AMERCO is included in a consolidated Federal income tax return with all of its U.S. subsidiaries. Accordingly, the provision for income taxes has been calculated for Federal income taxes of the Registrant and subsidiaries included in the consolidated return of the Registrant. State taxes for all subsidiaries are allocated to the respective subsidiaries. The financial statements include only the accounts of the Registrant (a Nevada corporation), which include certain of the corporate operations of AMERCO. The debt and related interest expense of the Registrant have been allocated to the consolidated subsidiaries. The intercompany interest income and expenses are eliminated in the consolidated financial statements. 2. GUARANTEES AMERCO has guaranteed performance of certain long-term leases. See Note 14 of Notes to Consolidated Financial Statements. 3. NOTES AND LOANS PAYABLE Notes and loans payable consist of the following: March 31, -------------------- 2000 1999 -------------------- (in thousands) Medium-term notes payable, unsecured, 6.71% to 8.08% interest rates, due through 2027 $ 237,000 317,000 Notes payable under Bond Backed Asset Trust, unsecured, 6.89% to 7.14% interest rates, due through 2033 200,000 300,000 Notes payable to public, unsecured, 7.85% interest rate, due through 2004 175,000 175,000 Senior Note, unsecured, 7.20% interest rate, due through 2002 150,000 - Senior Note, unsecured, 8.80% interest rate, due through 2005 200,000 - Other notes payable, unsecured, 9.50% interest rate, due through 2005 53 63 Notes payable to banks under revolving lines of credit, unsecured, 6.19% to 6.44% interest rates 159,000 297,000 Other short-term promissory notes, 6.32% interest rate 16,500 25,000 -------------------- $ 1,137,553 1,114,063 ==================== For additional information, see Note 5 of Notes to Consolidated Financial Statements. 77 Schedule V AMERCO AND CONSOLIDATED SUBSIDIARIES Supplemental Information (For Property-Casualty Insurance Underwriters) Years ended December 31, 1999, 1998 and 1997
Reserves Amorti- for Unpaid zation Paid Claims Claims and of Claims Deferred and Net Claim Adjustment Deferred and Policy Claim Net Invest- Expenses Incurred Policy Claim Net Affiliation Acqui- Adjust- Discount Earned ment Related to Acqui- Adjust- Premiums Fiscal With sition ment if any, Unearned Premiums Income Current Prior sition ment Written Year Registrant Costs Expenses Deducted Premiums (1) (3) Year Year Costs Expenses (2) ---- ---------- ----- -------- -------- -------- -------- ------ ---- ---- ----- -------- ------- (in thousands) 2000 Consolidated property - casualty entity $ 15,130 334,857 N/A 64,755 166,925 32,527 121,861 9,616 13,358 137,369 171,561 1999 Consolidated property - casualty entity 12,299 344,748 N/A 55,076 133,567 32,908 116,069 (8,827) 7,443 140,159 143,571 1998 Consolidated property - casualty entity 7,203 384,816 N/A 45,753 136,106 31,292 132,291 23,192 8,622 118,308 135,782 (1) The earned premiums are reported net of intersegment transactions. Earned premiums eliminated in consolidation amount to $6,878,000, $11,734,000 and $19,800,000 for the years ended 1999, 1998 and 1997, respectively. (2) The premiums written are reported net of intersegment transactions. Premiums written eliminated in consolidation amount to $11,921,000, $10,921,000 and $20,287,000 for the years ended 1999, 1998 and 1997, respectively. (3) Net Investment Income excludes net realized gains on investments of $477,000, $2,847,000 and $647,000 for the years 1999, 1998 and 1997, respectively.
78 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. AMERCO By: /S/ EDWARD J. SHOEN --------------------- Edward J. Shoen Chairman of the Board Dated: June 29, 2000 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. Signature Title Date --------- ----- ---- /S/ EDWARD J. SHOEN Chairman of the Board June 29, 2000 - ---------------------- Edward J. Shoen (Principal Executive Officer) /S/ GARY B. HORTON Principal Financial June 29, 2000 - ---------------------- and Accounting Officer Gary B. Horton /S/ WILLIAM E. CARTY Director June 29, 2000 - ---------------------- William E. Carty /S/ JAMES P. SHOEN Director June 29, 2000 - ---------------------- James P. Shoen /S/ RICHARD J. HERRERA Director June 29, 2000 - ---------------------- Richard J. Herrera /S/ CHARLES J. BAYER Director June 29, 2000 - ---------------------- Charles J. Bayer /S/ JOHN M. DODDS Director June 29, 2000 - ---------------------- John M. Dodds /S/ JAMES J. GROGEN Director June 29, 2000 - ---------------------- James J. Grogen /S/ JOHN P. BROGAN Director June 29, 2000 - ---------------------- John P. Brogan EX-10.1 2 0002.txt ESOP PLAN AMERCO EMPLOYEE SAVINGS, ----------------------- PROFIT SHARING AND ------------------ EMPLOYEE STOCK OWNERSHIP PLAN ----------------------------- TABLE OF CONTENTS PAGE PREAMBLE AND INTRODUCTION................................................-1- ARTICLE ONE - EFFECTIVE DATE.............................................-2- 1.1. EFFECTIVE DATE...........................................-2- ARTICLE TWO - DEFINITIONS AND CONSTRUCTION...............................-2- 2.1. DEFINITIONS..............................................-2- 2.2. TOP HEAVY PLAN PROVISIONS...............................-13- 2.3. HIGHLY COMPENSATED EMPLOYEE.............................-15- 2.4. CONSTRUCTION............................................-16- ARTICLE THREE - ELIGIBILITY AND PARTICIPATION...........................-17- 3.1. ELIGIBILITY.............................................-17- 3.2. PARTICIPATION...........................................-17- 3.3. CREDITING OF SERVICE....................................-19- 3.4. EFFECT OF REHIRING......................................-20- 3.5. AFFILIATED EMPLOYERS....................................-20- 3.6. TRANSFERS TO AND FROM AN ELIGIBLE CLASS OF EMPLOYEES....-20- 3.7. LEASED EMPLOYEES........................................-21- ARTICLE FOUR - EMPLOYEE CONTRIBUTIONS...................................-21- 4.1. PRE-TAX CONTRIBUTIONS...................................-21- 4.2. PRE-TAX CONTRIBUTIONS--DOLLAR LIMITATION................-22- 4.3. LIMITATION ON CONTRIBUTIONS OF HIGHLY COMPENSATED EMPLOYEES...................................-22- 4.4. DESIGNATION AND CHANGE OF DESIGNATION OF PRE-TAX CONTRIBUTIONS...................................-25- 4.5. SUSPENSION OF PRE-TAX CONTRIBUTIONS.....................-26- 4.6. AFTER-TAX CONTRIBUTIONS.................................-26- 4.7. ROLLOVER CONTRIBUTIONS..................................-26- ARTICLE FIVE - EMPLOYER CONTRIBUTIONS...................................-27- 5.1. PROFIT SHARING CONTRIBUTIONS............................-27- 5.2. ESOP CONTRIBUTIONS......................................-28- 5.3. ATOP HEAVY@ CONTRIBUTIONS...............................-28- 5.4. EMPLOYER MATCHING CONTRIBUTIONS.........................-28- 5.5. PAYMENT OF EMPLOYER MATCHING CONTRIBUTIONS, PROFIT SHARING CONTRIBUTIONS AND ESOP CONTRIBUTIONS.....-31- 5.6. CONDITIONAL NATURE OF CONTRIBUTIONS.....................-31- ARTICLE SIX - INVESTMENT OF CONTRIBUTIONS...............................-32- 6.1. PARTICIPANT DIRECTED INDIVIDUAL ACCOUNT PLAN............-32- 6.2. DIRECTION BY PARTICIPANT................................-33- 6.3. CHANGE IN INVESTMENT DIRECTIONS.........................-36- 6.4. TRANSFERS BETWEEN INVESTMENT FUNDS......................-36- 6.5. LOANS TO PLAN PARTICIPANTS..............................-37- 6.6. LIFE INSURANCE..........................................-39- ARTICLE SEVEN - THE ESOP FUND...........................................-41- 7.1. ESOP FUND...............................................-41- 7.2. LOANS TO ACQUIRE EMPLOYER SECURITIES....................-41- 7.3. TERMS OF LOANS TO ACQUIRE EMPLOYER SECURITIES...........-42- 7.4. THE LOAN SUSPENSE ACCOUNT...............................-43- 7.5. PUT OPTION..............................................-43- 7.6. RIGHT OF FIRST REFUSAL..................................-45- 7.7. NONTERMINABLE PROTECTIONS AND RIGHTS....................-46- ARTICLE EIGHT - ACCOUNTING..............................................-47- 8.1. INDIVIDUAL ACCOUNTS.....................................-47- 8.2. ALLOCATION OF CONTRIBUTIONS.............................-47- 8.3. VALUATION AND ADJUSTMENT................................-50- 8.4. STATEMENTS TO PARTICIPANTS..............................-51- 8.5. LIMITATION ON ANNUAL ADDITIONS..........................-51- 8.6. VALUATION OF EMPLOYER SECURITIES........................-54- ARTICLE NINE - WITHDRAWALS PRIOR TO TERMINATION OF EMPLOYMENT...........-54- 9.1. WITHDRAWALS FROM THE AFTER-TAX CONTRIBUTION ACCOUNT.................................................-54- 9.2. IN-SERVICE WITHDRAWALS FROM THE EMPLOYER MATCHING CONTRIBUTION ACCOUNT AND THE PROFIT SHARING ACCOUNT.........................................-55- 9.3. WITHDRAWALS FROM THE PRE-TAX CONTRIBUTIONS AND ROLLOVER CONTRIBUTIONS ACCOUNTS.....................-56- 9.4. WITHDRAWALS OF AMOUNTS CREDITED TO THE ESOP FUND, PROFIT SHARING ACCOUNTS AND EMPLOYER MATCHING CONTRIBUTIONS ACCOUNTS.........................-58- 9.5. LIMITATIONS ON WITHDRAWALS..............................-58- 9.6. SPOUSAL CONSENT.........................................-58- ARTICLE TEN - VESTING...................................................-59- 10.1. VESTING IN THE AFTER-TAX CONTRIBUTION ACCOUNT, PRE-TAX CONTRIBUTION ACCOUNT, EMPLOYER MATCHING CONTRIBUTION ACCOUNT, AND ROLLOVER CONTRIBUTION ACCOUNT....................................-59- 10.2. VESTING IN THE ESOP ACCOUNT AND PROFIT SHARING ACCOUNT.................................................-59- 10.3. DETERMINATION OF VESTED INTEREST IN ESOP ACCOUNT AND PROFIT SHARING ACCOUNT IN THE EVENT OF TERMINATION OF EMPLOYMENT...............................-59- 10.4. RESTORATION OF FORFEITURES..............................-61- 10.5. AMENDMENTS TO VESTING SCHEDULE..........................-61- ARTICLE ELEVEN - DISTRIBUTION OF BENEFITS...............................-62- 11.1. NORMAL AND LATE RETIREMENT..............................-62- 11.2. DISABILITY RETIREMENT...................................-62- 11.3. DEATH...................................................-62- 11.4. OTHER SEPARATIONS FROM EMPLOYMENT.......................-63- 11.5. TIME OF DISTRIBUTION OF BENEFITS........................-63- 11.6. METHOD OF DISTRIBUTION..................................-66- 11.7. PAYMENTS TO DISABLED....................................-67- 11.8. MISSING PAYEES..........................................-68- 11.9. WITHHOLDING.............................................-68- 11.10. UNDERPAYMENT OR OVERPAYMENT OF BENEFITS.................-68- 11.11. TRANSFERS FROM THE PLAN.................................-68- 11.12. ELIGIBLE ROLLOVER DISTRIBUTIONS.........................-69- ARTICLE TWELVE - PLAN ADMINISTRATION....................................-70- 12.1. THE ADVISORY COMMITTEE..................................-70- 12.2. POWERS OF THE ADVISORY COMMITTEE........................-71- 12.3. CLAIMS..................................................-72- 12.4. THE TRUSTEES............................................-73- 12.5. SCOPE OF RESPONSIBILITY.................................-73- 12.6. EXPENSES................................................-74- 12.7. TRUST AGREEMENTS........................................-74- 12.8. VOTING OF EMPLOYER SECURITIES...........................-75- 12.9. SECURITIES REGISTRATION.................................-77- 12.10. SECURITIES RESTRICTIONS.................................-77- ARTICLE THIRTEEN - AMENDMENT, MERGER AND TERMINATION....................-78- 13.1. AMENDMENT OF PLAN AND TRUST AGREEMENTS..................-78- 13.2. MERGER OR CONSOLIDATION.................................-78- 13.3. DISCONTINUANCE AND TERMINATION OF PLAN..................-78- 13.4. SUCCESSORS..............................................-79- ARTICLE FOURTEEN - INALIENABILITY OF BENEFITS...........................-80- 14.1. NO ASSIGNMENT PERMITTED.................................-80- 14.2. QUALIFIED DOMESTIC RELATIONS ORDERS.....................-80- 14.3. EARLY COMMENCEMENT OF PAYMENTS TO ALTERNATE PAYEES..................................................-81- 14.4. PROCESSING OF QUALIFIED DOMESTIC RELATIONS ORDERS.......-81- 14.5. RESPONSIBILITY OF ALTERNATE PAYEES......................-82- ARTICLE FIFTEEN - GENERAL PROVISIONS....................................-82- 15.1. SOURCE OF PAYMENT.......................................-82- 15.2. BONDING.................................................-83- 15.3. EXCLUSIVE BENEFIT.......................................-83- 15.4. UNIFORM ADMINISTRATION; EXERCISE OF DISCRETION..........-83- 15.5. NO RIGHT TO EMPLOYMENT..................................-83- 15.6. HEIRS AND SUCCESSORS....................................-83- 15.7. ASSUMPTION OF QUALIFICATION.............................-83- 15.8. EFFECT OF AMENDMENT.....................................-83- 15.9. COMPLIANCE WITH SECTION 414(U) OF THE CODE..............-84- AMERCO EMPLOYEE SAVINGS, PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN PREAMBLE AND INTRODUCTION ------------------------- On March 16, 1973, AMERCO, a Nevada corporation (the "Corporation") established the AMERCO Profit Sharing Retirement Trust (the "Profit Sharing Plan") for certain of its employees. The Profit Sharing Plan was subsequently amended from time to time. Effective April 1, 1984, the Corporation established the AMERCO Employee Savings and Protection Plan (the "Savings Plan") to permit employee contributions to be made on a favorable tax basis through utilization of the provisions of Section 401(k) of the Internal Revenue Code (the "Code"). The Savings Plan was subsequently amended from time to time. Effective January 1, 1988, the Profit Sharing Plan and the Savings Plan were merged into a single plan called the "AMERCO Retirement Savings and Profit Sharing Plan" (the "Plan"). The Plan was amended and restated in its entirety, effective as of July 24, 1988, to establish an "employee stock ownership plan" (as defined in Section 407(d)(6) of the Employee Retirement Income Security Act of 1974 (the "Act") and Section 4975(e)(7) of the Code) designed to invest primarily in "qualifying employer securities" (as defined in Section 407(d)(5) of the Act and Section 4975(e)(8) of the Code) of the Corporation. The July 24, 1988, restatement changed the name of the Plan to the "AMERCO Employee Savings, Profit Sharing And Employee Stock Ownership Plan." The Plan was subsequently amended and restated in its entirety effective January 1, 1989 to comply with the Tax Reform Act of 1986 ("TRA 86") and to make certain other modifications. The Plan was then amended on four occasions. By the adoption of this document, the Plan is amended and restated in its entirety to comply with the Small Business Job Protection Act of 1996 ("SBJPA"), the Uniformed Services Employment and Reemployment Rights Act of 1994 ("USERRA"), the Taxpayer Relief Act of 1997 ("TRA 97") and to make certain other modifications. It is the intention of the Corporation that the Plan shall continue to be qualified under the provisions of Section 401(a) of the Code and that the Trust Fund maintained pursuant to the Plan shall continue to be exempt from taxation pursuant to Section 501(a) of the Code. The Plan as so amended shall be qualified as a profit sharing plan containing a "cash or deferred" feature under Section 401(k) of the Code, with a constituent employee stock ownership plan feature. The provisions of this Plan shall apply only to a Participant whose termination of employment occurs on or after the Effective Date of said provisions. ARTICLE ONE ----------- EFFECTIVE DATE -------------- 1.1. EFFECTIVE DATE. -------------- Except as specifically provided with respect to a particular provision of the Plan or as required by SBJPA, USERRA or TRA 97, the provisions of this amended and restated Plan shall be effective as of January 1, 1997. ARTICLE TWO ----------- DEFINITIONS AND CONSTRUCTION ---------------------------- 2.1. DEFINITIONS. ----------- When a word or phrase shall appear in this Plan with the initial letter capitalized, and the word or phrase does not commence a sentence, the word or phrase shall generally be a term defined in this Section 2.1 or in the Preamble. The following words and phrases utilized in the Plan with the initial letter capitalized shall have the meanings set forth in this Section 2.1, unless a clearly different meaning is required by the context in which the word or phrase is used: (a) "ACCOUNTING DATE" - The Accounting Date for Profit Sharing Accounts, --------------- After-Tax Contribution Accounts, Pre-Tax Contribution Accounts, Rollover Contribution Accounts, and the Employer Matching Contribution Accounts shall be the last day of each calendar month. The Accounting Date for the ESOP Account shall be the last day of the Plan Year. The Accounting Date shall also be any other date so designated by the Advisory Committee. (b) "ACCOUNTS" - The Pre-Tax Contribution Account, After-Tax Contribution -------- Account, Employer Matching Contribution Account, Profit Sharing Account, ESOP Account and, effective November 1, 1997, the Rollover Contribution Account of a Participant. (c) "ADMINISTRATIVE TRUSTEE" - The trustee or trustees which are charged ---------------------- under the Trust Agreement with certain administrative duties as well as the investment of assets of the Trust Fund generally. (d) "ADVISORY COMMITTEE" - The committee appointed by the Board pursuant ------------------ to Section 12.1 to serve as the Advisory Committee. (e) "AFFILIATE" - Any member of a "controlled group of corporations" --------- (within the meaning of Section 414(b) of the Code as modified by Section 415(h) of the Code) that includes the Employer as a member of the group; any member of an "affiliated service group" (within the meaning of Section 414(m)(2) of the Code) that includes the Employer as a member of the group; any member of a group of trades or businesses under common control (within the meaning of Section 414(c) of the Code as modified by Section 415(h) of the Code) that includes the Employer as a member of the group; and any other entity required to be aggregated with the Employer pursuant to regulations issued by the United States Treasury Department pursuant to Section 414(o) of the Code. (f) "AFTER-TAX CONTRIBUTION ACCOUNT" - The account established pursuant ------------------------------ to Section 8.1 to which a Participant's After-Tax Contributions and the earnings thereon are credited. (g) "AFTER-TAX CONTRIBUTIONS" - The contributions made by a Participant ----------------------- on an "after-tax" basis prior to March 31, 1987. (h) "ANNIVERSARY DATE" - January 1 of each calendar year. ---------------- (i) "ANNUAL ADDITION" - The sum of the following amounts allocable for --------------- a Plan Year to a Participant under this Plan or under any defined contribution plan or defined benefit plan maintained by the Employer or any Affiliate: (1) The Employer contributions allocable for a Plan Year to the Accounts of the Participant under this Plan or any other defined contribution plan, including any amount allocable from a suspense account maintained pursuant to such plan on account of a prior Plan Year (computed as though no part of the ESOP Contribution is allocable to the Loan Suspense Account); amounts deemed to be Employer contributions pursuant to a cash-or-deferred arrangement qualified under Section 401(k) of the Code (including the Pre-Tax Contributions allocable to a Participant pursuant to this Plan); and amounts allocated to a medical account which must be treated as annual additions pursuant to Section 415(l)(1) or Section 419A(d)(2) of the Code; (2) All nondeductible Employee contributions allocable during a Plan Year to the Accounts of the Participant; and (3) Forfeitures allocable for a Plan Year to the Accounts of the Participant. Any rollover contributions or transfers from other qualified plans, restorations of forfeitures, or other items similarly enumerated in Treasury Regulation Section 1.415-6(b)(3) shall not be considered in calculating a Participant's Annual Additions for any Plan Year. (j) "AUTHORIZED OR APPROVED LEAVE OF ABSENCE" - A leave of absence from --------------------------------------- the performance of active service for an Employer that is approved by the Employer in accordance with the Employer's rules regarding leave of absence. An Authorized Leave of Absence shall include an approved leave of absence for sickness or Disability. An absence from employment as a result of an Employee's service as a member of the armed forces of the United States shall also be treated as an Authorized Leave of Absence upon the Employee's return to employment with the Employer, provided that the Employee left employment with his Employer directly to enter the armed forces and returns directly to the employment of an Employer within the period during which his employment rights are protected by the Selective Service Act (or any similar law) as now in effect or as hereafter amended. Absence shall be deemed to be approved by an Employer for any period of an Employee's Disability prior to his separation from employment. (k) "AUTOMATIC ENROLLMENT EFFECTIVE DATE" shall mean the first day of ----------------------------------- the first calendar month following or coinciding with the sixtieth (60th) day after the date on which the United States Treasury Department issues a determination that the automatic enrollment provisions of the Plan do not cause the Plan to fail to satisfy the requirements under Section 401(a). (l) "BALANCED FUND" - A diversified fund that is designed to invest its ------------- holdings in bonds and stocks to achieve a high amount of current income while preserving capital. (m) "BENEFICIARY" - The person or persons designated by a Participant ----------- to receive benefits under the Plan in the event of the death of the Participant. (n) "BENEFIT COMMENCEMENT DATE" - The first day on which all events ------------------------- (including the passing of the day on which benefit payments are scheduled to commence) have occurred which entitle the Participant to receive his first benefit payment from the Plan. (o) "BOARD" - The Board of Directors of the Corporation. ----- (p) "BOND FUND" - A fund that is primarily designed to invest its --------- holdings in corporate and government bonds and mortgages and is designed to achieve a high amount of current income with moderate risk. This fund was previously known as the "Profit Sharing Fund." (q) "BREAK IN CONTINUOUS SERVICE" - A twelve (12) continuous month --------------------------- period, commencing with an Employee's Termination Date, in which the Employee is not credited with at least one (1) Hour of Service. (r) "COMPENSATION" - Effective for Plan Years beginning on or after ------------ January 1, 1993, the term "Compensation" shall mean all of the Participant's wages within the meaning of Section 3401(a) of the Code and all payments of compensation to the Employee by the Employer (in the course of the Employer's trade or business) for which the Employer is required to furnish the Employee a written statement under Sections 6041(d), 6051(a)(3) and 6502 of the Code, determined without regard to any rules under Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed. For purposes of this paragraph, Compensation for a Plan Year is the Compensation actually paid or includible in gross income during such year. Notwithstanding the foregoing, Compensation in excess of One Hundred Fifty Thousand Dollars ($150,000) shall be disregarded for all purposes for each Plan Year. The limitations specified in the preceding sentence shall be adjusted to take into account any cost-of-living increase adjustment for that Plan Year allowable pursuant to the applicable regulations or rulings of the United States Treasury Department under Section 401(a)(17) of the Code. If an Employee receives any payments from an Affiliate which would be treated as Compensation if paid by the Employer, such amounts shall be included in calculating the Employee's Compensation for purposes of Section 415 of the Code and the corresponding provisions of this Plan. Any amounts paid to an Employee by an Affiliate shall be disregarded for all other purposes under this Plan unless the Affiliate making the payment has elected to provide benefits to its employees pursuant to this Plan. Except for purposes of making allocations under Top Heavy Plans pursuant to Section 8.2 and for purposes of identifying Highly Compensated Employees pursuant to Section 2.3 and, for Plan Years beginning before January 1, 1998, testing compliance with the provisions of Section 415 of the Code pursuant to Section 8.5, the term "Compensation" shall also include amounts (such as Pre-Tax Contributions to this Plan) which are not currently includible in the Participant's gross taxable income by reason of the application of Sections 125, 402(a)(8) or 402(h)(1)(B) of the Code, if such amounts are attributable to the performance of services for the Employer or any Affiliate. (s) "CONTINUOUS SERVICE" - The aggregated service of the Employee ------------------ measured in years and completed calendar months, based on the Employee's period of elapsed time of employment determined in accordance with Section 3.3 and the applicable regulations of the United States Treasury Department. (t) "DISABILITY" - A continuous period of absence resulting from illness ---------- or injury that, in the judgment of the Advisory Committee, supported by the written opinion of a licensed physician (who may be designated by the Advisory Committee), prevents a Participant from performing the duties of his own occupation or other appropriate work made available by his Employer. The Advisory Committee shall be the sole determinant of Disability for purposes of this Plan. (u) "DIVERSIFIED EQUITY FUND" - A fund designed to invest its holdings ----------------------- in a broadly diversified group of common stocks to seek both dividend income and capital appreciation over the long term. (v) "EARNINGS" - The term "Earnings" shall mean all of the Participant's -------- wages within the meaning of Section 3401(a) of the Code and all payments of compensation to the Employee by the Employer (in the course of the Employer's trade or business) for which the Employer is required to furnish the Employee a written statement under Sections 6041(d), 6051(a)(3) and 6502 of the Code, determined without regard to any rules under Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed. "Earnings" shall also include the amount of Pre-Tax Contributions that would have been paid to the Participant as current Earnings reportable on Internal Revenue Service Form W-2 but for the Participant's election to direct Pre-Tax Contributions. Only Earnings paid during periods of actual Plan participation shall be includable as Earnings hereunder. Notwithstanding the foregoing, Earnings in excess of One Hundred Fifty Thousand Dollars ($150,000) shall be disregarded for all purposes (other than for the purpose of determining the amount of Pre-Tax Contributions that a Participant may contribute to the Plan pursuant to Section 4.1(c)). The limitations specified in the preceding sentence shall be adjusted to take into account any cost-of-living increase adjustment for that Plan Year allowable pursuant to the applicable regulations or rulings of the United States Treasury Department under Section 401(a)(17) of the Code. (w) "EFFECTIVE DATE" - Except as otherwise expressly provided in Section -------------- 1.1 or elsewhere in this Plan document, the Effective Date of this amendment and restatement of the Plan shall be January 1, 1997. (x) "EMPLOYEE" - Each person who is classified by the Employer as a -------- common law employee (or who would be considered a common law employee if such person were not on an Authorized Leave of Absence). Regardless of any subsequent determination by a court or a governmental agency that an individual should be treated as a common law employee, an individual will be considered an Employee under the Plan only if such individual has been so classified by the Employer for purposes of this Plan and is not a private contractor. If the Employer modifies its classification or treatment of an individual, the modification shall be applied prospectively only unless the Employer indicates otherwise, in which case the modification will be effective as of the date specified by the Employer. If an individual is characterized as a common law employee of the Employer by a governmental agency or court but not by the Employer, such individual shall be treated as an employee who has not been designated for participation in this Plan. (y) "EMPLOYEE SELECTED INVESTMENT FUNDS" - The investment funds, if any, ---------------------------------- established pursuant to Section 6.1. (z) "EMPLOYER" - The Corporation and any company which is designated by -------- the Board as an Employer under the Plan and whose designation as such has become effective and has continued in effect. The designation shall become effective only when it has been accepted by the board of directors of the designated Employer. Any Employer may revoke its acceptance of such designation at any time, but until such acceptance is revoked all the provisions of the Plan and the Trust Agreement and any amendments thereto shall apply to the Employees of the Employer. In the event that the designation of an Employer as such is revoked by the board of directors of the Employer, the Plan shall be deemed terminated only as to such Employer. (aa) "EMPLOYER MATCHING CONTRIBUTION ACCOUNT" - The account established -------------------------------------- pursuant to Section 8.1 to which Employer Matching Contributions are credited. (bb) "EMPLOYER MATCHING CONTRIBUTIONS" - The contributions of the ------------------------------- Employers as described in Section 5.4 of the Plan. (cc) "EMPLOYER SECURITIES" - shall mean: ------------------- (1) common stock of the Corporation (or any other corporation that is a member of a controlled group of corporations along with the Employer, as defined in Section 414(b) of the Code (a "related corporation") which is readily tradeable on an established securities market; (2) if at any time there is no common stock which meets the requirements of subparagraph (1), the term Employer Securities means common stock of the Corporation or any related corporation having a combination of voting power and dividend rights equal to or in excess of (i) that class of common stock of the Corporation or any related corporation having the greatest voting power and (ii) that class of common stock of the Corporation or any related corporation having the greatest dividend rights; or (3) Non-callable preferred stock shall be treated as Employer Securities if such stock is convertible at any time to stock which meets the requirements of subparagraphs (1) or (2) (whichever is applicable) and if such conversion is at a conversion price which (as of the date of the acquisition by the ESOP) is reasonable. Preferred stock shall be treated as noncallable if after the call there will be a reasonable opportunity for a conversion which meets the requirements of this paragraph. (dd) "ESOP ACCOUNT" - The account established pursuant to Section 8.1 ------------ for each Participant to which ESOP Contributions made on behalf of that Participant, are credited. (ee) "ESOP CONTRIBUTION" - The regular, special and per capita ESOP ----------------- contributions made by the Employers pursuant to Section 5.2(a), (b) or (c). (ff) "ESOP FUND" - The amounts of the Trust Fund (attributable to ESOP --------- Contributions, and Employer Matching Contributions and Pre-Tax Contributions invested in the ESOP Fund pursuant to Section 6.2(e)) invested by the ESOP Trustee as an "employee stock ownership plan" (as defined in Section 407(d)(6) of the Act and Section 4975(e)(7) of the Code and the applicable regulations thereunder) established pursuant to ARTICLE SEVEN for the purpose of acquiring Employer Securities. (gg) "ESOP TRUST AGREEMENT" - The instrument entered into between the -------------------- Corporation and the ESOP Trustee to provide for the investment and administration of the ESOP Fund. The ESOP Trust Agreement shall constitute a part of the Plan. (hh) "ESOP TRUSTEE" - The trustee or trustees appointed by the ------------ Corporation pursuant to the ESOP Trust Agreement to administer, invest and distribute the ESOP Fund. If the Employer appoints two or more individuals or entities to act jointly as the ESOP Trustee, the term "ESOP Trustee" shall refer collectively to all of said individuals or entities. (ii) "FUNDS" - The various investment alternatives under the Plan, which ----- presently include the Balanced Fund, the Income Fund, the Bond Fund, the Diversified Equity Fund and the ESOP Fund. (jj) "HIGHLY COMPENSATED EMPLOYEE" - Each individual who is treated as --------------------------- a "Highly Compensated Employee" pursuant to Section 2.3 of this Plan. (kk) "HOUR OF SERVICE" - --------------- (1) An hour for which an Employee is directly or indirectly compensated, or is entitled to Compensation, by an Employer or an Affiliate for the performance of duties. Such Hours of Service shall be credited in the respective eligibility and vesting service computation periods in which the duties were performed. (2) An hour for which an Employee is directly or indirectly compensated, or is entitled to Compensation, by an Employer or an Affiliate 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. No more than five hundred one (501) Hours of Service shall be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). Hours of Service under this paragraph shall be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations governing the computation of Hours of Service, which are incorporated herein by this reference. (3) An hour for which back pay (irrespective of mitigation of damages) is either awarded or agreed to by an Employer or an Affiliate. The same Hours of Service shall not be credited both under paragraphs (1) or (2) above, as the case may be, and under this paragraph (3). Hours of Service attributable to back pay credits will be credited to the respective computation period or periods to which the back pay pertains, rather than to the period in which the award, agreement or payment is made. (4) In lieu of determining Hours of Service under the foregoing paragraphs, the Advisory Committee may credit an Employee with ten (10) Hours of Service for each day for which any service must be credited, or forty-five (45) Hours of Service for each week for which any service must be credited, or one hundred ninety (190) Hours of Service for each month for which any service must be credited. Such crediting of hours shall be performed on a nondiscriminatory basis. (5) Employees also shall be credited with any additional Hours of Service required to be credited pursuant to Federal law other than the Act or the Code. (6) Solely for purposes of determining whether an Employee has incurred a Break in Service, an Employee shall be credited with Hours of Service in accordance with the provisions of this paragraph (6) for periods of absence (with or without pay) by reason of the pregnancy of the Employee, the birth of a child of the Employee, the placement of a child with the Employee in connection with the adoption of such child by the Employee, or for purposes of caring for a child of the Employee for a period beginning immediately following the child's birth or placement. An Employee who is on an Authorized Leave of Absence for any of the foregoing reasons shall receive credit for the Hours of Service which the Employee would normally have been credited with but for such absence. If the Advisory Committee and the Employer are unable to determine the Hours which would have otherwise been credited to the Employee, the Employee shall receive credit for eight (8) Hours of Service for each day of such absence. The maximum number of Hours of Service credited to an Employee pursuant to this paragraph for any one absence or any series of related absences shall not exceed five hundred one (501). The hours credited pursuant to this paragraph will be treated as Hours of Service for the service computation period during which the absence begins if the Employee would be prevented from incurring a Break in Service during such twelve (12) consecutive month period solely because of the Hours of Service credited pursuant to this paragraph. In all other cases, the Hours of Service shall be credited to the Employee for the service computation period which begins immediately following the day on which the absence commences. This paragraph (6)shall not be construed as entitling any Employee to an Authorized Leave of Absence for any of the reasons enumerated above. An Employee's entitlement to an Authorized Leave of Absence will be determined in accordance with the standard policies of the Employer. No credit will be given pursuant to this paragraph (6) unless the Employee furnishes to the Advisory Committee such timely information as the Advisory Committee may reasonably require to establish the number of days for which there was such an absence and that the absence was for one of the reasons enumerated above. (ll) "INACTIVE PARTICIPANT" - A Participant for whom Accounts are -------------------- maintained under the Plan, but who is not eligible to make Pre-Tax Contributions or to receive allocations of Employer matching Contributions, ESOP Contributions or Profit Sharing Contributions. An Inactive Participant shall continue to share in the earnings or losses on Trust investments. (mm) "INCOME FUND" - A fund invested in high quality short and ----------- intermediate term bonds, insurance contracts, and money market securities, with the objective of earning interest income without exposing the fund to significant fluctuations in value. (nn) "KEY EMPLOYEE" - An Employee or former Employee who, at any time ------------ during the Plan Year in which the "determination date" (as defined in Section 2.2) falls or any of the four (4) preceding Plan Years, is or was: (1) An officer of the Employer or an Affiliate whose Compensation from the Employer and the Affiliate exceeds fifty percent (50%) of the applicable dollar limitation of Section 415(b)(1)(A) of the Code (as such sum shall be adjusted to take into account any cost-of-living increase adjustment for that Plan Year pursuant to the applicable lawful regulations or rulings of the United States Treasury Department under Section 415 of the Code). No more than the lesser of fifty (50) Employees or ten percent (10%) of the aggregate number of employees of the Employer and its Affiliates shall be considered as officers for purposes of this paragraph. The number of officers considered to be Key Employees shall be further limited in accordance with Section 416 of the Code. In addition, whether a particular Employee is an "officer" for purposes of this paragraph (1) shall be determined in accordance with Section 416 of the Code and regulations issued thereunder. (2) An Employee (i) whose ownership interest in the Employer or any Affiliate is more than .5% (.005), and (ii) whose ownership interest in the Employer or any Affiliate is or was among the ten (10) largest ownership interests of persons who are employed by the Employer or an Affiliate, and (iii) whose Compensation from the Employer and any Affiliates exceeds the applicable dollar limitation of Section 415(c)(1)(A) of the Code for the calendar year in which the Plan Year ends (as such sum shall be adjusted to take into account any cost-of-living increase adjustment for that Plan Year pursuant to the applicable lawful regulations or rulings of the United States Treasury Department under Section 415 and Section 416(i)(1) of the Code). For purposes of this paragraph (2), if two (2) Employees have equal ownership interests, the Employee receiving the highest Compensation shall be treated as owning the larger interest. (3) An Employee owning more than five percent (5%) of the issued and outstanding shares of stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer. (4) An Employee owning more than one percent (1%) of the issued and outstanding shares of stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer and whose Compensation from the Employer and any Affiliate is more than One Hundred Fifty Thousand Dollars ($150,000.00). Ownership shall be determined under Section 318 of the Code, as modified by Sections 416(i)(1)(B)(iii) and 416(i)(1)(C) of the Code. In addition, for any Plan Year the term Key Employee shall include the spouse or Beneficiary of any deceased individual who would have been considered a Key Employee if he had terminated his employment on the date of his death. (oo) "LOAN SUSPENSE ACCOUNT" - The suspense account created in accordance --------------------- with Section 7.4 to provide for the holding of Employer Securities subject to a loan, in accordance with ARTICLE SEVEN and Section 4975(d)(3) of the Code and applicable regulations thereunder. (pp) "NON-CONTRIBUTING PARTICIPANT" - A Participant who is not eligible ---------------------------- to direct his Employer to make Pre-Tax Contributions, has not elected to direct (or as of the Automatic Enrollment Effective Date has elected not to direct) his Employer to make Pre-Tax Contributions, or has stopped directing or making Pre-Tax Contributions. This Plan refers to Non-Contributing Participants to distinguish between an Employee who does not elect to direct (or as of the Automatic Enrollment Effective Date elects not to direct) Pre-Tax Contributions under this Plan, but who nonetheless is eligible to receive an allocation of ESOP Contributions and Profit Sharing Contributions under the Plan, and an Employee who directs Pre-Tax Contributions under this Plan. An Employee who is eligible to participate in the Plan, but who does not elect to direct (or as of the Automatic Enrollment Effective Date elects not to direct) Pre-Tax Contributions, shall automatically be a Non-Contributing Participant for the period during which he does not elect to direct (or as of the Automatic Enrollment Effective Date elects not to direct) Pre-Tax Contributions. (qq) "NORMAL RETIREMENT AGE" or "NORMAL RETIREMENT --------------------- ----------------- DATE" - - ---- (1) Normal Retirement Age - The date on which a Participant attains the --------------------- age of sixty-five (65) years. (2) Normal Retirement Date - The last day of the month in which the ---------------------- Participant attains his Normal Retirement Age. (rr) "PARTICIPANT" - An Employee who has satisfied the eligibility ----------- requirements specified in Section 3.1, who has elected to participate pursuant to Section 3.2 and whose participation in the Plan has not been terminated. An Employee who is otherwise eligible to participate who does not elect to make any Pre-Tax Contributions (who is occasionally referred to as a "Non-Contributing Participant") will be treated as a Participant for purposes of the application of the actual deferral percentage tests of Section 4.3, for purposes of the actual contribution percentage tests of Section 5.4 and for purposes of the allocation of ESOP Contributions and Profit Sharing Contributions. If so indicated by the context, the term Participant shall also include former Participants whose active participation in the Plan has terminated but who have not received all amounts to which they are entitled pursuant to the terms and provisions of this Plan. Whether former Participants are allowed to exercise an option or election extended to "Participants" will be determined by the Advisory Committee in the exercise of its discretion, but in making such determinations the Advisory Committee shall act in a uniform, nondiscriminatory manner. In order to distinguish between individuals who are actively participating in all phases of the Plan and former active Participants and individuals who are not making Pre-Tax Contributions, the Plan occasionally refers to Inactive Participants or Non-Contributing Participants. Whether the term Participant includes Inactive Participants and/or Non-Contributing Participants will be determined by the Advisory committee based on the context in which the term is used. (ss) "PLAN ENTRY DATE" - The last day of each calendar quarter -- --------------- March 31, June 30, September 30 and December 31. (tt) "PLAN YEAR" - A twelve (12) month period commencing on each --------- January 1 and ending on each following December 31. (uu) "PRE-TAX CONTRIBUTION ACCOUNT" - The separate bookkeeping account ---------------------------- established pursuant to Section 8.1 to record and credit the Pre-Tax Contributions directed by a Participant and the net gains and losses thereon. (vv) "PRE-TAX CONTRIBUTIONS" - The contributions directed by a --------------------- Participant pursuant to Section 4.1 of the Plan. (ww) "PROFIT SHARING ACCOUNT" - The account established pursuant to ---------------------- Section 8.1 to which Profit Sharing Contributions are credited. (xx) "PROFIT SHARING CONTRIBUTION - The regular, special, or per capita --------------------------- Profit Sharing Contributions made by the Employers pursuant to Section 5.1(a), (b) or (c). (yy) "QUALIFIED DOMESTIC RELATIONS ORDER" - A domestic relations order ---------------------------------- meeting the requirements specified in Section 14.2. (zz) "REQUIRED BEGINNING DATE" ----------------------- (1) 5 Percent Owners - For a Participant who is a "5-Percent ---------------- Owner" as defined in Code Section 416(i)(1)(B)(i), Required Beginning Date means April 1 of the calendar year following the calendar year in which the Participant attains age 70+, regardless of whether the Participant has terminated employment with the Employer. (2) Non 5-Percent Owners - For a Participant who is not a -------------------- "5-Percent Owner" as defined in Code Section 416(i)(1)(B)(i), Required Beginning Date shall mean April 1 of the calendar year following the later of (i) the calendar year in which the Participant attains age 70+, or (ii) the calendar year in which the Participant terminates employment with the Employer. Notwithstanding the above, for any Participant who attains age 70+ prior to the Plan Year beginning January 1, 1999, Required Beginning Date shall mean, at the Participant's election, April 1 of the calendar year following (i) the calendar year in which the Participant attains age 70+, or (ii) the calendar year in which the Participant terminates employment with the Employer. (aaa) "ROLLOVER CONTRIBUTION" - The amounts transferred to the Trust Fund --------------------- by Employees in accordance with Section 4.7. (bbb) "ROLLOVER CONTRIBUTION ACCOUNT" - A separate account established ----------------------------- pursuant to Section 8.1 to which are credited the Rollover Contributions of an Employee. (ccc) "SUPER TOP HEAVY PLAN" - A Super Top Heavy Plan, as defined in -------------------- Section 2.2. (ddd) "TERMINATION DATE" - The earliest of (1) the date on which an ---------------- Employee quits, retires, is discharged or dies, or (2) the second anniversary of the first day of the period during which the Employee was absent from service with the Employer by reason of a maternity or paternity leave (within the meaning of Section 3.3), or (3) the first anniversary of the first day of the period during which the Employee was absent from service with the Employer for any reason other than a maternity or paternity leave or a separation from service due to quit, discharge, retirement or death. (eee) "TOP HEAVY PLAN" - A "Top Heavy Plan," as defined in Section 2.2. -------------- (fff) "TRUST AGREEMENT" - The instrument or instruments executed in --------------- connection with the Plan by the Corporation and the Trustees to provide for the investment and administration of all of the Trust Fund other than the ESOP Fund. The Trust Agreement shall constitute a part of the Plan. (ggg) "TRUST FUND" - The fund established by the Corporation to provide ---------- for the holding, investment, administration and distribution of all amounts contributed under the Plan, and the net gains and losses thereon. The Trust Fund will be held, administered and distributed for the exclusive benefit of Participants and their Beneficiaries. The Trust Fund shall be administered and invested by the Administrative Trustee pursuant to the Trust Agreement except that the ESOP Fund shall be administered and invested by the ESOP Trustee pursuant to the ESOP Trust Agreement. (hhh) "TRUSTEE" or "TRUSTEES" - The Administrative Trustee and the ESOP ------- -------- Trustee acting as such under the applicable Trust Agreement. Any reference to the "Trustee" or the "Trustees" shall be deemed to refer to the Administrative Trustee unless the action to be taken relates to the ESOP Fund, in which case the reference shall be deemed to refer to the ESOP Trustee. (iii) "YEAR OF ELIGIBILITY SERVICE" - A twelve (12) month period (the --------------------------- "Computation Period") in which an Employee is credited with at least one thousand (1,000) Hours of Service, regardless of whether the Employee is employed on the last day of said period. The initial Computation Period shall commence with the first Hour of Service of the Employee. Following this initial Computation Period, a Year of Eligibility Service shall be determined on the Computation Period commencing on the first day of the Plan Year which includes the first anniversary of the date on which the Employee first performed an Hour of Service. Thereafter, the Advisory Committee shall measure any subsequent Computation Period necessary for a determination of a Year of Eligibility Service by reference to succeeding Plan Years. If an individual terminates employment with the Employers prior to completing one thousand (1,000) Hours of Service in any of such Computation Periods and returns to an Employer or any Affiliate after the close of the Computation Period during which his employment was terminated, in the future the relevant Computation Periods shall commence on the date the individual first performs an Hour of Service for an Employer or any Affiliate following his reemployment and the anniversaries thereof. Once a Participant enters the Plan pursuant to Section 3.1, the Participant need not complete any particular number of Hours of Service in order to make Pre-Tax Contributions pursuant to Section 4.1. The Participant may, however, be required to complete one thousand (1,000) Hours of Service during the Plan Year in order to receive an allocation of Employer contributions pursuant to Section 8.2(e). Effective November 1, 1997, for purposes of determining an Employee's Years of Eligibility Service under this Plan, service with North American Insurance Company and Safemate Life Insurance Company shall be taken into account. 2.2. TOP HEAVY PLAN PROVISIONS. ------------------------- The provisions of this Section 2.2 shall be observed in determining the Plan's status as a Top Heavy Plan or a Super Top Heavy Plan: (a) GENERAL RULES. The Plan will be a Top Heavy Plan for a Plan Year if, ------------- on the last day of the prior Plan Year (hereinafter referred to as the "determination date"), more than sixty percent (60%) of the cumulative balances credited to all accounts of all Participants are credited to or allocable to the accounts of Key Employees. The Plan will be a Super Top Heavy Plan if, on the determination date, more than ninety percent (90%) of the cumulative balances credited to the accounts of all Participants are credited or allocable to the accounts of Key Employees. For purposes of making these determinations, the following rules will apply: (1) The balance credited to or allocable to a Participant's accounts for purposes of this Section 2.2 shall include contributions made on or before the applicable determination date, together with withdrawals and distributions made during the five (5) year period ending on the determination date. (2) The accounts of any Participant who was formerly (but no longer is) a Key Employee shall be disregarded. In addition, the accounts of any Participant who has not performed any services for the Employer or an Affiliate during the five (5) year period ending on the determination date shall be disregarded. (3) Rollover contributions that are both initiated by the Employee and are not derived from a plan maintained by the Employer or any Affiliate, shall be disregarded unless otherwise provided in lawful regulations issued by the United States Treasury Department. Other amounts rolled over to or from this Plan to or from another qualified plan will be considered in calculating the Plan's status as a Top Heavy Plan or Super Top Heavy Plan if and to the extent required by said regulations. (b) AGGREGATION OF PLANS. Notwithstanding anything in this Section 2.2 -------------------- to the contrary, in the event that the Plan shall be determined by the Advisory Committee (in its sole and absolute discretion, but pursuant to the provisions of Section 416 of the Code) to be a constituent in an "aggregation group", this Plan shall be considered a Top Heavy Plan or a Super Top Heavy Plan only if the "aggregation group" is a "top heavy group" or a "super top heavy group". For purposes of this Section 2.2, an "aggregation group" shall include the following: (1) Each plan intended to qualify under Section 401(a) of the Code sponsored by the Employer or an Affiliate in which one (1) or more Key Employees participate; (2) Each other plan of the Employer or an Affiliate that is considered in conjunction with a plan referred to in clause (1) in determining whether or not the nondiscrimination and coverage requirements of Section 401(a)(4) or Section 410 of the Code are met; and (3) If the Advisory Committee, in the exercise of its discretion, so chooses, any other such plan of the Employer or an Affiliate which, if considered as a unit with the plans referred to in clauses (1) and (2), satisfies the requirements of Code Section 401(a) and Code Section 410. A "top heavy group" for purposes of this Section 2.2 is an "aggregation group" in which the sum of the present value of the cumulative accrued benefits for Key Employees under all "defined benefit plans" (as defined in Section 414(j) of the Code) included in such group plus the aggregate of the account balances of Key Employees on the last Valuation Date in the twelve (12) month period ending on the respective determination date under all "defined contribution plans" (as defined in Section 414(i) of the Code) included in such group exceeds sixty percent (60%) of the total of such similar sum determined for all employees and beneficiaries covered by all such plans (where such present values and account balances are those present values applicable to those determination dates of each plan which fall in the same calendar year). A "super top heavy" group is an "aggregation group" for which the sum so determined for Key Employees exceeds ninety percent (90%) of the sum so determined for all employees and beneficiaries. The Advisory Committee will calculate the present value of the cumulative annual benefits under a defined benefit plan in accordance with the rules set forth in the defined benefit plan. All determinations will be made in accordance with applicable regulations under Section 416 of the Code. 2.3. HIGHLY COMPENSATED EMPLOYEE. --------------------------- (a) GENERAL. The term "Highly Compensated Employee" shall include all ------- "highly compensated active employees" and all "highly compensated former employees." (b) HIGHLY COMPENSATED ACTIVE EMPLOYEES. For purposes of this Section ----------------------------------- 2.3, a "highly compensated active employee" is an Employee who performs services for the Employer or its Affiliates during the current Plan Year (the "determination year") and who: (1) During the determination year, or during the preceding Plan Year, is or was a "five percent owner" as described in Section 416(i)(l) of the Code and applicable regulations thereunder; or (2) For the preceding year received Compensation from the Employer or its Affiliates in excess of Eighty Thousand Dollars ($80,000) and, if so elected by the Corporation, is ranked within the highest-paid twenty percent (20%) of Employees of the Employer and Affiliates, ranked in terms of Compensation (the "top paid group"). (c) HIGHLY COMPENSATED FORMER EMPLOYEES. For purposes of ----------------------------------- this Section 2.3, the term "highly compensated former employee" shall mean any individual formerly employed by the Employer or its Affiliates who satisfied the definition of "highly compensated active employee" set forth in paragraph (b) above, (i) at the time he separated from employment or (ii) at any time after he attained fifty-five (55) years of age. No highly compensated former employee shall be considered a member of the top-paid group (as defined in paragraph (b)(2) above). If, at any time prior to the termination of employment and prior to attaining fifty-five (55) years of age, a highly compensated active employee receives Compensation which is less than fifty percent (50%) of the Employee's annual average compensation for the three (3) consecutive years preceding the determination year, and if, under all the facts and circumstances, such Employee's future services for and Compensation from the Employer will not rise above that amount, then such Employee shall not be deemed to be a highly compensated former employee upon his actual separation from employment with the Employer. (d) EXCLUDED INDIVIDUALS. Anything in the foregoing to -------------------- the contrary notwithstanding, for purposes of determining which Employees shall be included in the top-paid group, the following shall be excluded from the definition of Employee: (1) Employees who have not completed six (6) months of service during the current and prior calendar years; (2) Employees who work for the Employer less than seventeen and one-half (17-1/2) hours per week during fifty percent (50%) or more of the weeks worked by such Employees; (3) Employees who normally work for the Employer during not more than six (6) months in any year; (4) Employees who have not attained twenty-one (21) years of age; (5) Employees who are nonresident aliens and who have not earned U.S. source income from the Employer; and (6) Employees covered under the terms of a "collective bargaining agreement" (within the meaning of Code Section 7701(a)(46) and the regulations hereunder) if (i) ninety percent (90%) of the Employees of the Employer are covered by one or more such agreements, and (ii) the Plan covers only Employees who are not so covered. (e) COST-OF-LIVING ADJUSTMENTS. The dollar limitations of -------------------------- sub-paragraphs (b)(2) above shall be adjusted at the same time and in a similar manner pursuant to the applicable rulings or regulations of the United States Treasury Department under Code Section 415(d). 2.4. CONSTRUCTION. ------------ The masculine gender, where appearing in the Plan, shall include the feminine gender, and the singular shall include the plural, unless the context clearly indicates to the contrary. The term "delivered to the Advisory Committee," as used in the Plan, shall include delivery to a person or persons designated by the Advisory Committee for the disbursement and receipt of administrative forms. Delivery shall be deemed to have occurred only when the form or other communication is actually received, and, with respect to the receipt of forms effective as of a payroll period, delivery effective for the payroll period must be made within the time indicated by the Advisory Committee for receipt of such form or other communication to be effective as of the next-occurring payroll period. Any such rule with respect to delivery shall be uniformly applicable to all Employees and Participants. Headings and subheadings are for the purpose of reference only and are not to be considered in the construction of this Plan. If any provision of this Plan is determined to be for any reason invalid or unenforceable, the remaining provisions shall continue in full force and effect. All of the provisions of this Plan shall be construed and enforced according to the laws of the State of Arizona and shall be administered according to the laws of such state, except as otherwise required by the Act, the Code or other Federal law. It is the intention of the Corporation that the Plan as adopted by the Employers shall constitute a qualified plan under the provisions of Section 401(a) of the Code, and that the Trust Fund maintained pursuant to the Trust Agreement shall be exempt from taxation pursuant to Section 501(a) of the Code. This Plan shall be construed in a manner consistent with the Corporation's intention. ARTICLE THREE ------------- ELIGIBILITY AND PARTICIPATION ----------------------------- 3.1. ELIGIBILITY. ----------- (a) CURRENT PARTICIPANTS. Each Employee who was a -------------------- Participant in the Plan on the day immediately preceding the Effective Date shall be a Participant in the Plan on the Effective Date. (b) NEW PARTICIPANTS. Each other Employee shall become ---------------- eligible to participate in the Plan as of the dates specified below: (1) PRE-TAX CONTRIBUTIONS - A Participant shall be --------------------- eligible to commence making Pre-Tax Contributions as of the first day of the first payroll period following the Participant's completion of one (1) Year of Eligibility Service. (2) PROFIT SHARING CONTRIBUTIONS AND ESOP ------------------------------------- CONTRIBUTIONS - A Participant will become eligible to ------------- participate in the allocation of Profit Sharing Contributions and ESOP Contributions as of the Plan Entry Date coinciding with or following the Participant's completion of one (1) Year of Eligibility Service. (c) COLLECTIVE BARGAINING UNIT EMPLOYEES AND LEASED ----------------------------------------------- EMPLOYEES. Employees who are covered by a collective bargaining - --------- agreement with a union with which an Employer or Affiliate has bargained in good faith over retirement benefits shall not be eligible to participate in this Plan unless their collective bargaining agreement specifically provides for their participation in this Plan. Employees who are "leased employees" for purposes of Section 414(n) of the Code shall not be eligible to participate hereunder. 3.2. PARTICIPATION. ------------- (a) GENERAL. There shall be two (2) levels of ------- contribution participation in the Plan. An Employee who has satisfied the eligibility requirements specified in Section 3.1 but who does not elect to participate (or as of the Automatic Enrollment Effective Date elects not to participate) in all contribution features of the Plan shall be a Non-Contributing Participant. Participation in the contribution features of this Plan, other than the allocation of discretionary ESOP Contributions and Profit Sharing Contributions, shall be entirely voluntary. (b) PRE-TAX CONTRIBUTIONS BEFORE THE AUTOMATIC ENROLLMENT ----------------------------------------------------- EFFECTIVE DATE. Each Employee who, before the Automatic Enrollment - -------------- Effective Date, is eligible pursuant to Section 3.1 to make Pre-Tax Contributions may direct such contributions by signing an enrollment form provided by the Advisory Committee and delivering the form to the Advisory Committee. The enrollment form shall authorize Earnings reductions in an amount equal to the amount of Pre-Tax Contributions directed by the Participant. The Employee shall designate on the form the amount of his Pre-Tax Contributions and shall authorize the reduction of his Earnings in an amount equal to his directed Pre-Tax Contributions. On the form, the Employee also shall designate the Fund or Funds to which amounts credited to his Pre-Tax Contribution Account shall be allocated, to the extent permitted under this Plan. (c) PRE-TAX CONTRIBUTIONS ON AND AFTER THE AUTOMATIC ------------------------------------------------ ENROLLMENT EFFECTIVE DATE. Each Employee who, on or after the - ------------------------- Automatic Enrollment Effective Date, is eligible pursuant to Section 3.1 to make Pre-Tax Contributions will automatically make Pre-Tax Contributions to the Plan in an amount equal to two percent (2%) of his Earnings, without the necessity of signing or delivering to the Advisory Committee an enrollment form. If the Employee does not want to make Pre-Tax Contributions, he may elect not to make Pre-Tax Contributions by signing a form provided by the Advisory Committee and delivering the form to the Advisory Committee. If an eligible Employee becomes a Participant due to automatic enrollment, his failure to elect not to make Pre-Tax Contributions will be deemed to authorize the reduction of his Earnings in an amount equal to two percent (2%). Subject to the limitations in Section 4.1(c), an Employee who is eligible pursuant to Section 3.1 to make Pre-Tax Contributions may elect to make Pre-Tax Contributions in an amount other than two percent (2%) of his Earnings, by signing an enrollment form provided by the Advisory Committee and delivering the form to the Advisory Committee. The enrollment form shall authorize Earnings reductions in an amount equal to the amount of Pre-Tax Contributions directed by the Participant. The Employee shall designate on the form the amount of his Pre-Tax Contributions and shall authorize the reduction of his Earnings in an amount equal to his directed Pre-Tax Contributions. On the form, the Employee also shall designate the Fund or Funds to which amounts credited to his Pre-Tax Contribution Account shall be allocated, to the extent permitted under this Plan. If an eligible Employee becomes a Participant due to this Section 3.2(c), all of his Pre-Tax Contributions made after the Automatic Enrollment Effective Date shall be allocated to the Income Fund unless and until he designates the Fund or Funds to which such amounts should instead be allocated. (d) TRANSITION TO THE AUTOMATIC ENROLLMENT SYSTEM. As of --------------------------------------------- the Automatic Enrollment Effective Date, the enrollment forms of all Participants who are, as of such date, making Pre-Tax Contributions to the Plan, will be honored and the amount of such contributions shall not be affected. However, each eligible Employee who as of the Automatic Enrollment Effective Date is not making Pre-Tax Contributions to the Plan will automatically begin making Pre-Tax Contributions in accordance with Section 3.2(c) as of such date unless the eligible Employee elects not to make Pre-Tax Contributions in accordance with the provisions of Section 3.2(c). (e) DELIVERY OF FORMS. All forms to be delivered to the ----------------- Advisory Committee pursuant to this Section 3.2 must be received by the Advisory Committee at least ten (10) days prior to the earliest date on which the directions under such forms could take effect or within such shorter period as may be specified by the Advisory Committee in rules of uniform application. Before the Automatic Enrollment Effective Date, completion of a valid enrollment form shall be a mandatory requirement for participation in the Plan other than as a Non-Contributing Participant. 3.3. CREDITING OF SERVICE. -------------------- (a) GENERAL RULE. All periods of Continuous Service shall ------------ be taken into account under this Plan. An Employee's Continuous Service shall be determined by aggregating the calendar days of service included in each "period of service" performed by the Employee, and expressing the total in completed years and months, disregarding any fractional months. If two (2) or more "periods of service" are aggregated, a complete year shall consist of three hundred sixty-five (365) days and a complete month shall consist of thirty (30) days. A "period of service" commences on the day on which the Employee performs his first Hour of Service for the Employer or an Affiliate or, when an Employee incurs a Break in Continuous Service, on the day on which the Employee performs his first Hour of Service following the Break in Continuous Service. The "period of service" ends on the Employee's Termination Date, unless the Employee again resumes employment with the Employer or an Affiliate prior to the occurrence of a Break in Continuous Service, in which case the "period of service" will continue and the Employee also will receive credit for the period of time between the Termination Date and the date of reemployment. (b) SPECIAL RULES FOR MATERNITY AND PATERNITY LEAVES. The ------------------------------------------------ Continuous Service of an Employee who is absent from work by reason of a maternity or paternity leave shall not include the period of time following the first anniversary of the first day of such leave even though the Employee's Termination Date shall not be deemed to occur until the second anniversary of such leave. For purposes of this Plan, a "maternity or paternity leave" is an Authorized Leave of Absence granted for any of the following reasons: the pregnancy of the Employee; the birth of a child of the Employee; the placement of a child with the Employee in connection with the adoption of such child by the Employee; or the caring for a child of the Employee for a period beginning immediately following the child's birth or placement with the Employee. This paragraph shall not be construed as entitling any Employee to an Authorized Leave of Absence for any of the reasons noted above. An Employee's entitlement to an Authorized Leave of Absence will be determined in accordance with the Employer's standard policies. (c) SPECIAL RULE FOR OTHER ABSENCES. If an Employee's ------------------------------- employment has been terminated on account of resignation, discharge or retirement and the Employee is rehired, the period between the Employee's Termination Date and his date of rehire shall be taken into account and treated as a period of Continuous Service if the Employee is rehired within twelve (12) months of his Termination Date. If the Employee is absent from employment for reasons other than resignation, discharge or retirement and, during such absence, the Employee resigns, is discharged or retires, if the Employee is thereafter rehired, the period between the Employee's date of resignation, discharge or retirement and his date of rehire shall be taken into account and treated as a period of Continuous Service if the Employee is rehired by the Employer prior to the first anniversary of the date on which the Employee's initial period of absence from employment commenced. 3.4. EFFECT OF REHIRING. ------------------ In the event that an Employee separates from employment with the Employer and is later rehired, as a general rule he shall remain credited with all of his Years of Eligibility Service and all periods of Continuous Service credited to him during his prior period of employment. If such an Employee was a Participant or had satisfied the eligibility requirements of Section 3.1 during his prior period of employment and following his return he is otherwise eligible to participate in the Plan, the Employee shall commence participation in the Plan upon the later of his date of rehire or the date on which he would have commenced participation if his employment had not terminated. 3.5. AFFILIATED EMPLOYERS. -------------------- For the purpose of computing an Employee's Years of Eligibility Service and period of Continuous Service, employees of Affiliates of the Employer shall be given credit for their Hours of Service and periods of Continuous Service with such Affiliates in the event that they become Employees of an Employer as though during such periods they were Employees of an Employer. Persons employed by a business organization that is acquired by the Employer or by an Affiliate of the Employer shall be credited with service for their Hours of Service and periods of Continuous Service with such predecessor employer hereunder in the event that they become Employees of an Employer only to the extent required under lawful regulations of the United States Treasury Department under Section 414(a)(2) of the Code or to the extent determined by the Board on a uniform basis with respect to employees of each "predecessor company," which term for this purpose means and includes any organization which is acquired by an Employer or any Affiliate. 3.6. TRANSFERS TO AND FROM AN ELIGIBLE CLASS OF EMPLOYEES. ---------------------------------------------------- (a) TRANSFERS OUT OF PLAN. A Participant will --------------------- automatically become ineligible to participate in the Plan as of the effective date of a change in his employment classification if as a result of the change he is no longer eligible to participate in the Plan. All sums credited to the Inactive Participant's accounts will continue to be held pursuant to the terms of this Plan and will be distributed to the Inactive Participant only upon his subsequent termination of employment or the occurrence of some event permitting a distribution pursuant to the provisions of this Plan. (b) TRANSFERS TO PLAN. If an Employee of the Employer is ----------------- not eligible to participate in the Plan due to his employment classification, he shall participate immediately upon becoming a member of an eligible class of Employees if he has satisfied the other requirements set forth in Section 3.1 and would have become a Participant previously had he been in an eligible class. (c) SERVICE CREDIT. In any event, an Employee's service -------------- in an ineligible employment classification shall be considered in calculating the Employee's Years of Eligibility Service and years of Continuous Service. (d) TRANSFERS TO AFFILIATES. If a Participant ceases to ----------------------- participate in the Plan solely as a result of his transfer to an Affiliate that has not adopted this Plan, amounts credited to his accounts as of the date of his transfer shall not be forfeited or distributed. Rather, such amounts shall be payable in accordance with the terms of this Plan upon his subsequent termination of employment with all Affiliates and the Employer or the occurrence of some other event permitting a distribution pursuant to the provisions of this Plan. 3.7. LEASED EMPLOYEES. ---------------- A "leased employee" (within the meaning of Section 414(n)(2) of the Code) shall be treated as an Employee of the Employer for purposes of the pension requirements of Section 414(n)(3) of the Code, unless leased employees constitute less than twenty percent (20%) of the Employer's non-highly compensated work force (within the meaning of Section 414(n)(5)(C)(ii) of the Code) and the leased employee is covered by a "safe harbor plan" that satisfies the requirements of Section 414(n)(5)(B) of the Code. In any event, a leased employee who is deemed to be an Employee of the Employer pursuant to the preceding sentence shall be treated as if he is employed in an employment classification that has not been designated for participation in the Plan. ARTICLE FOUR ------------ EMPLOYEE CONTRIBUTIONS ---------------------- 4.1. PRE-TAX CONTRIBUTIONS. --------------------- (a) ELECTION. Subject to Section 3.2, each Participant -------- may direct the Employer to make Pre-Tax Contributions to the Trust Fund on the Participant's behalf during each Plan Year while he is a Participant. The amount payable to the Participant as his current salary or wages shall then be reduced by an amount equal to the Pre-Tax Contributions directed by the Participant. (b) TRANSFER TO TRUSTEE. Pre-Tax Contributions shall be ------------------- forwarded to the Trustee as soon as practicable following the end of the calendar month for which the Pre-Tax Contributions are made, and, in any event, such contributions shall be transferred to the Trustee no later than the fifteenth (15th) business day of the month following the month in which such amounts would otherwise have been payable to the Participant in cash. (c) LIMITATIONS. The Employer and the Advisory Committee ----------- shall implement such procedures as may be necessary to assure that the sum of the Pre-Tax Contributions and the Employer Contributions does not exceed the maximum amount that may be deducted by the Employer pursuant to Section 404 of the Code. The Pre-Tax Contributions shall be in an amount of not less than two percent (2%) and not more than eighteen percent (18%) of a Participant's Earnings. Pre-Tax Contributions also shall be subject to such other nondiscriminatory restrictions as the Employer and Advisory Committee shall determine and announce to Plan Participants. 4.2. PRE-TAX CONTRIBUTIONS--DOLLAR LIMITATION. ---------------------------------------- A Participant's Pre-Tax Contributions for any calendar year may not exceed Ten Thousand Dollars ($10,000.00) adjusted in order to reflect increases in the cost-of-living as announced from time to time by the United States Treasury Department. This limitation applies in the aggregate to the Participant's "elective contributions" under all plans. For this purpose, the term "elective contributions" includes the Participant's Pre-Tax Contributions to this Plan, the Participant's pre-tax contributions to any other qualified cash or deferred arrangement (as defined in Section 401(k) of the Code), any elective employer contributions to a simplified employee pension plan that are not included in the Participant's gross income due to Section 402(h)(1)(B) of the Code and any employer contribution used to purchase an annuity contract under Section 403(b) of the Code pursuant to a salary reduction arrangement (within the meaning of Section 3121(a)(5)(D) of the Code). In the event that the Participant's elective contributions to all such programs during any calendar year exceed the limitation for that calendar year, the Participant may, by March 1 of the calendar year following the calendar year for which the excess contributions were made, so advise the Advisory Committee and request the return of all or a portion of the excess contributions to this Plan. The excess contributions, along with any income thereon (as determined by the Advisory Committee in accordance with rules of uniform and nondiscriminatory application) may then be returned to the Participant by the next following April 15. The Advisory Committee is not under any obligation, however, to honor a request for a return. 4.3. LIMITATION ON CONTRIBUTIONS OF HIGHLY COMPENSATED ------------------------------------------------- (a) ACTUAL DEFERRAL PERCENTAGE LIMITATIONS. The -------------------------------------- contributions made by Participants who are Highly Compensated Employees shall be limited to the extent necessary to satisfy one of the following two paragraphs: (1) The "actual deferral percentage" for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the "actual deferral percentage" for Participants who are not Highly Compensated Employees for the previous Plan Year multiplied by one and one-quarter (1.25); or (2) The actual deferral percentage for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the actual deferral percentage for Participants who are not Highly Compensated Employees for the previous Plan Year multiplied by two (2), provided that the actual deferral percentage for Participants who are Highly Compensated Employees does not exceed the actual deferral percentage for Participants who are not Highly Compensated Employees by more than two percentage points (2%) or such lesser amount as the Secretary of the Treasury shall prescribe to prevent the multiple use of this alternative limitation with respect to any Highly Compensated Employee. (b) SPECIAL DEFINITIONS. For purposes of this Section ------------------- alone, the following definitions shall apply: (1) "Actual deferral percentage" - The average (expressed as a percentage) of the deferral percentages of the Participants in a group. The actual deferral percentage for a group shall be determined by adding the deferral percentage of all Participants in the group and dividing that sum by the number of Participants in the group. (2) "Deferral percentage" - The ratio (expressed as a percentage) of the Pre-Tax Contributions under the Plan on behalf of the Participant for the Plan Year to the Participant's Compensation for the Plan. (3) "Compensation" - Compensation shall be defined in accordance with the definition of Compensation in Section 2.1(r) of the Plan. (c) SPECIAL RULES. For purposes of this Section, the ------------- following rules shall apply: (1) If any Highly Compensated Employee is a participant under two (2) or more cash or deferred arrangements of the Employer, all such cash or deferred arrangement shall be treated as one (1) cash or deferred arrangement for purposes of determining such Highly Compensated Employee's individual deferral percentage. (2) At the election of the Employer, but in accordance with such rules as may be prescribed in applicable regulations, any matching contributions (within the meaning of Section 401(m)(4)(A) of the Code) or qualified nonelective contributions (within the meaning of Section 401(m)(4)(C) of the Code) allocated to a Participant under this or any other plan described in Section 401(a) of the Code maintained by the Employer or an Affiliate shall be aggregated with the Participant's Pre-Tax Contributions under this Plan for purposes of determining the Participant's deferral percentage. If the Employer makes such an election, such matching and qualified nonelective contributions (i) must satisfy the conditions set forth in Treasury Regulation Section 1.401(k)-1(b)(5) and (ii) must be subject to the same distribution requirements as are Pre- Tax Contributions. Additionally, in accordance with Treasury Regulations Section 1.401(k)-1(g)(13), such matching and qualified nonelective contributions must satisfy the above requirements without regard to whether they are actually treated as Pre-Tax Contributions. (3) If this Plan satisfies the requirements of Section 401(a)(4) or Section 410 of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of Section 410(b) of the Code only if aggregated with this Plan, then the limitations of this Section shall be applied by determining the deferral percentages of Participants as if all such plans were a single plan. (4) The Pre-Tax Contributions, compensation, and other amounts treated as elective contributions of all family members are disregarded in determining the actual deferral percentage for the groups of Highly Compensated Employees and those who are not Highly Compensated Employees. (5) The determination and treatment of the contribution percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (6) For purposes of determining the actual deferral percentage under Section 4.3(a), Participants who are directly or indirectly eligible to make an election to make a Pre-Tax Contribution under the Plan for all or a portion of the Plan Year shall be taken into account, including a Participant who cannot make Pre-Tax Contributions because of the limitations of Sections 415(c)(1) or 415(e). (7) Pre-Tax Contributions made by a Participant will be taken into account under the actual deferral percentage test for a Plan Year only if the contributions relate to Compensation that either would have been received by the Participant in the Plan Year (but for the deferral election) or are attributable to services performed by the Participant in the Plan Year and would have been received by the Participant within two and one-half (2 1/2) months after the close of the Plan Year (but for the deferral election). (8) For Plan Years beginning on or after January 1, 1999, if the Corporation has elected to apply Code Section 410(b)(4)(B) in determining whether the cash or deferred arrangement meets the requirements of Code Section 401(k)(3)(A)(i), the Corporation may, in determining whether the Plan meets the requirements of Section 4.3(a), exclude from consideration all eligible Employees (other than Highly Compensated Employees) who have not met the minimum age and service requirements of Code Section 410(a)(1)(A). (d) DISTRIBUTION OF EXCESS CONTRIBUTIONS. No later than ------------------------------------ the last day of each Plan Year, any "excess Pre-Tax Contributions" and the income allocable thereto will be distributed to Participants who made the excess Pre-Tax Contributions during the preceding Plan Year. For purposes of this paragraph, the term "excess Pre-Tax Contributions" means, with respect to any Plan Year, the aggregate amount of Pre-Tax Contributions paid to the Plan by the Highly Compensated Employees for the Plan Year over the maximum amount of Pre-Tax Contributions permitted pursuant to Section 4.3(a) and Section 401(k)(3)(A)(ii) of the Code. In order to determine the excess Pre-Tax Contributions attributable to a particular Participant, the Advisory Committee shall reduce the Pre-Tax Contributions made on behalf of Highly Compensated Employees beginning with the Highly Compensated Employees who have the highest dollar amount of Pre-Tax Contributions until the Pre-Tax Contributions of the Highly Compensated Employees do not exceed the limitations mentioned in the preceding sentence. The distribution of excess Pre-Tax Contributions for any Plan Year shall be made to Highly Compensated Employees on the basis of the respective portions of the excess Pre-Tax Contributions attributable to each such Highly Compensated Employee. The income allocable to excess Pre-Tax Contributions shall be determined by multiplying the income allocable for the Plan Year to the Participant's Pre-Tax Contributions Account from which the excess contributions are to be distributed by a fraction, the numerator of which is the excess Pre-Tax Contribution on behalf of the Participant for the preceding Plan Year and the denominator of which is the sum of the Participant's Pre-Tax Contributions Account balance on the last business day of the preceding Plan Year plus the Pre-Tax Contributions (other than excess Pre-Tax Contributions) allocated to that account during the Plan Year. If there is a loss, the total excess Pre-Tax Contributions shall nonetheless be distributed to the Participant, but the amount distributed shall not exceed the balance of the Pre-Tax Contributions Account from which the distribution is made. The amount of any excess contributions to be distributed shall be reduced by excess deferrals previously distributed for the taxable year ending in the same Plan Year in accordance with Section 402(g)(2) of the Code and excess deferrals to be distributed for a taxable year shall be reduced by excess contributions previously distributed for the Plan beginning in such taxable year. (e) REDUCTION OF FUTURE CONTRIBUTIONS. If prior to the --------------------------------- end of a Plan Year the Advisory Committee concludes that the average rate of Pre-Tax contributions made on behalf of Highly Compensated Employees would violate the rules set forth in paragraph (a) and Section 401(k) of the Code, the Advisory Committee may prospectively reduce the Pre-Tax Contributions directed by the Highly Compensated Employees. The reduction shall be implemented by reducing first the highest rates of Pre-Tax Voluntary Contributions within such group and then the highest rates of Pre-Tax Required Contributions within the group, with such rates to be reduced in one percent (1%) increments or fractions thereof, as determined by the Advisory Committee. Any reduction pursuant to this Section shall be limited to the extent necessary to assure compliance with the requirements set forth in paragraph (a) and Section 401(k) of the Code. 4.4. DESIGNATION AND CHANGE OF DESIGNATION OF PRE-TAX ------------------------------------------------ CONTRIBUTIONS. ------------- (a) USE OF FORMS. All designations or changes of ------------ designation of the amount of Pre-Tax Contributions directed by a Participant shall be made on forms supplied by the Advisory Committee, signed by the Participant and delivered to the Advisory Committee. Notwithstanding the foregoing, as of the Automatic Enrollment Effective Date, any designation made as a result of an automatic enrollment, need not be made on a form. (b) FREQUENCY OF CHANGES. A Participant may change his -------------------- rate of Pre-Tax Contributions as of the first day of the first payroll period in each calendar quarter, except as otherwise determined by the Advisory Committee in a uniform manner with respect to all Participants. All such designations or changes shall be made effective as of the first day of the calendar quarter following receipt by the Advisory Committee of the appropriate forms, as long as the forms are received by the Advisory Committee at least ten (10) days prior to the first day of such calendar quarter or within such shorter period as the Advisory Committee may prescribe pursuant to rules of uniform application. (c) GENERAL. A payroll deduction designation form, or a ------- payroll deduction made as a result of an automatic enrollment, shall be effective until it is succeeded by a later valid payroll deduction designation form, or until the Participant separates from employment or becomes a Non-Contributing Participant or Inactive Participant. All designations or changes of designation shall be subject to the right of the Advisory Committee to refuse to accept such designation or change of designation directed by a Participant if the Advisory Committee concludes that such designation or change of designation would cause the Plan to fail to satisfy Section 4.2 or Section 4.3. 4.5. SUSPENSION OF PRE-TAX CONTRIBUTIONS. ----------------------------------- A Participant may instruct the Advisory Committee to suspend his Pre-Tax Contributions at any time. The suspension will be effective as soon as possible following receipt of the instruction from the Participant. A suspension may last indefinitely. A Participant may recommence directing contributions at any time in accordance with the procedures set forth in Section 4.4 for changing the rate of Pre-Tax Contributions. Suspension of Pre-Tax Contributions shall be made pursuant to a form supplied by the Advisory Committee, signed by the Participant and delivered to the Advisory Committee. While a Participant is on an Approved Leave of Absence, he shall be a Non-Contributing Participant. A Participant shall not be entitled to "make up" suspended Pre-Tax Contributions, except to the extent required by Section 15.9 of the Plan. 4.6. AFTER-TAX CONTRIBUTIONS. ----------------------- No current "after-tax" contributions shall be permitted under the Plan. After-Tax Contributions made to the Plan by a Participant previously shall continue to be held in the Trust Fund and shall be credited to the Participant's After-Tax Contribution Account. Until withdrawn or distributed, the After-Tax Contributions Account shall continue to share in the earnings or losses of the Trust Fund. 4.7. ROLLOVER CONTRIBUTIONS. ---------------------- (a) CONTRIBUTION. Any Employee (whether or not a ------------ Participant) who has received a distribution from a profit sharing plan, stock bonus plan or pension plan intended to "qualify" under Section 401 of the Code may transfer such distribution to the Trust Fund if such contribution to the Trust Fund would constitute, in the sole and absolute discretion of the Advisory Committee, a "rollover contribution" within the meaning of the applicable provisions of the Code. Additionally, an Employee may request, with the approval of the Advisory Committee that the Trustee accept a transfer from the trustee of another qualified plan. Upon such approval, the Trustee shall accept such transfer. The Advisory Committee may, in its sole discretion, decline to accept such transfer. For purposes of this Plan, both a "rollover contribution" within the meaning of the applicable provisions of the Code and a transfer initiated by the Employee from another plan shall be referred to as a "Rollover Contribution." If the Advisory Committee decides to grant an Employee's request to make a Rollover Contribution, the Employee may contribute to the Trust Fund cash or other property acceptable to the Trustee to the extent of such distribution. (b) ACCOUNTING AND DISTRIBUTIONS. The Advisory Committee ---------------------------- shall credit the Rollover Contribution to a separate account (the "Rollover Contribution Account") for the Employee's sole benefit. The separate Rollover Contribution Account shall be adjusted, valued and credited pursuant to Section 8.3. Any such Rollover Contribution Account shall be nonforfeitable and shall be paid to the Employee or his Beneficiary in the same manner as benefits would be paid to the Participant or Beneficiary under ARTICLE ELEVEN. (c) NO GUARANTY. The Advisory Committee, the Employer and ----------- the Trustee do not guarantee the Rollover Contribution Accounts of Participants in any way from loss or depreciation. The Employer, the Advisory Committee and the Trustee do not guarantee the payment of any money which may be or become due to any person from a Rollover Contribution Account, and the liability of the Employer, the Advisory Committee or the Trustee to make any payment therefrom shall at any and all times be limited to the then value of the Rollover Contribution Account. (d) PROHIBITION OF ROLLOVERS FROM CERTAIN PLANS. The ------------------------------------------- Advisory Committee shall not permit a Participant to make a direct transfer to this Plan (as distinguished from a "rollover contribution" or "eligible rollover distribution" within the meaning of the Code) if the plan from which the transfer is to be made is or was subject to the joint and survivor annuity and preretirement survivor annuity requirements of Section 417 of the Code by reason of Section 401(a)(11) of the Code. (e) EFFECTIVE DATE. The provisions of this Section 4.7 -------------- shall be effective as of November 1, 1997. ARTICLE FIVE ------------ EMPLOYER CONTRIBUTIONS ---------------------- 5.1. PROFIT SHARING CONTRIBUTION. --------------------------- (a) REGULAR PROFIT SHARING CONTRIBUTION. Subject to the ----------------------------------- Board's right to terminate or amend this Plan, the Employer shall contribute to the Trust Fund for each Plan Year as a Profit Sharing Contribution such amount, if any, as the Board shall determine, in its sole and absolute discretion. (b) SPECIAL PROFIT SHARING CONTRIBUTIONS. Notwithstanding ------------------------------------ whether any Profit Sharing Contribution is made for the Plan Year pursuant to Section 5.1(a) or any other provision contained herein, the Employer may make a special Profit Sharing Contribution to the Trust Fund each Plan Year in such amount and on behalf of such Participants and Non-Contributing Participants, as the Board shall determine, in its sole and absolute discretion, provided that in no event shall a special Profit Sharing Contribution be made on behalf of any Participant or any Non-Contributing Participant who is a Highly Compensated Employee. (c) SPECIAL "PER CAPITA" PROFIT SHARING CONTRIBUTIONS. ------------------------------------------------- In addition to the foregoing, the Employer may make a special "per capita" Profit Sharing Contribution to the Trust Fund on behalf of each Participant and Non-Contributing Participant in such amount, if any, as the Board shall determine, in its sole and absolute discretion, provided that each Participant and Non-Contributing Participant receives an equal allocation of such special "per capita" Profit Sharing Contribution. (d) AGGREGATE PROFIT SHARING CONTRIBUTIONS. In no event -------------------------------------- shall the aggregate Profit Sharing Contributions for any Plan Year be more than the amount allowable as a deduction for federal income tax purposes for such Plan Year. 5.2. ESOP CONTRIBUTIONS. ------------------ (a) REGULAR ESOP CONTRIBUTION. Subject to the Board's ------------------------- right to terminate or amend this Plan, the Employer shall contribute to the Trust Fund for each Plan Year as an ESOP Contribution such amount, if any, as the Board shall determine, in its sole and absolute discretion. (b) SPECIAL ESOP CONTRIBUTIONS. Notwithstanding whether -------------------------- any ESOP Contribution is made for the Plan Year pursuant to Section 5.2(a) or any other provision contained herein, the Employer may make a special ESOP Contribution each Plan Year in such amount and on behalf of such Participants and Non-Contributing Participants, as the Board shall determine, in its sole and absolute discretion, provided that in no event shall a special ESOP Contribution be made on behalf of any Participant or any Non-Contributing Participant who is a Highly Compensated Employee. (c) SPECIAL "PER CAPITA" ESOP CONTRIBUTIONS. In addition --------------------------------------- to the foregoing, the Employer may make a special "per capita" ESOP Contribution on behalf of each Participant and Non-Contributing Participant in such amount, if any, as the Board shall determine, in its sole and absolute discretion, provided that each Participant and Non-Contributing Participant receives an equal allocation of such special "per capita" ESOP Contribution. (d) AGGREGATE ESOP CONTRIBUTIONS. In no event shall the ---------------------------- aggregate ESOP Contributions for any Plan Year be more than the amount allowable as a deduction for federal income tax purposes for such Plan Year. 5.3. "TOP HEAVY" CONTRIBUTIONS. ------------------------- The Employer may, in its sole and absolute discretion, make additional ESOP Contributions for any Plan Year in which the Plan is Top Heavy in such amounts as may be necessary to fund the Employer contribution allocation required by Section 8.2. 5.4. EMPLOYER MATCHING CONTRIBUTION. ------------------------------ (a) DISCRETIONARY MATCHING CONTRIBUTIONS. Subject to the ------------------------------------ Board's right to terminate or amend this Plan, the Employer shall contribute to the Trust Fund for each Plan Year as an Employer Matching Contribution such amount, if any, as the Board shall determine in its sole and absolute discretion. (b) LIMITATION ON CONTRIBUTIONS OF HIGHLY COMPENSATED ------------------------------------------------- EMPLOYEES. The Employer Matching Contributions made on behalf of - --------- Participants who were Highly Compensated Employees were limited to the extent necessary to satisfy one of the following two paragraphs: (1) The "average contribution percentage" for Participants who were Highly Compensated Employees for the Plan Year could not exceed the "average contribution percentage" for Participants who were not Highly Compensated Employees for the previous Plan Year multiplied by one and one-quarter (1.25); or (2) The average contribution percentage for Participants who were Highly Compensated Employees for the Plan Year could not exceed the average contribution percentage for Participants who were not Highly Compensated Employees for the previous Plan Year multiplied by two (2), provided that the average contribution percentage for Participants who were Highly Compensated Employees did not exceed the average contribution percentage for Participants who were not Highly Compensated Employees by more than two percentage points (2%) or such lesser amount as the Secretary of the Treasury prescribed to prevent the multiple use of this alternative limitation with respect to any Highly Compensated Employee. (c) DEFINITIONS. For purposes of this Section alone, the ----------- following definitions shall apply: (1) "Average contribution percentage" - The average (expressed as a percentage) of the contribution percentages of the Participants in a group. (2) "Contribution percentage" - The ratio (expressed as a percentage) of the Matching Contributions under the Plan on behalf of the Participant for the Plan Year to the Participant's compensation for the Plan Year. (3) "Compensation" - Compensation shall be defined in accordance with the definition of Compensation in Section 2.1(r) of the Plan. (d) SPECIAL RULES. For purposes of this Section, the ------------- following rules shall apply: (1) The contribution percentage for any Participant who was a Highly Compensated Employee for the Plan Year and who was eligible to make Pre-Tax Contributions (or to have employee contributions within the meaning of Section 401(m)(3)(A) of the Code, qualified nonelective contributions within the meaning of Section 401(m)(4)(C) of the Code or elective deferrals within the meaning of Section 402(g)(3)(A) of the Code allocated to his account under this Plan and one or more other plans described in Section 401(a) or arrangements described in Section 401(k) of the Code that are maintained by the Employer or an Affiliate) were determined as if all such contributions (and all such matching contributions, qualified nonelective contributions or elective deferrals) were made under a single plan. (2) In the event that this Plan satisfied the requirements of Section 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfied the requirements of Section 410(b) of the Code only if aggregated with this Plan, then the limitations of this Section were applied by determining the contribution percentages of Participants as if all such plans were a single plan. (3) The Matching Contributions, compensation, and other amounts treated as matching contributions of all family members were disregarded in determining the actual contribution percentage for the groups of Highly Compensated Employees and those who were not Highly Compensated Employees. (4) The determination and treatment of the con- tribution percentage of any Participant may have satisfied such other requirements as may be prescribed by the Secretary of the Treasury. (5) For purposes of determining whether the Plan satisfies the actual contribution percentage test of Section 5.4(b) of the Plan and Section 401(m) of the Code, all Pre- Tax Contributions and Matching Contributions that are made under two or more plans that are aggregated for purposes of Section 401(a)(4) and 410(b) of the Code (other than Section 410(b)(2)(A)(ii)) shall be treated as made under a single plan. (6) For purposes of the actual contribution percentage test of Section 5.4(b) and Section 401(m) of the Code, the actual contribution ratios of all "eligible Employees" shall be taken into account. For purposes of this paragraph, an "eligible Employee" is any Employee who is directly eligible to receive an allocation of Matching Contributions or to make Pre-Tax Contributions and includes: (i) an Employee who would be a Plan Participant but for the failure to make required contributions; (ii) an Employee whose right to make Pre-Tax Contributions or receive Matching Contributions has been suspended because of an election (other than certain one-time elections) not to participate; and (iii) an Employee who cannot make Pre-Tax Contributions or receive a Matching Contribution because Section 415(c)(1) or Section 415(e) of the Code prevents the Employee from receiving additional Annual Additions. In the case of an eligible Employee who makes no Pre-Tax Contributions and who receives no Matching Contributions, the contribution ratio that is to be included in determining the actual contribution percentage is zero (0). (7) For Plan Years beginning on or after January 1, 1999, if the Corporation has elected to apply Code Section 410(b)(4)(B) in determining whether the Plan meets the requirements of Code Section 410(b), the Corporation may, in determining whether the arrangement meets the requirements of Section 5.4(c), exclude from consideration all eligible Employees (other than Highly Compensated Employees) who have not met the minimum age and service requirements of Code Section 410(a)(1)(A). (e) DISTRIBUTION OF EXCESS CONTRIBUTIONS. No later than ------------------------------------ the last day of each Plan Year, any "excess aggregate contributions" and the income allocable thereto will be distributed to Participants who made excess aggregate contributions during the preceding Plan Year. For purposes of this paragraph, an "excess aggregate contribution" is the amount described in Section 401(m)(6)(B) of the Code. In order to determine the excess aggregate contributions attributable to a particular Participant, the Advisory Committee shall reduce the Matching Contributions made on behalf of Highly Compensated Employees, beginning with the Highly Compensated Employees who have the highest dollar amount of Matching Contributions, until the Matching Contributions of the Highly Compensated Employees do not exceed the limitations mentioned in the preceding sentence. For each Highly Compensated Employee, the amount of excess aggregate contributions for a Plan Year is equal to the total of employee, matching and other contributions taken into account in performing the actual contribution percentage test minus the Employee's actual contribution ratio multiplied by the Employee's Compensation. The income allocable to excess aggregate contributions was to be determined by multiplying the income allocable to the Participant's Matching Contributions Account for the Plan Year by a fraction, the numerator of which is the excess aggregate contributions on behalf of the Participant for the preceding Plan Year and the denominator of which is the Participant's Matching Contributions Account balance on the last business day of the preceding Plan Year. The excess aggregate contributions to be distributed to the Participant shall be adjusted for income and losses. In the case of a loss, the total excess aggregate contributions would nonetheless be distributed to the Participant, but the amount distributed could not exceed the Participant's Matching Contributions Account balance. (f) MULTIPLE USE OF THE ALTERNATIVE LIMITATION. For ------------------------------------------ purposes of determining whether the limitations in Sections 4.3 and 5.4 are met, the Plan shall satisfy the test for multiple use of the "alternative limitation" (as described in Sections 401(k)(3)(A)(ii)(II) and 401(m)(2)(A)(ii) of the Code) set forth in Treasury Regulation Section 1.401(m)-2. If multiple use of the alternative limitation occurs with respect to two or more plans or arrangements maintained by the Employer it must be corrected by reducing the actual deferral percentage or actual contribution percentage of Highly Compensated Employees in the manner described in Treasury Regulation Section 1.401(m)-2(c)(3); provided that the Employer may instead eliminate the multiple use of the alternative limitation by making qualified nonelective contributions. 5.5. PAYMENT OF EMPLOYER MATCHING CONTRIBUTIONS, PROFIT SHARING ---------------------------------------------------------- CONTRIBUTIONS AND ESOP CONTRIBUTIONS. ------------------------------------ Profit Sharing Contributions pursuant to Section 5.1, ESOP Contributions pursuant to Section 5.2 and Employer Matching Contributions pursuant to Section 5.4, may be paid within the Plan Year for which such contribution is made or within the period thereafter ending on the date by which the Corporation's Federal income tax return for the corresponding year of deduction must be filed, including any extensions of such date. Employer Matching Contributions and ESOP Contributions may be paid in cash or in Employer Securities, in the discretion of the Corporation. Profit Sharing Contributions may be paid in cash or other property acceptable to the Trustee. 5.6. CONDITIONAL NATURE OF CONTRIBUTIONS. ----------------------------------- (a) MISTAKE OF FACT. Any contribution made to this Plan --------------- by the Employer because of a mistake of fact shall be returned to the Employer upon its request within one (1) year of the date of the contribution. (b) DEDUCTIBILITY. Every contribution made by the ------------- Employer is conditional on its deductibility. If the Internal Revenue Service determines that all or part of a contribution is not deductible, the contribution (to the extent that it is not deductible) shall be refunded to the Employer upon its request within one (1) year after the date of the disallowance. (c) LIMITATIONS ON AMOUNTS RETURNED. Notwithstanding ------------------------------- anything to the contrary, the maximum amount that may be returned to the Employer pursuant to subparagraphs (a) and (b), above, is limited to the portion of such contribution attributable to the mistake of fact or the portion of such contribution deemed non-deductible (the "excess contribution"). Earnings attributable to the excess contribution will not be returned to the Employer, but losses attributable thereto will reduce the amount so returned. In no case shall withdrawal of any excess contribution pursuant to subparagraphs (a) and (b), above, reduce the balance of the Participant's account to less than the balance would have been had the excess contribution not been made. ARTICLE SIX ----------- INVESTMENT OF CONTRIBUTIONS --------------------------- 6.1. PARTICIPANT DIRECTED INDIVIDUAL ACCOUNT PLAN. -------------------------------------------- (a) GENERAL. This Plan is intended to constitute a ------- participant directed individual account plan under Section 404(c) of the Act with respect to those amounts held in the Pre-Tax Contribution Account, the Employer Matching Contribution Account, the Profit Sharing Account, the After-Tax Contribution Account, the ESOP Account (to the extent qualified Participants may diversify such ESOP Account pursuant to Section 6.4(b)) and, effective November 1, 1997, the Rollover Contribution Account. As such, Participants shall be provided the opportunity to exercise control over some or all of the assets in their accounts under the Plan. The Board, pursuant to uniform and non-discriminatory rules, shall establish three or more Funds which provide each Participant with a broad range of investment alternatives in accordance with Department of Labor Regulation Section 2550.404c-1(b)(3). The Funds available under the Plan, and any restrictions on such Funds, may be modified or supplemented from time to time by action of the Board, without the necessity of a Plan amendment. In its discretion, the Board may delegate to the Advisory Committee the responsibility and authority to modify or supplement the Funds available under the Plan and to impose any restrictions on such Funds. If the Board delegates such authority to the Advisory Committee, the Advisory Committee may add or delete Funds by action as described in Section 12.1(c) of the Plan, without the necessity of a Plan amendment. (b) REQUIRED INFORMATION. The Advisory Committee shall -------------------- provide each Participant with the opportunity to obtain sufficient information to make informed decisions with regard to investment alternatives available under the Plan, and incidents of ownership appurtenant to such investments. The Advisory Committee shall promulgate and distribute to Participants an explanation that the Plan is intended to comply with section 404(c) of the Act and any relief from fiduciary liability resulting therefrom, a description of investment alternatives available under the Plan, an explanation of the circumstances under which Participants may give investment instructions and any limitations thereon, along with all other information and explanations required under Department of Labor Regulation Section 2550.404c-1(b)(2)(B)(1). In addition, the Advisory Committee shall provide information to Participants upon request as required by Department of Labor Regulation Section 2550.404c-1(b)(2)(B)(2). Neither the Employer, Advisory Committee, Trustee, or any other individual associated with the Plan or the Employer shall give investment advice to Participants with respect to Plan investments. The providing of information pursuant to this Section 6.1 shall not in any way be deemed to be the providing of investment advice, and shall in no way obligate the Employer, Advisory Committee, Trustee or any other individual associated with the Plan or the Employer to provide any investment advice. (c) IMPERMISSIBLE INVESTMENT INSTRUCTION. The Advisory ------------------------------------ Committee shall decline to implement any Participant instructions if: (1) the instruction is inconsistent with any provisions of the Plan or Trust Agreement; (2) the instruction is inconsistent with any investment direction policies adopted by the Advisory Committee from time to time; (3) implementing the instruction would not afford a Plan fiduciary protection under section 404(c) of the Act; (4) implementing the instruction would result in a prohibited transaction under Section 406 of the Act or Section 4975 of the Code; (5) implementing the instruction would result in taxable income to the Plan; (6) implementing the instruction would jeopardize the Plan's tax qualified status; or (7) implementing the instruction could result in a loss in excess of a Participant's account balance. The Advisory Committee, pursuant to uniform and nondiscriminatory rules, may promulgate additional limitations on investment instruction consistent with Section 404(c) of the Act from time to time. (d) INDEPENDENT EXERCISE. A Participant shall be given -------------------- the opportunity to make independent investment directions. No Plan fiduciary shall subject any Participant to improper influence with respect to any investment decisions, and nor shall any Plan fiduciary conceal any non-public facts regarding a Participant's Plan investment unless disclosure is prohibited by law. Plan fiduciaries shall remain completely neutral in all regards with respect to Participant investment direction. A Plan fiduciary may not accept investment instructions from a Participant known to be legally incompetent, and any transactions with a fiduciary, otherwise permitted under this Section 6.1 and the uniform and nondiscriminatory rules regarding investment direction promulgated by the Advisory Committee, shall be fair and reasonable to the Participant in accordance with Department of Labor Regulation Section 404c-1(c)(3). (e) LIMITATION OF LIABILITY AND RESPONSIBILITY. The ------------------------------------------ Trustee, the Advisory Committee and the Employer shall not be liable for acting in accordance with the directions of a Participant pursuant to this Section 6.1 or for failing to act in the absence of any such direction. The Trustee, the Advisory Committee and the Employer shall not be responsible for any loss resulting from any direction made by a Participant and shall have no duty to review any direction made by a Participant. The Trustee shall have no obligation to consult with any Participant regarding the propriety or advisability of any selection made by the Participant. 6.2. DIRECTION BY PARTICIPANT. ------------------------ As permitted by Section 6.1, the following specific rules shall govern a Participant's ability to direct the investment of amounts held in his various Accounts: (a) INVESTMENT OF PRE-TAX CONTRIBUTIONS. Subject to the ----------------------------------- provisions of this Section 6.2, each Participant shall designate, on a form supplied by the Advisory Committee, signed by the Participant and delivered to the Advisory Committee, the amounts credited to his Pre-Tax Contribution Account that is to be invested in one or more of the Funds (other than the ESOP Fund), individual life insurance policies pursuant to Section 6.6 or in loans pursuant to Section 6.5. Each Participant may, except as otherwise provided in this Plan, direct the investment of all of the amounts credited to his Pre-Tax Contribution Account in a single Fund, or the Participant may direct five percent (5%) increments (or multiples of five percent (5%) increments) of amounts allocable to his Pre-Tax Contribution Account to be invested in such Funds as he shall desire. As set forth in Section 3.2(c), if an eligible Employee becomes a Participant due to the automatic enrollment provisions under Section 3.2(c), his Pre-Tax Contributions made after the Automatic Enrollment Effective Date shall be allocated to the Income Fund unless he designates the Fund or Funds to which such amounts should instead be allocated. (b) INVESTMENT OF MATCHING CONTRIBUTIONS ACCOUNTS. --------------------------------------------- Subject to the provisions of this Section 6.2, each Participant shall designate, on a form supplied by the Advisory Committee, signed by the Participant and delivered to the Advisory Committee, the amounts credited to his Employer Matching Contribution Account that are to be invested in one or more of the Funds (other than the ESOP Fund). Each Participant may, except as otherwise provided in this Plan, direct the investment of all of the amounts credited to his Matching Contribution Account in a single Fund, or the Participant may direct five percent (5%) increments (or multiples of five percent (5%) increments) of amounts allocable to his Matching Contribution Account to be invested in such Funds as he shall desire. (c) INVESTMENT OF ESOP CONTRIBUTIONS. Except as otherwise -------------------------------- provided in Section 6.4(b), Participants shall not be allowed to direct the investment of their ESOP Accounts. Rather, all ESOP Contributions allocable to each Participant's ESOP Account will automatically be allocated to and invested as part of the ESOP Fund. The investment of the ESOP Fund shall be in the discretion of the ESOP Trustee, subject to the provisions of this Plan. To the extent permitted by Section 6.4(b) and subject to the provisions of this Section 6.2, each qualified Participant may elect to direct the investment of a portion of his ESOP Account in one or more of the Funds (other than the ESOP Fund). The direction shall be made on a form supplied by the Advisory Committee, signed by the qualified Participant and delivered to the Advisory Committee. The portion of the qualified Participant's ESOP Account that may be invested at the qualified Participant's direction, as determined pursuant to Section 6.4(b), may be invested in a single Fund, or the qualified Participant may direct five percent (5%) increments (or multiples of five percent (5%) increments) of amounts allocable to his ESOP Account to be invested in such Funds as he shall desire. (d) INVESTMENT OF PROFIT SHARING AND AFTER-TAX ------------------------------------------ CONTRIBUTIONS ACCOUNTS. Subject to the provisions of this Section - ---------------------- 6.2, each Participant shall designate, on a form supplied by the Advisory Committee, signed by the Participant and delivered to the Advisory Committee, the amounts credited to his Profit Sharing Account or his After-Tax Contributions Account that are to be invested in one or more of the Funds (other than the ESOP Fund). Each Participant may, except as otherwise provided in this Plan, direct the investment of all the amounts credited to his Profit Sharing Account and his After-Tax Contributions Account in a single Fund, or the Participant may direct five percent (5%) increments (or multiples of five percent (5%) increments) of amounts allocable to his Profit Sharing Account and/or his After-Tax Contributions Accounts to be invested in such Funds as he shall desire. (e) LIMITATION ON INVESTMENTS IN ESOP FUND. If there is -------------------------------------- then in effect with respect to the ESOP Fund a registration statement or offering circular pursuant to the Securities Act of 1933, a Participant may direct investment of any sums attributable to his Pre-Tax Contribution Account to the ESOP Fund. The Advisory Committee shall determine, in its sole and exclusive discretion (but in reliance upon legal counsel, if it desires), when sums allocable to the Pre-Tax Contribution Accounts of Participants may be invested in the ESOP Fund. If permitted pursuant to uniform, nondiscriminatory rules adopted by the Advisory Committee, to the extent provided in this Section 6.2, it shall be permissible, if so directed by Participants, for all sums allocable to the Employer Matching Contribution Accounts to be invested in the ESOP Fund. The ESOP Trustee is specifically authorized and empowered, pursuant to this Plan and in accordance with the terms and provisions of the ESOP Trust Agreement, to hold any amount of "qualifying employer securities" (as defined in Section 407(d)(5) of the Act) without regard to the diversification requirements of Section 404(a)(1)(C) and Section 407(a) of the Act, as permitted pursuant to Section 404(a)(2) and Section 407(b)(1) of the Act. (f) NO DISTINCTION BETWEEN INCOME AND PRINCIPAL. The ------------------------------------------- income of and gains of each Fund shall be added to the Fund and each Fund shall be invested without distinction between principal and income. (g) EFFECT OF WRITTEN INSTRUCTION. The written investment ----------------------------- directive of a Participant shall be effective until another written directive is received by the Advisory Committee. Subject to the last sentence of Section 3.2(c), the Trustee, in its discretion, will invest the portion of the Participant's Accounts for which the Participant has the right to issue, but has not issued, investment directions in accordance with this Plan and the Trust Agreement. (h) FORMER PARTICIPANTS AND BENEFICIARIES. For purposes ------------------------------------- of this ARTICLE SIX, the term "Participant" shall be deemed to include former Participants and Beneficiaries of any deceased Participant. (i) VOTING, TENDER OFFERS, OR SIMILAR RIGHTS. Unless ---------------------------------------- passed through to the Participants, the Trustee, in its discretion, shall vote all proxies relating to the exercise of voting, tender or similar rights that are incidental to the ownership of any asset which is held in any Fund, other than the ESOP Fund. (j) INVESTMENT OF ROLLOVER CONTRIBUTION ACCOUNTS. -------------------------------------------- Effective November 1, 1997, subject to the provisions of this Section 6.2, each Employee shall designate, on a form supplied by the Advisory Committee, signed by the Participant and delivered to the Advisory Committee, the amounts credited to his Rollover Contribution Account that are to be invested one or more of the Funds (other than the ESOP Fund). Each Participant may, except as otherwise provided in this Plan, direct the investment of all of the amounts credited to his Rollover Contribution Account in a single Fund, or the Participant may direct five percent (5%) increments (or multiples of five percent (5%) increments) of amounts allocable to his Rollover Contribution Account to be invested in such Funds as he shall desire. 6.3. CHANGE IN INVESTMENT DIRECTIONS. ------------------------------- (a) RULES. Participants may elect to change their ----- investment directions with respect to future contributions during the months of March, June, September and December, with the changes to be effective as of the first day of the first payroll period beginning in the next succeeding calendar quarter, if the notice of change is received by the Advisory Committee at least ten (10) days prior to the beginning of such calendar quarter or within such shorter period as the Advisory Committee may prescribe pursuant to rules of uniform application. (b) GENERAL. All changes shall be permitted subject to ------- the provisions of Section 6.2 regarding the available investments for various types of contributions. Any change shall be made pursuant to a form provided by the Advisory Committee, signed by the Participant and delivered to the Advisory Committee. 6.4. TRANSFERS BETWEEN INVESTMENT FUNDS. ---------------------------------- (a) GENERAL. Except as provided in this Section 6.4, a ------- Participant may transfer all or a portion of his Accounts invested in a Fund to another Fund or Funds as of the Accounting Date for which such notice is given in accordance with uniformly applied nondiscriminatory rules of the Advisory Committee. All transfers shall be subject to the requirements and limitations of Section 6.2. Each such transfer shall be made pursuant to a form provided by the Advisory Committee, signed by the Participant and delivered to the Advisory Committee at least five (5) working days prior to the Accounting Date for which such notice is given or within such shorter period as the Advisory Committee may prescribe for the receipt of such forms pursuant to rules of uniform application. Transfers may be made four (4) times each Plan Year, effective as of an Accounting Date. (b) ESOP DIVERSIFICATION ELECTION. ESOP Contributions ----------------------------- allocable to a Participant's ESOP Account and amounts transferred to the ESOP Fund from amounts credited to a Participant's other Accounts may not be transferred from the ESOP Fund to another Fund or Funds, except as provided in this Section 6.4(b). A Participant shall become a "qualified Participant" and may elect to diversify his ESOP Account after attaining age fifty-five (55) and being credited with ten (10) or more years of participation in the Plan since the later of (1) the date he commenced participation in the Plan or (2) January 1, 1988 (which is the date as of which the ESOP feature was added to this Plan). (In other words, no Participant will be allowed to diversify his ESOP Account prior to January 1, 1998.) A qualified Participant may elect to diversify twenty-five percent (25%) of his or her ESOP Account during the "qualified election period." The "qualified election period" is the six (6) year period commencing with the Plan Year in which the Participant becomes a qualified Participant. In addition, in the final year of the six (6) year qualified election period, a Participant may diversify fifty percent (50%) of his or her ESOP Account balance. A qualified Participant may elect to diversify his ESOP Account by directing the investment of up to the available percentage of such account (twenty-five percent (25%) or fifty percent (50%) as the case may be) to one or more of the Funds (other than the ESOP Fund) in accordance with the provisions of Sections 6.3 and 6.4, commencing as of the first day of the first Plan Year falling within the qualified election period. Beginning with the first day of the first Plan Year falling within the qualified election period, the restrictions on the transfer of the portion of any Account other than the ESOP Account from the ESOP Fund to any other Fund, as set forth in the first sentence of this paragraph, shall no longer be applicable to such qualified Participant and such transfers may be accomplished pursuant to the rules of Section 6.4(a). 6.5. LOANS TO PLAN PARTICIPANTS. -------------------------- (a) GENERAL. The Advisory Committee is authorized to ------- direct the Administrative Trustee to make a loan or loans to a Participant in an earmarked investment of the Participant's Accounts. Such loan shall be available to all Participants on a non-discriminatory basis, except that the Advisory Committee may refuse to make a loan or may limit a loan on the basis of credit worthiness. The Advisory Committee shall not direct the Administrative Trustee to make loans to Highly Compensated Employees in amounts which, when expressed as a percentage of the Participant's vested interest in his Accounts, are greater than those available to other Participants; provided, however, that the Advisory Committee may adopt a rule precluding loans of less than One Thousand Dollars ($1,000). As a general rule, a Participant may not have more than one (1) loan outstanding at any particular time and a Participant may not receive a loan for a period of one (1) year following the repayment of an earlier loan. The limitations referred to in the preceding sentence shall not apply if the Advisory Committee determines that the Participant has a "hardship" within the meaning of Section 9.3. (b) AMOUNT. The total outstanding loans from the Trust ------ Fund to any Participant at any time shall not exceed the lesser of (a) fifty percent (50%) of the Participant's vested interest in his Accounts, or (b) ninety percent (90%) of the portion of the Participant's Accounts that is invested in the Income Fund, both determined as of the most recent Accounting Date for the Plan. Any loan which is made pursuant to this Section shall be treated as a taxable distribution to the extent that it causes the outstanding balance at any time of all loans from all "employee pension benefit plans" (as defined in the Act) of the Employer and its Affiliates that are intended to "qualify" under Section 401(a) of the Act to exceed fifty percent (50%) of the present value of the Participant's nonforfeitable accrued benefit under all such plans; provided that such maximum shall not be less than Ten Thousand Dollars ($10,000.00) nor more than Fifty Thousand Dollars ($50,000.00) with such Fifty Thousand Dollar ($50,000.00) limitation to be reduced by the highest outstanding loan balance during the twelve (12) month period preceding the date on which a loan is made. The Advisory Committee may, in the exercise of its discretion, prohibit the making of any loan that would be treated as a taxable distribution. The Advisory Committee may also impose such other limitations and restrictions with respect to the amount of loans as it deems necessary or advisable, provided that such limitations or restrictions shall be consistent with the applicable provisions of the Act and the Code. (c) SECURITY. The loan shall be evidenced by the -------- Participant's promissory note and shall be secured by an assignment of the Participant's vested interest in his Employer Contributions Account and such additional collateral as the Advisory Committee shall deem necessary, provided that in no event shall the loan be secured by an assignment of more than fifty percent (50%) of the Participant's vested nonforfeitable interest in his Accounts. In determining whether a pledge of additional collateral is necessary, the Administrative Trustee shall consider the Participant's credit worthiness and the impact on the Plan in the event of a default under the loan prior to the Participant's Benefit Commencement Date. (d) INTEREST RATE. All loans shall bear interest at a ------------- rate determined by the Advisory Committee which shall be commensurate with the interest rates charged by persons in the business of lending money for similar loans. Subject to the foregoing, the terms of any loan shall be arrived at by mutual agreement between the Administrative Trustee and the Participant pursuant to a uniform, nondiscriminatory policy. (e) REPAYMENT. All loans shall be repayable in monthly, --------- quarterly or more frequent installments over a period not exceeding five (5) years. All loans shall be repayable by payroll withholdings or in the case of a former Employee or an Employee on a leave of absence by any other means acceptable to the Advisory Committee. Repayments will be credited to the respective Accounts from which the funds have been borrowed and shall be invested in the Income Fund. (f) COSTS. Any costs incurred or charged by the ----- Administrative Trustee to establish, process or collect the loan shall be charged directly and solely to the Participant. Any loan set-up fees or expenses will be subtracted from the loan proceeds unless other mutually agreeable arrangements are made by the Administrative Trustee and the Participant. Any other fees charged to process or collect a loan (including, but not limited to, quarterly maintenance fees) shall be paid by the Participant to the Administrative Trustee by payroll deduction (in the case of an active Employee) or by such other means as may be agreeable to the Administrative Trustee (in the case of a former Employee or an Employee on leave of absence). (g) TREATMENT OF EARNINGS OR LOSSES. The portion of any ------------------------------- Participant's Account that is loaned to the Participant shall be disregarded for purposes of allocating earnings or losses pursuant to Section 8.3. The loan shall be treated as a segregated or earmarked investment of the appropriate Account and all principal and interest payments made on the loan, and all losses suffered on the loan, shall be allocated to the appropriate Account. (h) DEFAULT. In the event that the Participant does not ------- repay such loan or loans and the interest thereon in a timely fashion, the Administrative Trustee may exercise every creditors right at law or equity available to the Administrative Trustee. The Administrative Trustee may not, however, deduct or offset the payments in default or the unpaid outstanding balance of the loan from or against the Participant's Accounts until such time as the Account becomes payable pursuant to the provisions of this Plan. When payments become due hereunder, the Administrative Trustee may deduct the total amount of the loan then outstanding, together with any interest then due and owing, from any payment or distribution (including any payment due to the Participant's surviving spouse pursuant to Section 11.3) to which such Participant or his Beneficiary or Beneficiaries may become entitled. Loan instruments may provide for acceleration of payment of any unpaid balance in the event of a default following the Participant's termination of employment. (i) DISTRIBUTION. A Participant who has (i) attained the ------------ age of fifty-nine and one-half (59-1/2) and has been a Participant in the Plan for five (5) or more years or (ii) terminated employment with the Employer shall be entitled to request to receive a distribution of one or more of the notes representing a loan or loans made to such Participant from the Plan pursuant to Section 6.5(a). The Advisory Committee shall honor such requests as soon as possible following the receipt of all necessary forms. Such request shall be subject to the spousal consent requirements of Section 9.6. (j) SPOUSAL CONSENT. No loan will be made to any married --------------- Participant unless the Participant's spouse consents to the loan. The spouse's consent must be in writing, acknowledge the effect of the loan on the benefits ultimately payable from the Plan and the effect of the spouse's consent to the loan and be witnessed by a notary public or a designated representative of the Advisory Committee. The consent must be filed with the Advisory Committee within the ninety (90) day period ending on the date on which the loan is made. A spouse may not consent to Participant loans generally but rather must consent to loans of specific amounts to be made at specified times and on specified terms and conditions. If the amount of the loan or the terms and conditions under which the loan will be made are later changed, a new consent will be required. A new consent will be required each time a Participant borrows money from the Plan. No spousal consent shall be required if the Advisory Committee determines, in its sole and absolute discretion, that the spouse cannot be located or other circumstances exist that preclude the Participant from obtaining such consent (as permitted under the applicable regulations issued by the United States Treasury Department). For purposes of this Section 6.5, the renewal of a loan shall be treated as a new loan and spousal consent again shall be required. (k) SUSPENSION OF LOAN PAYMENTS UNDER CODE SECTION 414(U). ----------------------------------------------------- Loan repayments will be suspended under the Plan as permitted under Section 414(u) of the Code. 6.6. LIFE INSURANCE. -------------- (a) AVAILABILITY. Each Participant who was a Participant ------------ in the Plan and had a policy in force on or before October 30, 1985, shall have the right to direct that a portion of his Employer Matching Contribution Account (not credited to the ESOP Fund) and Pre-Tax Contribution Account shall be invested in a policy or policies of insurance upon his life. All such investments shall be earmarked as an investment of the Participant's Accounts. Subject to the provisions of this Section 6.6, a Participant may direct investment in term life, universal life, and/or whole life policies and may specify the percentages of his Accounts to be so invested. All such directives shall be made in writing to the Advisory Committee. The Participant shall also execute such application forms, statements and claim forms as the Advisory Committee, Administrative Trustee or insurer may reasonably request in connection with policies acquired pursuant to the Participant's direction. Notwithstanding anything in this Section 6.6 to the contrary, Participants may not increase their life insurance coverage beyond the levels in effect as of October 30, 1985. (b) LIMITATION ON AMOUNT OF PREMIUMS. In all cases, the -------------------------------- percentage of Pre-Tax Contributions and Employer Matching Contributions, exclusive of income and appreciation thereon, used to purchase whole life insurance policies must be less than fifty percent (50%) of such contributions, and the percentage of contributions, exclusive of income and appreciation thereon, used to purchase term life or universal life insurance policies must be less than twenty-five percent (25%) of such contributions. In the event that either a term or universal life insurance contract may be purchased for a Participant in addition to a whole life insurance contract, the sum of one-half (1/2) of the premiums on ordinary life insurance contracts and all premiums on term life or universal life insurance contracts shall not exceed twenty-five percent (25%) of such contributions, exclusive of income and accruals thereon, allocable to the Participant's respective Accounts. (c) PREMIUMS AND DIVIDENDS. The Advisory Committee shall ---------------------- take reasonable action to assure that premiums shall be paid when due. Dividends, refunds and other credits on policies shall be applied to reduce premiums on such policies, to acquire additional paid-up insurance benefits or may be taken in cash allocable to the Participant's Accounts, as the Advisory Committee shall direct. The Advisory Committee may direct the Administrative Trustee to borrow against policies to pay premiums thereon. In the event that amounts to be allocated toward the purchase of insurance policies are insufficient to meet the required premium payments, the Advisory Committee shall direct the Administrative Trustee to reduce policy coverage amounts, to exchange or convert policies or to allow policies to lapse. (d) MODES OF SETTLEMENT. The modes of settlement under ------------------- any policy acquired pursuant to this Section 6.6 shall be limited to the forms of distribution described in this Section 6.6. All policies shall by their express terms be nontransferable by the Participant or shall be rendered so prior to distribution to the Participant. (e) DISTRIBUTIONS. When benefits become payable to a ------------- Participant pursuant to this Section 6.6, and a policy is held for the benefit of such Participant pursuant to this Section 6.6, the Advisory Committee shall direct the Administrative Trustee either to (1) surrender such policy in cash settlement (with such settlement being allocable to the appropriate Accounts of the Participant), (2) convert such policy to a nontransferable contract or contracts providing payments in any form described in ARTICLE ELEVEN, without life insurance coverage, and deliver such contract or contracts so converted to the Participant, or (3) deliver such policy to the Participant without conversion, after rendering such policy nontransferable. (f) RIGHTS OF PARTICIPANT. The fact that any contract is --------------------- issued or based on the life of a Participant shall not vest any right, title or interest in such contract in the Participant except at the time and upon the terms and conditions set forth in this Plan. (g) TREATMENT OF INSURANCE POLICIES. The portion of any ------------------------------- account or subaccount that is invested in an insurance policy on the Participant's life shall be disregarded for purposes of allocating earnings or losses pursuant to Section 8.3. The insurance policy shall be treated as a segregated or earmarked investment of the appropriate Account and all premiums payable on the policy and all dividends, credits, cash values, proceeds or other amounts payable pursuant to the policy shall be credited or charged, as the case may be, solely to that Account. ARTICLE SEVEN ------------- THE ESOP FUND ------------- 7.1. ESOP FUND. --------- (a) GENERAL. The ESOP Fund is an "employee stock ------- ownership plan" as defined in Section 407(d)(6) of the Act and Section 4975(e)(7) of the Code, which is designed to invest primarily in Employer Securities. (b) USE OF CONTRIBUTIONS AND DIVIDENDS. All ESOP ---------------------------------- Contributions shall be used by the ESOP Trustee to acquire Employer Securities to be held by the ESOP Fund or to pay the principal and interest on any loan entered into pursuant to the provisions of this ARTICLE SEVEN. Dividends on shares of Employer Securities allocated to the Loan Suspense Account and earnings on ESOP Contributions allocated to the Loan Suspense Account may be used to repay any loan entered into pursuant to this ARTICLE SEVEN. (c) TRANSFERS TO FUND. Subject to ARTICLE SIX, ----------------- Participants may transfer amounts allocable to their Employer Matching Contribution Accounts to the ESOP Fund for the purpose of acquiring Employer Securities; provided that amounts allocable to Participants' Employer Matching Contribution Accounts may not be used to pay principal and/or interest on any loan entered into pursuant to this ARTICLE SEVEN, the proceeds of which were used by the ESOP Trustee to acquire Employer Securities. Amounts allocable to Participants' Pre-Tax Contribution Accounts and After-Tax Contribution Accounts may be invested in or transferred to the ESOP Fund only in accordance with ARTICLE SIX and may not be used to pay principal and/or interest on any loan entered into pursuant to this ARTICLE SEVEN, the proceeds of which were used by the ESOP Trustee to acquire Employer Securities. 7.2. LOANS TO ACQUIRE EMPLOYER SECURITIES. ------------------------------------ (a) BORROWING IN GENERAL. The Advisory Committee shall -------------------- have the authority to direct the ESOP Trustee to borrow funds to purchase Employer Securities. In the event that such funds are borrowed from, or the loan is guaranteed by, a "disqualified person," as defined in Section 4975(e)(2) of the Code, or a "party in interest," as defined in Section (3)(14) of the Act, such loan shall be made only in accordance with all of the provisions of this ARTICLE SEVEN. Any loan entered into by the ESOP Trustee in connection with the purchase of Employer Securities shall be directed by the Advisory Committee and shall be primarily for the benefit of Participants and their Beneficiaries. (b) USE OF LOAN PROCEEDS. The proceeds of any loan shall -------------------- be used within a reasonable time after receipt only for all or any of the following purposes: (1) To acquire Employer Securities; (2) To repay the loan entered into in connection with the purchase of Employer Securities as provided in (a) above; or (3) To repay a prior loan entered into in connection with the purchase of other Employer Securities. The provisions of this ARTICLE SEVEN are intended to be in accordance with Section 4975(d)(3) of the Code and applicable regulations thereunder and Section 408(b)(3) of the Act and applicable regulations thereunder. This ARTICLE SEVEN is to be construed in a manner consistent with such intention. 7.3. TERMS OF LOANS TO ACQUIRE EMPLOYER SECURITIES. --------------------------------------------- (a) LOAN TERMS. Any loan transaction entered into by the ---------- ESOP Trustee at the direction of the Advisory Committee in order to purchase Employer Securities must, as determined in good faith by the Advisory Committee at the time the loan is made, be at least as favorable to the Plan as the terms of a comparable loan resulting from an arm's-length negotiation between independent parties. The interest rate of any such loan must not be in excess of a reasonable rate of interest considering the amount and duration of the loan, the security and any guaranty involved, the credit standing of the Plan, the guarantor, if any, and the interest rate prevailing for comparable loans. Any loan entered into in connection with this ARTICLE SEVEN shall be for a specific term and may not be payable at the demand of any person, except in the case of default. (b) RECOURSE OF LENDER. Any loan transaction entered into ------------------ by the ESOP Trustee in connection with this ARTICLE SEVEN shall provide that the lender shall be without recourse against the ESOP Fund, provided that the lender may have recourse against assets of the Trust Fund that consist of (1) Employer Securities acquired with the proceeds of the loan and provided as collateral for the loan, (2) Employer Securities used as collateral on a prior loan repaid with the proceeds of the current loan, (3) ESOP Contributions, other than ESOP Contributions consisting of Employer Securities, that are made under the Plan in order to enable the ESOP Trustee to meet its obligations under the loan, (4) earnings attributable to the Employer Securities given as collateral and (5) the earnings from investment of ESOP Contributions credited to the Loan Suspense Account. (c) LIMITATION ON PAYMENTS; ALLOCATION OF CONTRIBUTIONS. --------------------------------------------------- Payments on a loan during a Plan Year shall not exceed an amount equal to the sum of ESOP Contributions, other than ESOP Contributions consisting of Employer Securities, made by the Employers in order to enable the ESOP Trustee to meet its obligation under the loan, together with earnings thereon and dividends on Employer Securities allocated to the Loan Suspense Account, received during or prior to the Plan Year, less payments on the loan in prior Plan Years. Any such ESOP Contributions and the earnings thereon and dividends on Employer Securities allocated to the Loan Suspense Account shall be accounted for separately in the books of account of the Plan by crediting such contributions, the earnings thereon and such dividends to the Loan Suspense Account, rather than to the ESOP Accounts of Participants. (d) REMEDIES. Any such loan shall also provide that in -------- the event of default, the value of Plan assets transferred in satisfaction of the loan must not exceed the amount of default. The loan shall provide for a transfer of Plan assets upon default only upon and to the extent of the failure of the Plan to meet the payment schedule of the loan. 7.4. THE LOAN SUSPENSE ACCOUNT. ------------------------- (a) ALLOCATIONS TO LOAN SUSPENSE ACCOUNT. Employer ------------------------------------ Securities purchased with the proceeds of a loan entered into pursuant to this ARTICLE SEVEN shall not be credited to ESOP Accounts, but shall be credited to the Loan Suspense Account. One (1) or more such accounts may be established under this Section 7.4 with respect to one (1) or more such loans. ESOP Contributions and income thereon that are to be utilized by the ESOP Trustee for the purpose of paying the principal and interest on a loan entered into pursuant to this ARTICLE SEVEN and dividends payable on Employer Securities allocated to the Loan Suspense Account shall also be credited to the Loan Suspense Account. (b) RELEASE OF SHARES FROM LOAN SUSPENSE ACCOUNT. As of -------------------------------------------- each Accounting Date during the duration of the loan, the number of shares of Employer Securities released from the Loan Suspense Account for allocation pursuant to Section 8.2 shall equal the number of Employer Securities allocated to the Loan Suspense Account immediately before release as of the Accounting Date multiplied by a fraction. The numerator of the fraction is the principal and interest paid for the period ending on the Accounting Date, and the denominator of the fraction is the sum of the numerator plus all principal and interest to be paid for all future periods, determined without taking into account extensions, renewals or refinancings. If the interest rate under the loan is variable, the interest to be paid in future years must be computed by using the interest rate applicable as of the Accounting Date. The foregoing method of release shall be utilized by the Advisory Committee, unless the loan documents specifically require the release of Employer Securities from the Loan Suspense Account for allocation to the ESOP Accounts of Participants pursuant to Section 8.2 in accordance with a different method permitted by Section 4975(d)(3) of the Code and the regulations thereunder. If the Loan Suspense Account includes more than one (1) class of Employer Securities, the number of Employer Securities of each class to be released for a Plan Year must be determined by applying the same fraction to each class. Such released Employer Securities shall be subject to allocation pursuant to Section 8.2. 7.5. PUT OPTION. ---------- (a) GENERAL RULE. Employer Securities distributed ------------ pursuant to ARTICLE ELEVEN shall be subject to a put option as provided in this Section 7.5 if the Employer Securities are not publicly traded when the Employer Securities are distributed, or if the Employer Securities are subject to a "trading limitation" when distributed. For purposes of this Section 7.5, a "trading limitation" is a restriction under any Federal or state securities law or any regulation thereunder affecting the security that would make the Employer Securities not as freely tradeable as Employer Securities not subject to the restriction. (b) EXERCISE OF PUT OPTION. The put option granted ---------------------- pursuant to this Section 7.5 may be exercisable by the Participant, a donee of the Participant, a Beneficiary receiving the Employer Securities or by any other person (including the Participant's estate or its distributees) to whom the Employer Securities pass by reason of the Participant's death. In the event that Employer Securities are subject to the put option granted by this Section 7.5, the holder of the option may "put" the securities to the Corporation by notifying the Corporation in writing that he is exercising the put option granted by this Section 7.5. (c) PRICE. The price at which the option is exercisable ----- shall be the fair market value of the Employer Securities as of the most recent Accounting Date under the Plan, with fair market value as of such date being determined by an independent appraiser (as such term is defined in Section 401(a)(28) of the Code) pursuant to applicable regulations issued by the Internal Revenue Service; provided, however, that if the holder of the put option is a "disqualified person" as defined in Section 4975(e)(2) of the Code, the fair market value shall be determined as of the date of exercise. (d) PUT TO CORPORATION. The put option granted pursuant ------------------ to this Section 7.5 shall extend to the Corporation and shall not extend to the Plan. However, the Advisory Committee shall have the option to assume for the Plan the rights and obligations of the Corporation at the time that the put option is exercised, if it so desires. Any other Affiliate may also assume the put exercise before the Corporation. If the Plan assumes the put, the put against the Corporation and/or Affiliates shall be extinguished. (e) PUT TO AFFILIATE. In the event that, at the time a ---------------- loan is entered into pursuant to this ARTICLE SEVEN, it is known that Federal or state law will be violated by the Corporation or another Affiliate honoring the put option, the Corporation shall arrange for put options to be exercised before a party which is an Affiliate, having substantial net worth at the time the loan is made, and whose net worth is reasonably expected to remain substantial. (f) PERIOD OF EXERCISE. The put option shall be ------------------ exercisable initially for a sixty (60) day period, beginning on the date the security subject to the put option is distributed (the "first put option period"), and for an additional sixty (60) day period in the next following Plan Year (the "second put option period") if the put is not exercised during the first put option period. Upon the close of the Plan Year during which the security is distributed, the independent appraiser retained pursuant to Section 401(a)(28) of the Code shall determine the value of the Employer Securities and the Advisory Committee shall then notify each former Participant who did not exercise the put option during the initial put option period of the new value. Unless regulations issued by the United States Treasury Department provide otherwise, the second put option period shall then begin on the date such notice is given and shall end sixty (60) days thereafter. The period during which a put option pursuant to this Section 7.5 shall be exercisable shall not include any time in which a distributee is unable to exercise the put option because the Corporation or other party bound by the put option is prohibited from honoring it by applicable state or Federal law. (g) CHANGE IN TRADING OF SECURITIES. If a Participant ------------------------------- receives Employer Securities which are publicly traded without restriction when distributed from the Trust Fund but which cease to be so traded before the expiration of that former Participant's second put option period, the put option provisions of this Section 7.5 may be exercised by that former Participant during the balance (if any) of the first and/or second put option periods. The Corporation will notify each such former Participant of the applicability of this Section 7.5 in writing on or before the tenth (10th) day after the day on which the Employer Securities previously distributed cease to be so publicly traded. The number of days between such tenth (10th) day and the date on which notice is actually given, if later than the tenth (10th) day, shall be added to the duration of the put option, if (but only if) the notice is given, or required to be given, during a put option period. Any such notice shall inform distributees of the terms of the put option that they are to hold. (h) PAYMENT. Deferred payments under an exercised put ------- option shall be permissible if adequate security and a reasonable interest rate are provided. If a put option is exercised with respect to Employer Securities received as a lump sum distribution from the Plan, payments may be made in a lump sum or in equal installments not less frequently than annually, beginning within thirty (30) days after the date the put option is exercised, for a period of not more than five (5) years. The determination of whether payment shall be made in installments or in a lump sum shall be made by the party to whom the Employer Securities may be put, in its sole discretion. If a put option is exercised with respect to Employer Securities received as part of an installment distribution under the Plan, full payment for the Employer Securities shall be made within thirty (30) days after the put option is exercised. Payment of the put option described in this Section 7.5 shall not be restricted by the provisions of a loan agreement or any other arrangement, including the terms of the Corporation's or Affiliates' charters or articles of incorporation, unless so required by applicable state law. (i) OBLIGATION TO ACQUIRE SECURITIES. Except as provided -------------------------------- above, the Plan may not otherwise obligate itself to acquire Employer Securities from a particular Employer Security holder at an indefinite time determined upon the happening of an event such as the death of the holder. 7.6. RIGHT OF FIRST REFUSAL. ---------------------- (a) GENERAL RULE. If any Participant or his Beneficiary ------------ to whom shares of Employer Securities are distributed from the Plan shall, at any time, desire to sell some or all of such shares to a third party, the Participant or Beneficiary shall, prior to such sale, give written notice of such desire to the Employer and the Advisory Committee, which notice shall set forth the number of shares offered for sale, the proposed terms of the sale and the names and addresses of both the Participant or Beneficiary and the third party. Employer Securities that were not acquired with the proceeds of an exempt loan shall be subject to such rights of first refusal or other restrictions as may be specified from time to time in the Employer's Articles of Incorporation or By-Laws, or in any applicable agreement. Employer Securities that were acquired with the proceeds of an exempt loan under this ARTICLE SEVEN shall be subject to the right of first refusal described below Section 7.5. The right of first refusal provided by this Section shall not be applicable to any transfer of Employer Securities at a time when such securities are listed on a National Securities Exchange registered under Section 6 of the Securities Exchange Act of 1934, or quoted on a system sponsored by a national securities association registered under Section 15A(b) of the Securities Exchange Act of 1934. (b) TIME PERIODS. Both the Advisory Committee, acting on ------------ behalf of the Plan, and the Employer shall each have a right of first refusal for a period of fourteen (14) days from the date of such written notice to acquire the shares of Employer Securities subject to the sale. As between the Advisory Committee and the Employer, the Advisory Committee shall have priority to acquire the shares pursuant to the right of first refusal. (c) PRICE AND TERMS. The selling price and other sale --------------- terms under the right of first refusal shall be the same as offered by the Participant and Beneficiary to the third party, unless the fair market value of the Employer Securities as of the immediately preceding Accounting Date, as determined by the independent appraiser retained pursuant to Section 401(a)(28) of the Code, is higher, in which case such higher price shall be paid. (d) SALE TO THIRD PARTY. If the Advisory Committee and ------------------- the Employer do not exercise their respective rights of first refusal within the fourteen (14) day period provided above, the Participant or his Beneficiary shall have the right, at any time following the expiration of such fourteen (14) day period, to sell the Employer Securities to the third party; provided, however, that (1) no sale shall be made to the third party on terms more favorable to the third party than the terms set forth in the written notice of sale delivered to the Advisory Committee or Employer by the Participant or his Beneficiary, and (2) if the sale is not made to the third party on the terms offered to the Employer and the Advisory Committee, the Employer Securities subject to such sale shall again be subject to the right of first refusal set forth above. (e) TRANSFER OF SHARES. Following the Employer's or ------------------ Advisory Committee's exercise of the right of first refusal, the sale shall take place at such place agreed upon between the Advisory Committee or Employer and the Participant or Beneficiary, no later than ten (10) days after the Employer or the Advisory Committee shall have notified the Participant or Beneficiary of its exercise of the right of first refusal. The Participant or Beneficiary shall deliver certificates representing the Employer Securities subject to such sale duly endorsed in blank for transfer, or with stock powers attached duly executed in blank with all required transfer tax stamps attached or provided for, and the Employer or the Advisory Committee shall deliver the purchase price, or an appropriate portion thereof, to the Participant or Beneficiary. (f) OTHER RESTRICTIONS PROHIBITED. Except as provided in ----------------------------- this Section or in Section 7.5, or as otherwise required by applicable law, no Employer Securities acquired with the proceeds of an exempt loan may be subject to put, call or option, or buy-sell or similar arrangement, while held by and when distributed from this Plan, whether or not the Plan is then an "employee stock ownership plan" as defined in Section 4975(e)(7) of the Code. 7.7. NONTERMINABLE PROTECTIONS AND RIGHTS. ------------------------------------ The protections and rights accorded by Sections 7.5 and 7.6 to Participants and Beneficiaries or other persons (including the Participant's estate or its distributees) to whom Employer Securities pass by way of gift from the Participant or by reason of the Participant's death shall never terminate, even if all loans described in Section 7.2 have been repaid or the Plan ceases to be an "employee stock ownership plan" as defined in Section 4975(e)(7) of the Code. The fact that a put option is not exercisable pursuant to the provisions of Section 7.5, however, shall not violate the requirements of this Section 7.6. ARTICLE EIGHT ------------- ACCOUNTING ---------- 8.1. INDIVIDUAL ACCOUNTS. ------------------- A separate ESOP Account and Profit Sharing Account shall be maintained for each Participant in the Plan. A separate Pre-Tax Contribution Account and Employer Matching Contribution Account shall be maintained for each Participant who elects to make Pre-Tax Contribution and on whose behalf an employer makes Employer Matching Contributions. In addition, a separate After-Tax Contribution Account shall be maintained for each Participant who has made and not withdrawn After-Tax Contributions. Finally, effective November 1, 1997, a separate Rollover Contribution Account shall be maintained for each Employee who has made Rollover Contributions. The Accounts will separately reflect balances derived from Profit Sharing Contributions, Employer Matching Contributions, ESOP Contributions, Pre-Tax Contributions, and After-Tax Contributions made by or on behalf of the Participant and shall reflect the fair market value, as of the most recent Accounting Date, of the Participant's interest in the Funds; provided that the ESOP Fund shall be valued only as of each year-end Accounting Date, except as otherwise required pursuant to this Plan. Accounts shall not reflect amounts credited to the Loan Suspense Account pursuant to ARTICLE SEVEN. The Accounts shall reflect any withdrawals, loans to Participants, life insurance acquisitions and distributions to the Participant. The establishment and maintenance of separate Accounts for each Participant shall not be construed as giving any person any interest in any specific assets of the Funds, which shall be administered as separately identifiable commingled Funds, and as loan and life insurance investments, unless and until otherwise directed by the Advisory Committee or expressly provided in this Plan. 8.2. ALLOCATION OF CONTRIBUTIONS. --------------------------- (a) EMPLOYER MATCHING CONTRIBUTIONS. Employer Matching ------------------------------- Contributions made pursuant to Section 5.4 shall be allocated among the Employer Matching Contribution Accounts of Participants who were Employees of the Employers during the Plan Year by crediting each such respective Participant's Employer Matching Contribution Account with the Employer Matching Contribution made on his behalf. (b) ESOP CONTRIBUTIONS AND EMPLOYER SECURITIES RELEASED --------------------------------------------------- FROM THE LOAN SUSPENSE ACCOUNT. Regular ESOP Contributions made - ------------------------------ pursuant to Section 5.2(a) that are not allocated to the Loan Suspense Account pursuant to Section 7.4 shall be allocated to the ESOP Account of each eligible Participant by crediting each such Participant's ESOP Account in the ratio that each such Participant's Earnings for the Plan Year bear to the Earnings of all such Participants for the Plan Year. Employer Securities allocated to the Loan Suspense Account that become subject to allocation to ESOP Accounts pursuant to Sections 7.4 which are attributable to ESOP Contributions used by the ESOP Trustee to meet its obligations under a loan pursuant to Section 7.2 shall be allocable as of the year-end Accounting Date on which such Employer Securities are released from the Loan Suspense Account among the ESOP Accounts of all eligible Participants in the ratio that each such Participant's Earnings for such Plan Year bear to the Earnings for such Plan Year of all such Participants. Special ESOP Contributions made pursuant to Section 5.2(b) and special "per capita" ESOP Contributions made pursuant to Section 5.2(c) shall be allocated to the ESOP Account of each eligible Participant on whose behalf such a contribution has been made in such amount and under terms and conditions as the Board shall direct, in its sole and absolute discretion. To the extent such special ESOP Contributions and special "per capita" ESOP Contributions are used to meet the ESOP Trustee's obligations under a loan pursuant to Section 7.2, Employer Securities allocated to the Loan Suspense Account which become allocable to Participants as a result of these special contributions, shall be allocated in an equitable manner. Only Earnings earned while the Participant is eligible to participate in the Plan will be considered for purposes of this paragraph. Notwithstanding anything to the contrary herein, encumbered Employer Securities released from the Loan Suspense Account shall be allocated to Participant's ESOP Accounts in shares of Employer Securities or other non-monetary units rather than by dollar amounts. (c) PROFIT SHARING CONTRIBUTIONS. Regular Profit Sharing ---------------------------- Contributions made pursuant to Section 5.1(a) shall be allocated to the Profit Sharing Account of each eligible Participant by crediting each such Participant's Profit Sharing Account in the same ratio that each such Participant's Earnings for the Plan Year bear to the Earnings of all such Participants for the Plan Year. Special Profit Sharing Contributions made pursuant to Section 5.1(b) and special "per capita" Profit Sharing Contributions made pursuant to Section 5.1(c) shall be allocated to the Profit Sharing Accounts of each eligible Participant on whose behalf such a contribution has been made in such amount and under such terms and conditions as the Board shall direct, in its sole and absolute discretion. (d) FORFEITURES. Forfeitures from a Profit Sharing ----------- Account or an ESOP Account that become available for allocation pursuant to Sections 10.3 and 11.8 that are not used to restore prior forfeitures pursuant to Sections 10.4 and 11.8 shall be allocated to the Profit Sharing Accounts or ESOP Accounts (as the case may be) of each eligible Participant in the same ratio that each such eligible Participant's Earnings for the Plan Year bear to the Earnings of all such eligible Participants for the Plan Year. (e) ELIGIBLE PARTICIPANTS. As a general rule, a --------------------- Participant will be entitled to share in the allocation of Profit Sharing Contributions, ESOP Contributions, Employer Securities released from the Loan Suspense Account, or forfeitures for a Plan Year only if the Participant is in the active employ of the Employer on the last day of the Plan Year and has completed at least one thousand (1,000) Hours of Service during the Plan Year. If a Participant dies, retires on or after his Normal Retirement Date, or terminates employment due to a Disability during a Plan Year, however, the Participant shall be entitled to share in the allocations for that Plan Year regardless of whether the Participant is employed on the last day of the Plan Year or whether the Participant completes one thousand (1,000) Hours of Service during the Plan Year. A Non-Contributing Participant who satisfies the requirements noted above shall be considered to be a "Participant" pursuant to this Section. (f) TOP HEAVY ALLOCATIONS. Notwithstanding anything to --------------------- the contrary in this Section or any other provision of this Plan, in any Plan Year in which the Plan is Top Heavy or Super Top Heavy, the Employer shall make a special ESOP Contribution on behalf of each Participant who is not a Key Employee for the Plan Year in such amount as may be necessary to assure that the sum of the Employer Matching Contributions, Profit Sharing Contributions, ESOP Contributions, and forfeitures, if any, allocated to the Participant's accounts equals at least the "minimum required contribution." The "minimum required contribution" is the lesser of (a) three percent (3%) of the Participant's Compensation for the Plan Year or (b) if the Employer does not have a defined benefit plan which is enabled to satisfy Section 401 of the Code by this Plan, the Participant's Compensation for the Plan Year multiplied by the "Employer contribution percentage" for such Plan Year for the Key Employee for whom the "Employer contribution percentage" is the highest. For this purpose, the "Employer contribution percentage" shall equal the sum of the Employer Matching Contributions, Profit Sharing Contributions and ESOP Contributions and forfeitures allocated to a Participant divided by the Compensation of the Participant. The minimum required contribution called for by this paragraph will be determined without regard to Employer contributions to the Social Security System. The special ESOP Contribution called for by this paragraph shall be allocated on behalf of all Employees who are not Key Employees for the Plan Year and who are employed by the Employer on the last day of the Plan Year. This special ESOP Contribution shall be made regardless of any provision in this Plan requiring (as a condition of allocation of the ESOP Contribution for the Plan Year) payment of Pre-Tax Contributions. In determining whether the minimum required contribution provisions of this Section have been satisfied, all Employer contributions and forfeiture allocations for the Plan Year under all "defined contribution plans," as defined in Section 414(i) of the Code, maintained by the Employer or an Affiliate shall be considered as allocable under this Plan. If a non-Key Employee who is participating in this Plan is covered under a "defined benefit plan," as defined in Section 414(j) of the Code, sponsored by the Employer or an Affiliate, no minimum required contribution allocation shall be required pursuant to this paragraph if such Employee is provided with a top heavy minimum defined benefit pursuant to the defined benefit plan. All special ESOP Contributions made pursuant to this paragraph on behalf of a Participant shall be allocated to that Participant's ESOP Contributions Account. In determining the amount of the minimum required contribution, the Pre-Tax Contributions made by Highly Compensated Employees shall be treated as Employer Matching Contributions, and such Pre-Tax Contributions shall be taken into account in determining the employer contribution percentage of Highly Compensated Employees. The Pre-Tax Contributions made by non-Highly Compensated Employees shall be disregarded. (g) ALLOCATION TO CERTAIN PERSONS PROHIBITED. ---------------------------------------- Notwithstanding the foregoing, no portion of the assets of the Plan attributable (or allocable in lieu of) Employer Securities acquired by the Plan in a sale to which Section 1042 of the Code applies may accrue or be allocated directly or indirectly under any Plan of the Employer meeting the requirements of Section 401(a) of the Code during the "nonallocation period", as defined in Section 409(n)(3)(C) of the Code, for the benefit of (1) any taxpayer who makes an election under Section 1042(a) of the Code with respect to Employer Securities or (2) any individual who is related to the taxpayer within the meaning of Section 267(b) of the Code. Clause (2) of the preceding sentence paragraph shall not apply to any individual if the individual is the lineal descendant of the taxpayer and the aggregate amount allocated to the benefit of all lineal descendants during the nonallocation period does not exceed more than five percent (5%) of the Employer Securities (or amounts allocated in lieu thereof) held by the Plan which are attributable to a sale to the Plan by any person related to such descendants (within the meaning of Section 267(c)(4) of the Code) in a transaction to which Section 1042 of the Code applied. (h) ROLLOVER CONTRIBUTIONS. Effective November 1, 1997, ---------------------- the Rollover Contributions of an Employee shall be credited to his Rollover Contributions Account. 8.3. VALUATION AND ADJUSTMENT. ------------------------ The Advisory Committee shall determine the fair market value of the Accounts as follows: (a) First, as of each Accounting Date, the Advisory Committee shall credit to the proper Accounts all Pre-Tax Contributions, loan repayments and insurance premium payments. (b) Second, as of each Accounting Date, the Advisory Committee shall charge to the proper Accounts all withdrawals or distributions made since the most recent Accounting Date that have not previously been charged to Accounts. (c) Third, as of each Accounting Date, the Advisory Committee shall credit each Participant's Accounts with their pro rata share of any increase, or charge each Participant's Accounts with their pro rata share of any decrease, in the fair market value of the Funds to which the Accounts are allocated as of the current Accounting Date; provided that such adjustment to ESOP Accounts shall be made only as of the year-end Accounting Date. Dividends on shares of Employer Securities which have been allocated to the Participant's ESOP Accounts shall be credited first to a cash fund maintained by the Trustee. Dividends so credited to the cash fund shall be used to purchase additional Employer Securities, which, pursuant to this Section 8.3(c), shall be credited, on a pro rata basis, to each Participant's ESOP Account; provided that such adjustment to ESOP Accounts shall be made only as of the year-end Accounting Date. Dividends on shares of Employer Securities which are held in the Loan Suspense Account created pursuant to Section 7.4(a) shall be used along with the Employer's ESOP Contributions to repay the loan as provided in Section 7.1(b). (d) Fourth, as of each Accounting Date, the Advisory Committee shall charge and credit to the proper Accounts the amounts transferred from one Fund to another, as provided in Section 6.4 of the Plan. (e) Fifth, if the Accounting Date is the final Accounting Date of the Plan Year, the Advisory Committee shall credit to the proper Accounts the annual Employer Matching Contributions and ESOP Contributions to be allocated for that Plan Year, in accordance with Section 8.2 of the Plan, to the extent not already allocated thereto, subject to the provisions of ARTICLE SEVEN. Forfeitures becoming allocable pursuant to Section 10.3 or 11.8 shall similarly be allocated. As noted in Section 2.1(a), the Accounting Dates vary, depending on the type of Account (i.e., Pre-Tax Contribution Account, ESOP Account or other account) involved. The adjustments called for by this Section as of a particular date shall only be made to those Accounts for which such date is an Accounting Date. 8.4. STATEMENTS TO PARTICIPANTS. -------------------------- At least annually, the Advisory Committee shall furnish to each Participant a statement showing his Account balances in the respective Funds as of such date. 8.5. LIMITATION ON ANNUAL ADDITIONS. ------------------------------ (a) GENERAL RULE. Notwithstanding anything in this Plan ------------ to the contrary, except as provided in this Section 8.5, the Annual Additions to be allocated to the Accounts of a Participant for any Plan Year shall not exceed an amount equal to the lesser of (1) Thirty Thousand Dollars ($30,000) (or such greater amount as may be permitted under Section 415(d)) (the "dollar limitation"), or (2) twenty-five percent (25%) of the Compensation of the Participant for the Plan Year (the "compensation limitation"). If no more than one-third (1/3) of the ESOP Contribution for a Plan Year is allocable to the ESOP Accounts of Highly Compensated Employees, the limitations imposed by this Section 8.5(a) and Section 415 of the Code shall not apply to (1) forfeitures of Employer Securities (within the meaning of Section 409 of the Code) if such Employer securities were acquired with the proceeds of a loan described in Section 404(a)(9)(A) of the Code, or (2) Employer Contributions to the Plan that are deductible under Section 404(a)(9)(B) of the Code and charged against the Participant's Account. (b) EXCLUSION OF INTEREST PAYMENTS. For any "special ------------------------------ permissible allocation year," the limitations imposed by this Section 8.5 shall not apply to, and the Participant's Annual Addition shall be determined without regard to, any ESOP Contributions which are applied to pay interest on an exempt loan. For purposes of this Section 8.5, an "exempt loan" is a loan described in ARTICLE SEVEN, incurred for the purpose of acquiring Employer Securities. (c) MULTIPLE DEFINED CONTRIBUTION PLANS. The limitations ----------------------------------- of this Section 8.5 with respect to any Participant who is at any time participating in any other "defined contribution plan," as defined in Section 414(i) of the Code, maintained by the Corporation or by an Affiliate shall apply as if the total Annual Additions under all such defined contribution plans in which the Participant is participating were allocated under this Plan. (d) ADJUSTING ANNUAL ADDITIONS. In the event it is -------------------------- necessary to limit the Annual Additions to the Accounts of a Participant under this Plan, the Advisory Committee shall limit the allocation of Pre-Tax Contributions to the Participant's Pre-Tax Contribution Account and/or return any such excess Pre-Tax Contribution plus earnings allocable to any such excess Pre-Tax Contributions to the Participant. The earnings allocable to any excess Pre-Tax Contribution shall be determined in a manner consistent with determining the earnings allocable to excess Pre-Tax Contributions in Section 4.3(d). After such limitation and/or return, if necessary, Employer Matching Contributions shall be reallocated. Amounts that would be allocable to the Employer Matching Contribution Account of the Participant but for the provisions of this Section 8.5 shall be used to reduce Employer Matching Contributions to the Trust Fund and shall be allocable as a part of the Employer Matching Contributions allocable to the Employer Matching Contribution Accounts of Participants with respect to whom allocations of Employer Matching Contributions are not limited by this Section 8.5. If further limitation is required by this Section 8.5, the Advisory Committee shall allocate that portion of the Employer Matching Contribution that would cause the limitations of this Section 8.5 to be exceeded to a suspense account in which such sums shall be held to be allocated on a first-in-first-out basis in reduction of Employer Matching Contributions prior to the allocation of additional Employer Matching Contributions, to the extent permitted under this Section 8.5. In the event that, after the reallocation of the Employer Contribution pursuant to this Section 8.5, the amount allocable as Annual Additions remain in excess of the limitations of this Section 8.5, the Advisory Committee shall return the Pre-Tax Contributions of the Participant to the extent necessary to satisfy such limitations. No Employer Matching Contribution shall be made or allocated as a result of such Pre-Tax Contributions until allocated from the suspense account. Further reductions or adjustments to the methods described above for adjusting the Accounts of Participants may be made pursuant to the directions of the Advisory Committee and may be made pursuant to priorities established under related defined contribution plans. (e) TREATMENT OF ESOP CONTRIBUTIONS ALLOCATED TO LOAN ------------------------------------------------- SUSPENSE ACCOUNT. In computing the limitation on Annual Additions - ---------------- pursuant to this Section 8.5, solely for the purposes of this Section 8.5, the Advisory Committee shall compute the ESOP Contribution allocable to ESOP Accounts as though no part of the ESOP Contribution for the Plan Year is allocable to the Loan Suspense Account, but rather as though the entire ESOP Contribution is subject to allocation pursuant to Section 8.2. (f) DEFINED BENEFIT PLAN PARTICIPANTS. For Plan Years --------------------------------- beginning before January 1, 2000, in any case where a Participant under this Plan is also a participant in one or more "defined benefit plans," as defined in Section 414(j) of the Code, maintained by the Employer or by an Affiliate of the Employer, the sum of the "defined benefit plan fraction" under such plan or plans and the "defined contribution plan fraction" under this Plan and all other defined contribution plans shall not exceed one (1.0). (g) DEFINED BENEFIT PLAN FRACTION. The "defined benefit ----------------------------- plan fraction" for any Plan Year is a fraction, the numerator of which is the projected annual benefit payable to the Participant as of the close of the current Plan Year under all defined benefit plans (whether or not terminated) maintained by the Employer and the denominator of which is the lesser of one hundred twenty-five percent (125%) of the defined benefit plan dollar limitation in effect for the Plan Year under Section 415(b)(1)(A) of the Code, as adjusted pursuant to Section 415(d) of the Code, or one hundred forty percent (140%) of the Participant's average Compensation for the three (3) Plan Years during which such Compensation is the highest. For any Plan Year for which the Plan is Top Heavy, the denominator of the defined benefit plan fraction will be the lesser of one hundred percent (100%) (rather than one hundred twenty-five percent (125%)) of the defined benefit plan dollar limitation referred to in the preceding sentence, as in effect for the Plan Year under Section 415(b)(1)(A) of the Code, or one hundred forty percent (140%) of the Participant's average Compensation for the three (3) Plan Years during which Compensation is highest, unless both of the following conditions are satisfied, in which case the defined benefit plan fraction shall be calculated as set forth in the preceding sentence: (1) The Plan is not a Super Top Heavy Plan; and (2) The contributions or benefits on behalf of all Participants other than Key Employees meet the requirements of Section 416(h) of the Code. Notwithstanding the above, if a Participant was a participant in one or more defined benefit plans maintained by the Employer or an Affiliate which were in existence on May 6, 1986, the denominator of the defined benefit plan fraction will not be less than one hundred twenty-five percent (125%) of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last Plan Year beginning on or before December 31, 1986, calculated as if the Participant had terminated employment on the last day of said Plan Year. In calculating a Participant's benefits, the Advisory Committee shall disregard changes in the terms and conditions of such plans occurring on or after May 6, 1986, and cost-of-living adjustments occurring on or after May 6, 1986. The preceding two sentences shall only apply if the defined benefit plans individually and in the aggregate satisfy the requirements of Section 415 of the Code as in effect at the end of the 1986 Plan Year. (h) DEFINED CONTRIBUTION PLAN FRACTION. The "defined ---------------------------------- contribution plan fraction" for any Plan Year is a fraction, the numerator of which is the sum of the Annual Additions to the Participant's accounts under all the defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior Plan Years (including the Annual Additions attributable to the Participant's nondeductible employee contributions to any defined benefit plan, whether or not terminated, maintained by the Employer) and the denominator of which is the sum of the "maximum aggregate amounts" for the current and all prior Plan Years of service with the Employer, regardless of whether a plan was maintained by the Employer during such years. The "maximum aggregate amount" in any Plan Year is the lesser of one hundred twenty-five percent (125%) of the dollar limitation in effect under Section 415(c)(1)(A) of the Code or thirty-five percent (35%) of the Participant's Compensation for such year. For any Plan Year for which the Plan is a Top Heavy Plan, the "maximum aggregate amount" is the lesser of one hundred percent (100%) (rather than one hundred twenty-five percent (125%)) of the dollar limitation in effect under Section 415(c)(1)(A) of the Code or thirty-five percent (35%) of the Participant's Compensation for such year, unless both of the following conditions are satisfied: (1) The Plan is not a Super Top Heavy Plan; and (2) The contributions or benefits on behalf of all Participants other than Key Employees meet the requirements of Section 416(h) of the Code. of a Participant was a participant in one or more defined contribution plans and one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, and which satisfied all of the requirements of Section 415 of the Code for all limitation years beginning before January 1, 1987, the numerator of this fraction will be adjusted if the sum of this fraction and the defined benefit plan fraction would otherwise exceed one (1.0) under the terms of this Plan. The adjustment shall be made by permanently subtracting from the numerator of the defined contribution fraction an amount equal to the product of (1) the excess of the sum of the fractions over one (1.0) and (2) the denominator of the defined contribution fraction as of the "determination date." For this purpose, the "determination date" is the last day of the last Plan Year commencing on or before December 31, 1986. Changes in the terms and conditions of any plan after May 5, 1986, must be disregarded in adjusting the defined contribution plan fraction. The adjustment will be made only after eliminating any accruals under this or any other Plan which are in excess of the accruals permitted pursuant to Section 415 of the Code. (i) ADJUSTMENTS. In the event it is necessary to adjust ----------- benefits and/or contributions to prevent the combined fraction from being exceeded in a Plan Year, the Participant's benefits under the defined benefit plan shall be reduced so as to eliminate any excess over the combined fraction, and such reduction shall be made, if necessary, prior to the allocation of contributions to Accounts. Any further reductions necessary shall be made by reducing the Annual Additions under this Plan as provided above, then by reducing Annual Additions in the manner and priority set out above with respect to other defined contribution plans, if any. (j) TREATMENT OF AFFILIATES. For purposes of this ----------------------- Section, the Employer and all of its Affiliates shall be treated as a single entity and any plans maintained by an Affiliate shall be deemed to be maintained by the Employer. 8.6. VALUATION OF EMPLOYER SECURITIES. -------------------------------- In the event that Employer Securities credited to the ESOP Fund are not readily tradeable on an established securities market, the fair market value of such securities must be determined by an independent appraiser meeting the requirements of Section 401(a)(28)(C) of the Code. ARTICLE NINE ------------ WITHDRAWALS PRIOR TO TERMINATION OF EMPLOYMENT ---------------------------------------------- 9.1. WITHDRAWALS FROM THE AFTER-TAX CONTRIBUTION ACCOUNT. --------------------------------------------------- Subject to the provisions of this ARTICLE NINE, a Participant may withdraw all or part of the amount credited to his After-Tax Contribution Account, determined as of the most recent Participant Account status report available at the time his notice of withdrawal is received by the Advisory Committee. Withdrawals pursuant to this Section 9.1 shall be requested on a form supplied by the Advisory Committee, signed by the Participant and delivered to the Advisory Committee. All such withdrawals shall be subject to the spousal consent requirements of Section 9.6. Amounts withdrawn from a Participant's After-Tax Contributions Account shall be charged against the subaccounts within that account in the following order: (1) Withdrawals will first be charged against the subaccount established to record the After-Tax Contributions made by the Participant on or before December 31, 1986, and the earnings or losses thereon (the "pre-1987 subaccount") until an amount equal to the lesser of the After-Tax Contributions made by the Participant on or before December 31, 1986, or the value of such subaccount has been charged against such subaccount. (2) Withdrawals will then be charged against the subaccount established to record the After-Tax Contributions made by the Participant on or after January 1, 1987, and the earnings or losses thereon (the "post-1986 subaccount") unless and until such subaccount is depleted. (3) Any remaining withdrawals will be charged against the earnings remaining in the pre-1987 subaccount. The minimum withdrawal shall be the lesser of One Thousand Dollars ($1,000) or the amount credited to the After-Tax Contribution Account. 9.2. IN-SERVICE WITHDRAWALS FROM THE EMPLOYER MATCHING CONTRIBUTION -------------------------------------------------------------- ACCOUNT AND THE PROFIT SHARING ACCOUNT. -------------------------------------- (a) ELIGIBILITY. ----------- (1) ELIGIBILITY FOR WITHDRAWALS FROM THE EMPLOYER --------------------------------------------- MATCHING CONTRIBUTION ACCOUNT. A Participant who has - ----------------------------- attained the age of fifty-nine and one-half (59-1/2) years may withdraw all amounts credited to his Employer Matching Contribution Account (other than amounts invested in the ESOP Fund), provided that Employer Matching Contributions credited to that Account within the two (2) Plan Years preceding the Plan Year of withdrawal may not be withdrawn unless such Participant has participated in the Plan for five (5) or more years. No hardship withdrawals may be made from the Participant's Employer Matching Account or ESOP Account. (2) ELIGIBILITY FOR WITHDRAWALS FROM THE PROFIT ------------------------------------------- SHARING ACCOUNT. A Participant who has attained the age of - --------------- fifty-nine and one-half (59-1/2) years may withdraw all amounts credited to his Profit Sharing Account (other than amounts invested in the ESOP Fund). In the event of a "hardship" as determined by the Advisory Committee pursuant to Section 9.3(c), (d), and (e), a Participant who has withdrawn all amounts permitted to be withdrawn under Section 9.1, Section 9.2(a), and the preceding sentence may withdraw fifty percent (50%) of the remaining amounts, if any, credited to his Profit Sharing Account, other than amounts that are credited to the ESOP Fund, determined as of the most recent Participant Account status report available at the time his notice of withdrawal is received by the Advisory Committee. A Participant may not make a withdrawal from his Profit Sharing Account unless the Participant has a one hundred percent (100%) vested interest in that account. (b) PROCEDURES AND LIMITATIONS. Withdrawals pursuant to -------------------------- this Section 9.2 shall be subject to the spousal consent requirements of Section 9.6 and shall be requested on a form supplied by the Advisory Committee, signed by the Participant, and delivered to the Advisory Committee. In addition, the following limitations shall apply: (1) LIMITATIONS ON AMOUNTS WITHDRAWN FROM THE ----------------------------------------- EMPLOYER MATCHING CONTRIBUTIONS ACCOUNT. The minimum amount - --------------------------------------- subject to withdrawal pursuant to this Section from an Employer Matching Contributions Account is the lesser of: (i) One Thousand Dollars ($1,000.00); or (ii) the portion of the Account that is invested in the Income Fund. Withdrawals from the Employer Matching Contribution Account may only be made from the Income Fund and such withdrawal shall be charged against the Income Fund. (2) LIMITATIONS ON AMOUNTS WITHDRAWN FROM THE PROFIT ------------------------------------------------ SHARING ACCOUNT. The minimum amount subject to withdrawal - --------------- pursuant to this Section from a Profit Sharing Account shall be One Thousand Dollars ($1,000). 9.3. WITHDRAWALS FROM THE PRE-TAX CONTRIBUTIONS AND ROLLOVER ------------------------------------------------------- CONTRIBUTIONS ACCOUNTS. ---------------------- (a) ELIGIBILITY. In accordance with rules established by ----------- the Advisory Committee uniformly applicable to all Participants, all or any part of amounts credited to the Pre-Tax Contribution Account and, effective November 1, 1997, the Rollover Contributions Account of a Participant as of the most recent available Account status report may be distributed to the Participant in cash at any time after the Participant has attained the age of fifty-nine and one-half (59-1/2) years or in the event of a "hardship" as defined in this Section. Withdrawals only may be made from amounts allocated to the Income Fund. The Advisory Committee may promulgate uniform rules regarding the effective date of any distribution, minimum amounts to be distributed and the frequency of distributions. All withdrawals pursuant to this Section are subject to the spousal consent requirements of Section 9.6. (b) LIMITATION ON HARDSHIP DISTRIBUTIONS. In no event ------------------------------------ shall a hardship distribution exceed the balance of the Participant's or former Participant's Pre-Tax Contributions Accounts, determined as of the Valuation Date immediately preceding the date of the distribution, less any amounts distributed from or charged to the Pre-Tax Contributions Account since such Valuation Date. The distribution may not exceed the lesser of the amount determined pursuant to the preceding sentence or the total Pre-Tax Contributions made by the Participant prior to the date of the withdrawal less any Pre-Tax Contributions previously withdrawn. (c) HARDSHIP DEFINED. A distribution may be made pursuant ---------------- to this Section due to a "hardship" only if the Participant satisfies the Advisory Committee that the Participant has an immediate and heavy financial need and that the distribution is necessary in order to satisfy that need. (d) IMMEDIATE AND HEAVY FINANCIAL NEED. The following are ---------------------------------- the only expenses or circumstances that will be deemed to give rise to an immediate and heavy financial need for purposes of this Section: (1) Medical expenses described in Section 213(d) of the Code previously incurred by the Participant, the Participant's spouse, or any of the Participant's dependents (as defined in Section 152 of the Code) or necessary for such persons to obtain medical care described in Section 213(d); (2) Costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant; or (3) Payment of tuition, room and board and related education expenses for the next twelve (12) months of post-secondary education for the Participant or the Participant's spouse, children or dependents (as defined in Section 152 of the Code); or (4) Payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage on the Participant's principal residence; or (5) Any other circumstance or expense designated by the Commissioner of Internal Revenue as a deemed immediate and heavy financial need in any published revenue ruling, notice or other document of general applicability. (e) NECESSITY. A distribution will be deemed to be --------- necessary to satisfy an immediate and heavy financial need of a Participant only if all of the following requirements are satisfied: (1) The distribution is not in excess of the amount of the immediate and heavy financial need of the Participant (this amount may include any amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the withdrawal); (2) The Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans currently available under all plans maintained by the Employer; (3) All plans sponsored by the Employer provide that the Participant's contributions (whether made on a pre-tax or after-tax basis) will be suspended for at least twelve (12) months after receipt of the distribution; and (4) All plans sponsored by the Employer provide that the Participant may not make elective pre-tax contributions for the calendar year immediately following the calendar year in which the hardship distribution is made in excess of the applicable limit in effect for such year under Section 402(g) of the Code less the amount of the Participant's pre-tax elective contributions for the calendar year in which the hardship distribution is made. For purposes of subparagraphs (3) and (4), the phrase "all plans" includes all qualified and nonqualified plans of deferred compensation maintained by the compensation or any Employer, including stock option, stock purchase or similar plans or a cash or deferred arrangement that is part of a cafeteria plan within the meaning of Section 125 of the Code. 9.4. WITHDRAWALS OF AMOUNTS CREDITED TO THE ESOP FUND, PROFIT -------------------------------------------------------- SHARING ACCOUNTS AND EMPLOYER MATCHING CONTRIBUTIONS ACCOUNTS. ------------------------------------------------------------- There shall be no withdrawals permitted under this ARTICLE NINE from ESOP Accounts or for the portion of any other Account that is invested in the ESOP Fund or, except as otherwise provided in Section 9.2, from amounts credited to Profit Sharing Accounts and Employer Matching Contribution Accounts. 9.5. LIMITATIONS ON WITHDRAWALS. -------------------------- The Advisory Committee may direct that a Participant shall not be entitled to withdraw funds from his Accounts below an amount equal to the unpaid principal and interest on any loan granted to him in accordance with the Plan as then in effect or an amount required to service insurance premium obligations. All withdrawals under this ARTICLE NINE shall be paid in cash. Not more than one (1) withdrawal pursuant to this ARTICLE NINE shall be permitted per Plan Year, unless the Participant has attained the age of fifty-nine and one-half (59-1/2) or terminated employment, in which case no more than one (1) withdrawal may be made per calendar quarter. 9.6. SPOUSAL CONSENT. --------------- No married Participant shall be allowed to make a withdrawal unless the Participant's spouse consents to the withdrawal. Such consent must be in writing, must consent to a single lump sum payment of the amount to be withdrawn, must acknowledge the effect of the withdrawal on the benefits ultimately payable from the Plan, must acknowledge the effect of the spouse's consent to the withdrawal, and must be witnessed by a notary public or a designated representative of the Advisory Committee. No spousal consent shall be required if the Advisory Committee determines, in its sole and absolute discretion, that the spouse cannot be located or other circumstances exist that preclude the Participant from obtaining such consent (as permitted under applicable regulations issued by the United States Treasury Department). Any spousal consent given or dispensed with pursuant to this Section will be valid with respect to the spouse who signs the consent or with respect to whom the consent requirement is waived by the Advisory Committee and any subsequent spouse. If the Participant's spouse fails to consent to the withdrawal of amounts allocated to the Participant's Accounts, the amounts in the Participant's Accounts will be held for distribution in accordance with the other provisions of this Plan unless the spouse later consents to a withdrawal pursuant to the provisions of this Section. ARTICLE TEN ----------- VESTING ------- 10.1. VESTING IN THE AFTER-TAX CONTRIBUTION ACCOUNT, PRE-TAX ------------------------------------------------------ CONTRIBUTION ACCOUNT, EMPLOYER MATCHING CONTRIBUTION ACCOUNT, -------------------------------------------------------------- AND ROLLOVER CONTRIBUTION ACCOUNT. --------------------------------- Each Participant shall at all times be fully vested in all amounts credited to or allocable to his After-Tax Contribution Account, Pre-Tax Contribution Account, Employer Matching Contribution Account and, effective November 1, 1997, his Rollover Contribution Account and his rights and interest therein shall not be forfeitable for any reason. 10.2. VESTING IN THE ESOP ACCOUNT AND PROFIT SHARING ACCOUNT. ------------------------------------------------------ Each Participant shall be fully vested in the amounts credited to or allocable to his ESOP Account, and in the amounts credited to or allocable to his Profit Sharing Account on or after January 1, 1988, on and after the first to occur of the following events: (a) Attainment by the Participant prior to January 1, 1991, of the age of sixty-five (65) years, or, for Participants who attain the age of sixty-five (65) on or after January 1, 1991, the later of attainment by the Participant of age sixty-five (65) or the fifth (5th) anniversary of the Participant's commencement of participation in the Plan; (b) The date of his separation from employment due to Disability, as determined by the Advisory Committee; (c) The date of death of the Participant; (d) Termination of this Plan as provided in Section 13.3 of this Plan; (e) Complete discontinuance of contributions by the Employers as provided in Section 13.3 of this Plan; or (f) The completion of seven (7) years of Continuous Service by the Participant. Notwithstanding anything contained herein to the contrary, all Participants with five (5) or more years of Continuous Service as of January 1, 1988 shall be 100% vested in their Profit Sharing Accounts. All Profit Sharing Account balances relating to contributions actually paid to the Profit Sharing Plan prior to January 1, 1988 shall be 100% vested. 10.3. DETERMINATION OF VESTED INTEREST IN ESOP ACCOUNT AND PROFIT ------------------------------------------------------------ SHARING ACCOUNT IN THE EVENT OF TERMINATION OF EMPLOYMENT. --------------------------------------------------------- (a) VESTING SCHEDULE. A Participant's vested percentage shall be determined as of the day of his termination of employment. The value of the Participant's vested interest in his ESOP Account and Profit Sharing Account shall be determined in accordance with the following schedule: Years of Vested Continuous Service Percentage of Account ------------------- --------------------- Less than three 0% Three but less than four 20% Four but less than five 40% Five but less than six 60% Six but less than seven 80% Seven or more 100% Effective for Participants receiving distributions on or after January 1, 1996, if, after the application of the above vesting schedule, the Participant is entitled to receive a distribution of a fractional share of Employer Securities, such fractional share shall be rounded up to the nearest whole number and the distribution shall be made only in whole shares of Employer Securities. (b) TIME OF DETERMINATION. A Participant's vested --------------------- percentage shall be determined as of his Termination Date. The value of the Participant's vested interest in his ESOP Account or Profit Sharing Account shall be determined as of the earlier of (1) the Accounting Date immediately preceding the first distribution to the Participant from such Account following his termination of employment or (2) the Accounting Date coinciding with or next following the date on which the Participant incurs his fifth (5th) consecutive one-year Break in Continuous Service. If a Participant has no vested interest in any of his Accounts, the Participant shall be deemed to have received a distribution of his zero (0) Account balance as of the date of his termination of employment. Any amounts credited to the Participant's Accounts in which the Participant is not fully vested shall be forfeited as the later of such Accounting Date or the date on which the Participant's employment terminated. The amount forfeited shall then be available for allocation to the accounts of the remaining Participants as of the year-end Accounting Date coinciding with or next following the date of the forfeiture, to the extent such forfeiture is not used to restore forfeitures previously charged to a reemployed former Participant pursuant to Section 10.4. If interests in more than one class of Employer Securities are allocable to the Participant's ESOP Account, the Participant shall be treated as forfeiting the same proportion of each class. (c) TOP HEAVY VESTING. If this Plan is or becomes Top ----------------- Heavy, the vested interest of any Participant other than a Participant who is not credited with at least one (1) Hour of Service while the Plan is Top Heavy shall be determined in accordance with the following schedule instead of the schedules set forth above: Years of Vested Continuous Service Percentage of Account ------------------- --------------------- Less than two 0% Two but less than three 20% Three but less than four 40% Four but less than five 60% Five but less than six 80% Six or more 100% 10.4. RESTORATION OF FORFEITURES. -------------------------- (a) ELIGIBILITY. Subject to the provisions of this ----------- Section, any forfeitures charged to the ESOP Account or Profit Sharing Account of a former Participant will be restored if the former Participant returns to employment with an Employer or any Affiliate prior to incurring five (5) consecutive Breaks in Continuous Service. Prior forfeitures will be restored only if the former Participant repays, in a timely manner as provided below, the full amount, unadjusted for any subsequent gains or losses, previously distributed to him, which amount may include cash in lieu of Employer Securities. If a former Participant who was deemed to have received a distribution pursuant to Section 10.3(b) resumes employment with the Employer prior to incurring five (5) consecutive one year Breaks in Continuous Service, any forfeitures charged to the former Participant's Account upon his prior termination of employment shall be restored to such Account immediately. (b) RETURN OF DISTRIBUTIONS. A former Participant may ----------------------- repay the full amount previously distributed to him prior to the earlier of (1) the fifth (5th) anniversary of the former Participant's reemployment by the Employer or (2) the last day of the Plan Year in which the former Participant incurs his fifth (5th) consecutive Break in Continuous Service. The amount of any distribution repaid by the former Participant shall be allocated between his Accounts in proportion to the amount distributed from each Account. Any forfeitures restored by the Employer pursuant to this Section will be allocated to the Account or Accounts to which the forfeiture was charged. A Participant may not, and need not, repay amounts attributable to his Pre-Tax Contributions or After-Tax Contributions. The Participant must repay the amount distributed from both his other Accounts in order to qualify for the restoration of any prior forfeitures. A Participant may not repay a prior distribution pursuant to this paragraph if the Participant had a fully vested interest in all of his Accounts when the prior distribution was made. (c) RESTORATION CONTRIBUTIONS. Any forfeitures available ------------------------- for allocation as of the last day of the Plan Year in which an individual does everything necessary in order to have a prior forfeiture restored will be applied first to restore the prior forfeiture. If the available forfeitures are not sufficient to restore the prior forfeiture, the Employer will make a special contribution equal to the balance of the amount forfeited. Such contributions or forfeitures will be allocated to the account from which the distribution was made. 10.5. AMENDMENTS TO VESTING SCHEDULE. ------------------------------ No amendments to the vesting schedule set forth in Section 10.3 shall deprive an Employee who is a Participant on the later of (a) the date the amendment is adopted, or (b) the date the amendment is effective, of any non-forfeitable benefit to which he is entitled under the Plan, determined as of such date without regard to such amendment. If the vesting schedule designated in Section 10.3 is amended, each Participant whose benefits would be determined under such schedule and who is credited with three (3) or more years of Continuous Service shall have the right to elect, during the period computed pursuant to this Section, to have his non-forfeitable benefit determined without regard to such amendment; provided, however, that no election shall be provided to any Participant whose non-forfeitable percentage under the Plan, as amended, cannot at any time be less than the percentage computed without regard to such amendment. The election period shall commence on the date the amendment is adopted and end on the later of (a) sixty (60) days after adoption of the amendment, (b) sixty (60) days after the effective date of the amendment, or (c) sixty (60) days after the Participant is notified of the amendment in writing by the Corporation or the Advisory Committee. Such election, if exercised, shall be irrevocable, and shall be available only to an Employee who is a Participant when the election is made and who has completed at least three (3) years of Continuous Service when the election is made. Any change in the applicability of the vesting schedule set forth in Section 10.3 as a result of the Plan ceasing to be Top Heavy shall be treated as an amendment to such vesting schedule for purposes of this Section. ARTICLE ELEVEN -------------- DISTRIBUTION OF BENEFITS ------------------------ 11.1. NORMAL AND LATE RETIREMENT. -------------------------- A Participant shall be entitled to full distribution of his accounts, as provided in Sections 11.5 and 11.6, upon actual retirement as of or after his Normal Retirement Date. A Participant may remain in the employment of the Employer after his Normal Retirement Date, if he desires, and shall retire at such later time as he may desire, unless the Employer lawfully directs earlier retirement. 11.2. DISABILITY RETIREMENT. --------------------- A Participant whose active employment is discontinued due to Disability shall be entitled to full distribution of his accounts, as provided in Sections 11.5 and 11.6. Subject to the provisions of Section 11.5, the payments may commence at any time on or after the date of his discontinuance of active employment due to Disability. 11.3. DEATH. ----- (a) BENEFIT. In the event that a Participant (which term ------- for purposes of this Section includes former Participants) shall die prior to his Benefit Commencement Date, the Participant's surviving spouse (or his other designated Beneficiary, if the Participant is unmarried or his spouse has consented in writing to designation of another Beneficiary) shall be entitled to full distribution of the Participant's accounts at the time and in the manner provided in Sections 11.5 and 11.6. (b) SPOUSE AS BENEFICIARY. Notwithstanding any --------------------- Beneficiary designation made by the Participant to the contrary, except as otherwise noted below, a married Participant's spouse shall be deemed to be his Beneficiary for purposes of this Plan unless the Participant's spouse consents to the designation of a different Beneficiary. Once given, the spouse's consent will be irrevocable. The consent of the Participant's spouse to his election shall be in writing, acknowledge the effect of such an election, be witnessed by a notary public or a designated representative of the Advisory Committee and be provided to the Advisory Committee. The spouse may not consent to the designation of another Beneficiary generally, but rather must consent to the designation of a particular Beneficiary. If the Participant elects to change the Beneficiary, the spouse's prior consent will be null and void and a new consent will be required, unless the spouse's consent expressly permits a change of designation without the further consent of the spouse. No spousal consent will be required if the Advisory Committee determines, in its sole discretion, that such consent cannot be obtained because the spouse cannot be located or other circumstances exist that preclude the Participant from obtaining such consent (to the degree permitted under applicable regulations issued by the United States Treasury Department). Any spousal consent given pursuant to this Section or dispensed with pursuant to the preceding sentence will be valid only with respect to the spouse who signs the consent or with respect to whom the consent requirement is waived by the Advisory Committee. (c) DEATH AFTER COMMENCEMENT OF BENEFITS. In the event ------------------------------------ that a former Participant shall die after his Benefit Commencement Date but prior to the complete distribution of all amounts to which such Participant is entitled under the provisions of this ARTICLE ELEVEN, the Participant's spouse or other designated Beneficiary shall be entitled to receive any remaining amounts to which the Participant would have been entitled had the Participant survived. The Advisory Committee may require and rely upon such proofs of death and the right of any spouse or Beneficiary to receive benefits pursuant to this Section as the Advisory Committee may reasonably determine, and its determination of death and the right of such spouse or Beneficiary to receive payment shall be binding and conclusive upon all persons whomsoever. 11.4. OTHER SEPARATIONS FROM EMPLOYMENT. --------------------------------- A Participant who separates from employment for any reason other than retirement, death or Disability shall be entitled to distribution of his vested interest in his accounts at the time and in the manner provided in Sections 11.5 and 11.6. 11.5. TIME OF DISTRIBUTION OF BENEFITS. -------------------------------- (a) RETIREMENT. Subject to the provisions of ---------- paragraph (g) relating to distributions of a Participant's ESOP Account, payment to a Participant who is entitled to benefits under Section 11.1 normally shall commence within a reasonable time following the Participant's Termination Date; except that, at the election of the Participant, payment of benefits may be postponed until after the next year-end Accounting Date, at which time losses or earnings on the Trust Fund will be allocated to the Participant's accounts. (b) TERMINATION AND DISABILITY. Subject to the provisions -------------------------- of paragraph (g) relating to distributions of a Participant's ESOP Account, payment to a Participant who is entitled to benefits under Section 11.2 or Section 11.4 normally shall commence not later than the date on which the Participant shall attain his Normal Retirement Date. As a general rule, the Advisory Committee will begin distributions pursuant to Section 11.2 or Section 11.4 as soon as possible after the year-end Accounting Date next following the Participant's termination of employment or discontinuance of active employment due to Disability. At the request of the Participant, all of the Participant's Accounts, including his ESOP Account, may be distributed as soon as possible following the Participant's Termination Date or discontinuance of active employment due to Disability. If the total amount distributable to the Participant from all of his accounts at the time of any distribution under this ARTICLE ELEVEN or any withdrawal under ARTICLE NINE, exceeds Three Thousand Five Hundred Dollars ($3,500.00) (Five Thousand Dollars ($5,000.00) for Plan Years beginning on or after January 1, 1998), however, no distribution may be made prior to the Participant's Normal Retirement Date unless the Participant requests said distribution in writing. For purposes of this rule, if the total amount distributable to the Participant from all his accounts at the time of any distribution or withdrawal exceeds Three Thousand Five Hundred Dollars ($3,500.00) (Five Thousand Dollars ($5,000.00) for Plan Years beginning on or after January 1, 1998), then the amount in the Participant's account at all times thereafter will be deemed to exceed Three Thousand Five Hundred Dollars ($3,500.00) (Five Thousand Dollars ($5,000.00) for Plan Years beginning on or after January 1, 1998). No distribution may be made pursuant to the preceding sentence after the Benefit Commencement Date unless the Participant consents in writing to said distribution. (c) DEATH AFTER COMMENCEMENT OF PAYMENTS. In the event of ------------------------------------ the death of a Participant after his Benefit Commencement Date but prior to the complete distribution to such Participant of the benefits payable to him under the Plan, any remaining benefits shall be distributed over a period that does not exceed the period over which distribution was to be made prior to the date of death of the Participant. Subject to the provisions of paragraph (g) relating to distributions of a Participant's ESOP Account, payments to the Beneficiaries entitled to payments pursuant to Section 11.3 shall commence as soon as possible following the death of the Participant. (d) DEATH PRIOR TO COMMENCEMENT OF BENEFITS. In the event --------------------------------------- of the death of the Participant prior to his Benefit Commencement Date, subject to the provisions of paragraph (g) relating to distributions of a Participant's ESOP Account, payments to the Participant's Beneficiaries must be paid in full by December 31 of the calendar year which includes the fifth (5th) anniversary of the date of the Participant's death, unless the surviving spouse or other designated beneficiary irrevocably elects to apply one of the following exceptions: (1) PAYMENTS TO DESIGNATED BENEFICIARIES OTHER THAN ----------------------------------------------- SPOUSES. If the death benefit is payable to a "designated ------- Beneficiary," the designated Beneficiary may elect that the death benefit be distributed in the form of an annuity over the life of the designated beneficiary, or in substantially equal quarterly or annual installments over a period not to exceed the Beneficiary's life expectancy (determined in accordance with Section 11.6(g)) as long as the distributions commence by December 31 of the calendar year following the year of the Participant's death or by such other date as may be specified in regulations issued by the United States Treasury Department. For purposes of this Section, a "designated Beneficiary" is any individual who has the right to receive a death benefit from this Plan regardless of whether the individual was specifically designated by the Participant. The term "designated Beneficiary" may also include the beneficiaries of any Trust that satisfies the requirements of regulations issued by the United States Treasury Department pursuant to Section 401(a)(9) of the Code. (2) PAYMENTS TO SPOUSES. If the Participant's surviving ------------------- spouse is his sole Beneficiary, the surviving spouse may elect to postpone distributions until any date not later than the latter of December 31 of the calendar year following the calendar year in which the Participant died or December 31 of the calendar year in which the Participant would have attained age seventy and one-half (70-1/2). Distributions to the surviving spouse shall then be made in the form of an annuity over the life of the surviving spouse, or in substantially equal quarterly or annual installments over a period not to exceed the surviving spouse's life expectancy (determined in accordance with Section 11.6(g)). If the surviving spouse dies before the distributions begin, this paragraph (d) shall be applied as if the surviving spouse was the Participant. An election to utilize one of the foregoing exceptions, if made, is irrevocable and must be made no later than the earlier of (i) December 31 of the calendar year in which distributions are required to commence under (1) or (2) above (whichever is applicable) or (ii) December 31 of the calendar year which contains the fifth (5th) anniversary of the date of the Participant's death. If neither the Participant nor a designated Beneficiary make such an election, distributions will be made in accordance with the general rule set forth in this Section 11.5(d). Any elections made by a designated Beneficiary pursuant to this paragraph (d) and any distributions made pursuant to this paragraph (d) shall comply with regulations issued by the United States Treasury Department under Section 401(a)(9) of the Code, as they may be amended from time to time. In case of conflict, the provisions of the regulations shall control over the provisions of this Plan. (e) REQUIRED COMMENCEMENT OF PAYMENTS. In no event shall ---------------------------------- payment to a former Participant commence later than sixty (60) days after the last to occur of (1) the last day of the Plan Year in which the Participant attains the age of sixty-five (65) years, (2) the last day of the Plan Year in which the Participant separates from employment with the Employer, or (3) the tenth (10th) anniversary of the last day of the Plan Year in which the Participant commenced participation in the Plan. In addition, payments must commence by the Participant's Required Beginning Date. (f) CONSENT TO EARLY DISTRIBUTIONS. Except as otherwise ------------------------------ provided in Section 11.6 concerning the payment of small amounts, no benefit payments may commence pursuant to the preceding provisions of this Section prior to the Participant's Normal Retirement Date unless the Participant requests the earlier commencement of payments. The Participant's request must be in writing in a form acceptable to the Advisory Committee. (g) DISTRIBUTIONS FROM ESOP ACCOUNTS. Subject to the -------------------------------- provisions of paragraph (b) restricting distribution of more than Three Thousand Five Hundred Dollars ($3,500.00) (Five Thousand Dollars ($5,000.00) for Plan Years beginning on or after January 1, 1998) without the Participant's consent, the distribution of the Participant's ESOP Account shall be made in accordance with Section 11.5(a), 11.5(b), 11.5(c) or 11.5(d) whichever is applicable. 11.6. METHOD OF DISTRIBUTION. ---------------------- (a) PARTICIPANT'S ELECTION. Except for amounts invested ---------------------- in the ESOP Fund, the Participant or Beneficiary shall select the method of payment of his or her benefits hereunder in accordance with the provisions of this Section. Distribution of amounts credited to the ESOP Fund shall be made in Employer Securities in a single distribution. (b) OPTIONAL METHODS OF DISTRIBUTION. Distribution may be -------------------------------- made in any one (1) or more of the following methods: (1) By payment in a cash lump sum to the Participant or his Beneficiary; (2) By making payments of amounts credited to Accounts (other than amounts invested in the ESOP Fund) in quarterly or annual installments over any period not in excess of five (5) years, unless elected otherwise by the Participant, but in no event in excess of the joint life expectancy of the Participant and his spouse. Distribution of amounts credited to the ESOP Fund shall be made in whole and fractional shares (if necessary) of Employer Securities in a single distribution. A former Participant who is receiving distributions in installments may direct the investment of the undistributed portion of his Accounts (other than his ESOP Account) pursuant to the provision of Sections 6.2 and 6.4. (c) EMPLOYER SECURITIES. If Employer Securities ------------------- consisting of stock acquired with the proceeds of an exempt loan are available for distribution and consist of more than one (1) class, a distributee shall receive substantially the same proportion of each class. (d) MINIMUM DISTRIBUTION AND INCIDENTAL BENEFIT ------------------------------------------- REQUIREMENTS. The distribution of a Participant's interest must - ------------ commence by the date determined pursuant to Section 11.5(e) (the "required beginning date"). Unless the Participant's entire interest is distributed to him by the required beginning date, the distributions must be made over a period certain not extending beyond the life expectancy of the Participant, or over a period certain not extending beyond the joint life and last survivor life expectancy of the Participant and the Participant's designated Beneficiary. In addition, all benefit payment options shall be structured so as to comply with the incidental benefit requirements of Section 401(a)(9)(G) of the Code and any regulations issued pursuant thereto, which require, generally, that certain minimum amounts be distributed to a Participant during each calendar year, commencing with the calendar year in which the Participant's required beginning date falls, in order to assure that only "incidental" benefits are provided to a Participant's beneficiaries. The provision of this paragraph shall control over any conflicting provisions of this Plan. In addition, all distributions made pursuant to the Plan shall comply with any regulations issued by the United States Treasury Department under Section 401(a)(9) of the Code, including any regulations issued pursuant to Section 401(a)(9)(G), and such regulations shall override and supersede any conflicting provisions of this Section or any other Section of this Plan. Any distributions required by the paragraph to a Participant who has not yet terminated employment shall be charged to the Account selected by the Participant; provided, however, that said distributions shall not be charged to the Participant's ESOP Account until all of the other Accounts maintained for the Participant have been exhausted. If the only account maintained for the Participant is the ESOP Account, the Participant may elect to receive the entire balance of said Account. (e) DISTRIBUTION OF SMALL AMOUNTS. Notwithstanding any ----------------------------- provision of this Plan to the contrary, the Advisory Committee, in its sole discretion, may direct payment of benefits in a single lump sum if the total amount distributable to the Participant from all of his accounts at the time of any distribution under this ARTICLE ELEVEN or any withdrawal under ARTICLE NINE, does not exceed Three Thousand Five Hundred Dollars ($3,500.00) (Five Thousand Dollars ($5,000.00) for Plan Years beginning on or after January 1, 1998). For purposes of this rule, if the total amount distributable to the Participant from all his accounts at the time of any distribution or withdrawal exceeds Three Thousand Five Hundred Dollars ($3,500.00) (Five Thousand Dollars ($5,000.00) for Plan Years beginning on or after January 1, 1998), then the amount in the Participant's account at all times thereafter will be deemed to exceed Three Thousand Five Hundred Dollars ($3,500.00) (Five Thousand Dollars ($5,000.00) for Plan Years beginning on or after January 1, 1998). No distribution may be made pursuant to the preceding sentence after the Benefit Commencement Date unless the Participant consents in writing to the distribution. All distributions pursuant to this paragraph must be made not later than the close of the second Plan Year following the Plan Year in which the Participant's employment is terminated. (f) AMOUNT OF DISTRIBUTION. For the purpose of ---------------------- determining the amount to be distributed to Participants and Beneficiaries, the Participant's accounts will be valued as of the Accounting Date preceding the date upon which distribution is to commence, and the accounts shall then be adjusted to reflect any contributions made by or on behalf of the Participant after such Accounting Date. (g) LIFE EXPECTANCIES. For purposes of this Plan, life ----------------- expectancies shall be calculated by use of the expected return multiples specified in Tables V and VI of ?1.72-9 of the regulations issued by the United States Treasury Department, and in accordance with the rules and procedures specified in regulations issued under Section 401(a)(9) of the Code, as such Tables and regulations may be amended from time to time, or any Tables or regulations subsequently issued in replacement of said Tables or regulations. The life expectancy of a Participant and his spouse may be recalculated annually. The life expectancy of any other individual shall be calculated using the individual's attained age on his birthday in the relevant calendar year (as determined in accordance with regulations issued pursuant to Section 401(a)(9) of the Code) and such individual's life expectancy during any later calendar year shall be the life expectancy as originally determined less the number of calendar years that have elapsed since the calendar year of the initial determination. 11.7. PAYMENTS TO DISABLED. -------------------- If any person to whom a payment is due under this Plan is unable to care for his affairs because of physical or mental disability, or is subject to a legal disability, the Advisory Committee shall have the authority to cause the payments becoming due to such person to be made to his duly-appointed legal guardian or custodian, to his spouse or to any other person charged with the legal obligation to support him, without any responsibility on the part of the Advisory Committee or the Trustees to see to the application of such payments. Payments made pursuant to such power shall operate as a complete discharge of the Advisory Committee, the Trustees, the ESOP Fund and the Trust Fund. The decision of the Advisory Committee in each case shall be final and binding upon all persons whomsoever. 11.8. MISSING PAYEES. -------------- Neither the Trustees nor the Advisory Committee nor any Employer shall be obliged to search for or ascertain the whereabouts of any Participant or Beneficiary. It shall be the responsibility of each Participant to advise the Advisory Committee of the current mailing address of such Participant and his Beneficiary, and any notice or payment addressed to such last known address of record shall be deemed to have been received by the Participant. Should the Advisory Committee not be able locate a Participant who is entitled to be paid a benefit under the Plan after making reasonable efforts to contact said Participant, and a period of two (2) years has elapsed from the Participant's Termination Date, a forfeiture of the Participant's vested benefit shall occur and be redistributed in accordance with Sections 8.2(d) and 10.4(c). Notwithstanding said forfeiture, in the event the Participant should thereafter make a claim for his benefits, as determined prior to the date of forfeiture, the Advisory Committee shall restore (as of the next Accounting Date) his account balance together with interest at the "Short Term Federal Rate," as defined in Internal Revenue Code Section 1274, from the date of forfeiture. Such amounts shall be restored in a manner consistent with the restoration of forfeitures as set forth in Section 10.4(c). Should there be insufficient forfeitures occurring on said Accounting Date, the Employer shall be obligated to restore said Account by means of a special contribution to the Plan. 11.9. WITHHOLDING. ----------- Payment of benefits under this Plan shall be subject to applicable law governing the withholding of taxes from benefit payments, and the Trustees and Advisory Committee shall be authorized to withhold taxes from the payment of any benefits hereunder, in accordance with applicable law. 11.10. UNDERPAYMENT OR OVERPAYMENT OF BENEFITS. --------------------------------------- In the event that, through misstatement or computation error, benefits are underpaid or overpaid, there shall be no liability for any more than the correct benefit sums under the Plan. Overpayments may be deducted from future payments under the Plan, and underpayments may be added to future payments under the Plan. In lieu of receiving reduced benefits under the Plan, a Participant or beneficiary may elect to make a lump sum repayment of any overpayment. 11.11. TRANSFERS FROM THE PLAN. ----------------------- Upon receipt by the Advisory Committee of a written request from a Participant who has separated or is separating from the Employer and has not yet received distribution of his benefits under the Plan, the Advisory Committee shall direct the Trustee to transfer such Participant's vested interest in his accounts to the trustee or other administrative agent of another plan or trust or individual retirement account certified by the Participant as meeting the requirements for qualified plans or trusts or individual retirement accounts under the Code. The Trustee shall make such transfer within a reasonable time following receipt of such written direction by the Advisory Committee. The Employer, the Advisory Committee and the Trustee shall not be responsible for ascertaining whether the transferee plan, trust, or individual retirement account is qualified under the Code, and the written request of the Participant shall constitute a certification on the part of such Participant that the plan, trust, or individual retirement account is qualified and provides for the acceptance of such transfer. 11.12. ELIGIBLE ROLLOVER DISTRIBUTIONS. ------------------------------- (a) GENERAL. With respect to any "eligible rollover ------- distribution", a "distributee" may elect to have such distribution paid directly to an "eligible retirement plan" and may specify the eligible retirement plan to which such distribution is to be paid (in such form and at such time as determined by the Advisory Committee). If such election is made, the eligible rollover distribution shall be made in the form of a direct trustee-to-trustee transfer to the eligible retirement plan so specified. Any distribution not qualifying as an eligible rollover distribution under Section 11.12(b) may not be rolled over in the manner specified in this Section 11.12. (b) DEFINITIONS. ----------- (1) The term "eligible rollover distribution" shall mean a distribution that would be includable in the distributee's gross income if not transferred pursuant to this Section 11.12 (as determined without regard to Code Sections 402(c) and 403(a)(4)) and that is a distribution of all or any portion of the balance to the credit of the distributee in the Plan except that such term shall not include: (A) any distribution which is one of a series of substantially equal periodic payments made (not less frequently than annually); (i) for the life (or life expectancy) of the distributee or the joint lives (or life expectancies) of the distributee and the distributee's Beneficiary; or (ii) for a specified period of ten (10) years or more; and (B) any distribution to the extent such distribution is required under Code Section 401(a)(9). (2) The term "eligible retirement plan" shall mean: (A) an individual retirement account described in Code Section 408(a); (B) an individual retirement annuity described in Code Section 408(b) (other than an endowment contract); (C) an employee's trust described in Code Section 401(a) which is exempt from tax under Code Section 501(a) provided that such employee's trust is a defined contribution plan, the terms of which permit the acceptance of rollover distributions; or (D) an annuity plan described in Code Section 403(b). Notwithstanding the above, if the distributee is a surviving spouse, an eligible retirement plan shall include only an individual retirement account or an individual retirement annuity. (3) The term "distributee" shall include an Employee and a former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a Qualified Domestic Relations Order are distributees with regard to the interest of a spouse or former spouse. ARTICLE TWELVE -------------- PLAN ADMINISTRATION ------------------- 12.1. THE ADVISORY COMMITTEE. ---------------------- (a) APPOINTMENT AND REMOVAL. The Corporation is the plan ----------------------- administrator, but it delegates its duties and responsibilities as such to the Advisory Committee which shall consist of not less than three (3) members (who may be directors, officers or other employees of the Employers or Participants in this Plan). Such members shall be appointed from time to time by the President of the Corporation and shall serve at his pleasure. Each member may be dismissed by the President or his designee at any time by notice to the members of the Advisory Committee. A member of the Advisory Committee may resign at any time by delivering his written resignation to the President or his designee. The members of the Advisory Committee may be appointed to succeed themselves. (b) CHAIRMAN AND SECRETARY. The members of the Advisory ---------------------- Committee shall elect a chairman and shall also elect a secretary who may, but need not, be one of the members of the Advisory Committee. The secretary of the Advisory Committee or his designee shall record all acts and determinations of the Advisory Committee and shall preserve and retain custody of all such records, together with such other documents as may be necessary for the administration of the Plan or as may be required by law. (c) MEETINGS AND MAJORITY ACTION. The Advisory Committee ---------------------------- shall hold meetings upon such notice, and at such place or places, and at such intervals as it may from time to time determine. A majority of the members of the Advisory Committee at any time in office shall constitute a quorum for the transaction of business. All resolutions or other actions taken by the Advisory Committee shall be by vote of a majority of the Advisory Committee at a meeting of the Advisory Committee or without a meeting by an instrument in writing signed by a majority of the members of the Advisory Committee. 12.2. POWERS OF THE ADVISORY COMMITTEE. -------------------------------- (a) GENERAL POWERS. The Advisory Committee shall have the -------------- power and discretion to perform the administrative duties described in this Plan or required for proper administration of the Plan and shall have all powers necessary to enable it to properly carry out such duties. Without limiting the generality of the foregoing, the Advisory Committee shall have the power and discretion to construe and interpret this Plan, to hear and resolve claims relating to this Plan, and to decide all questions and disputes arising under this Plan. The Advisory Committee shall determine, in its discretion, the eligibility of employees to participate in the Plan, to determine the service credited to the Employees, the status and rights of a Participant, and the identity of the Beneficiary or Beneficiaries entitled to receive any benefits payable hereunder on account of the death of a Participant. (b) BENEFIT PAYMENTS. Except as is otherwise provided ---------------- hereunder, the Advisory Committee shall determine the manner and time of payment of benefits under this Plan. All benefit disbursements by the Trustee shall be made upon the instructions of the Advisory Committee. (c) DECISIONS FINAL. All matters to be decided by the --------------- Advisory Committee shall be decided by the Advisory Committee in the exercise of its discretion and shall be binding and conclusive upon all persons. (d) REPORTING AND DISCLOSURE. The Advisory Committee ------------------------ shall file all reports and forms lawfully required to be filed by the Advisory Committee with any governmental agency or department, federal or state, and shall distribute any forms, reports, statements or plan descriptions lawfully required to be distributed to Participants and others by any governmental agency or department, federal or state. (e) INVESTMENT. The Advisory Committee shall keep itself ---------- advised with respect to the investment of the Trust Fund and shall report to the Employer regarding the investment and reinvestment of the Trust Fund not less frequently than annually. The Advisory Committee shall have power to direct specific investments of the Trust Fund only where such power is expressly conferred by this Plan and only to the extent described in this Plan. All other investment duties shall be the responsibility of the Trustee. Notwithstanding anything set forth in the Plan or the Trust Agreements to which the Administrative Trustees and/or the ESOP Trustees are parties, no purchase of Employer Securities shall be made by the ESOP Trustees without their first obtaining a recommendation from the Advisory Committee stating: (1) that the Advisory Committee recommends that the ESOP Trustees acquire shares of Employer Securities, and (2) upon the terms and conditions which they recommend such shares be acquired. Before making such recommendation, the Advisory Committee shall take into account such items as they deem appropriate, including, but not limited to, their reviewing appraisals and financial statements of the Employer. 12.3. CLAIMS. ------ (a) FILING OF CLAIM. A Participant or Beneficiary --------------- entitled to benefits need not file a written claim to receive benefits. If an Employee, Participant, Beneficiary or any other person is dissatisfied with the determination of his benefits, eligibility, participation or any other right or interest under this Plan, such person may file a written statement setting forth the basis of the claim with the Advisory Committee in a manner prescribed by the Advisory Committee. In connection with the determination of a claim, or in connection with review of a denied claim, the claimant may examine this Plan and any other pertinent documents generally available to Participants relating to the claim and may submit comments in writing. (b) NOTICE OF DECISION. A written notice of the ------------------ disposition of any such claim shall be furnished to the claimant within thirty (30) days after the claim is filed with the Advisory Committee, provided that the Advisory Committee may have an additional period to decide the claim if it advises the claimant in writing of the need for an extension and the date on which it expects to decide the claim. The notice of disposition of a claim shall refer, if appropriate, to pertinent provisions of this Plan, shall set forth in writing the reasons for denial of the claim if the claim is denied (including references to any pertinent provisions of this Plan), and where appropriate shall explain how the claimant can perfect the claim. (c) REVIEW. If the claim is denied, in whole or in part, ------ the claimant shall also be notified in writing that a review procedure is available. Thereafter, within ninety (90) days after receiving the written notice of the Advisory Committee's disposition of the claim, the claimant may request in writing, and shall be entitled to, a review meeting with the Advisory Committee to present reasons why the claim should be allowed. The claimant shall be entitled to be represented by counsel at the review meeting. The claimant also may submit a written statement of his claim and the reasons for granting the claim. Such statement may be submitted in addition to, or in lieu of, the review meeting with the Advisory Committee. The Advisory Committee shall have the right to request of and receive from a claimant such additional information, documents or other evidence as the Advisory Committee may reasonably require. If the claimant does not request a review meeting within ninety (90) days after receiving written notice of the Advisory Committee's disposition of the claim, the claimant shall be deemed to have accepted the Advisory Committee's written disposition, unless the claimant shall have been physically or mentally incapacitated so as to be unable to request review within the ninety (90) day period. (d) DECISION FOLLOWING REVIEW. A decision on review shall ------------------------- be rendered in writing by the Advisory Committee ordinarily not later than sixty (60) days after review, and a written copy of such decision shall be delivered to the claimant. If special circumstances require an extension of the ordinary period, the Advisory Committee shall so notify the claimant. In any event, if a claim is not determined within one hundred twenty (120) days after submission for review, it shall be deemed to be denied. (e) DECISIONS FINAL; PROCEDURES MANDATORY. To the extent ------------------------------------- permitted by law, a decision on review by the Advisory Committee shall be binding and conclusive upon all persons whomsoever. To the extent permitted by law, completion of the claims procedures described in this Section shall be a mandatory precondition that must be complied with prior to commencement of a legal or equitable action in connection with the Plan by a person claiming rights under the Plan or by another person claiming rights through such a person. The Advisory Committee may, in its sole discretion, waive these procedures as a mandatory precondition to such an action. 12.4. THE TRUSTEES. ------------ The Administrative Trustee shall be appointed under and shall be governed by the provisions of the Trust Agreement and the ESOP Trustees shall be appointed under and shall be governed by the provisions of the ESOP Trust Agreement. 12.5. SCOPE OF RESPONSIBILITY. ----------------------- (a) GENERAL. The Corporation and other Employers, the ------- Advisory Committee and the Trustees shall perform the duties respectively assigned to them under the Plan, the Trust Agreement, or the ESOP Trust Agreement or pursuant to the written directions of the Board, and shall not be responsible for performing duties assigned to others under the terms and provisions of the Plan or the Trust Agreement or the ESOP Trust Agreement or assigned to others pursuant to the written directions of the Board. No inference of approval or disapproval is to be made from the inaction of any party described above or the employee or agent of any of them with regard to the action of any other such party. (b) CONFLICTS. No member of the Advisory Committee may --------- act, vote or otherwise influence the Advisory Committee regarding his own eligibility, participation, status or rights under the Plan. (c) ADVISORS. The Corporation shall have the authority to -------- employ advisors, legal counsel, accountants and investment managers in connection with the administration of the Plan, and may delegate to other Employers, the Advisory Committee and/or the Trustees' authority to employ such persons. To the extent permitted by applicable law, the Corporation, other Employers, the Advisory Committee and the Trustees shall not be liable for complying with the directions of any advisors, legal counsel, accountants and investment managers appointed pursuant to this Section. The Corporation, other Employers, the Advisory Committee and the Trustees shall not be responsible or liable for any loss resulting from the investment directions of Participants and do not guarantee the Trust Fund against investment loss or depreciation in asset value. (d) MULTIPLE CAPACITIES. Persons, organizations or ------------------- corporations acting in a position of any fiduciary responsibility with respect to the Plan and/or the Trust Fund may serve in more than one (1) fiduciary capacity. (e) ALLOCATION OF RESPONSIBILITIES. The Corporation or ------------------------------ the Advisory Committee from time to time may allocate to one (1) or more of the members of the Advisory Committee and may delegate to any other persons or organizations any of the rights, powers, duties and responsibilities of the Corporation or the Advisory Committee, respectively, with respect to the operation and administration of the Plan, and the Corporation may employ and authorize any person to whom any of its fiduciary responsibility has been delegated to employ persons to render advice with regard to any fiduciary responsibility held hereunder. Any such allocation and delegation shall be reviewed at least annually by the Corporation and shall be terminable upon such notice as the Corporation, in its sole discretion, deems reasonable and prudent under the circumstances. (f) INDEMNIFICATION. To the extent permitted by law, the --------------- Employers shall and do hereby jointly and severally indemnify and agree to hold harmless their employees, agents and members of the Advisory Committee, from all loss, damage or liability, joint or several (including payment of expenses in connection with defense against any such claim), for their acts, omissions and conduct, and for the acts, omissions and conduct of their duly appointed agents, which acts, omissions or conduct constitute or are alleged to constitute a breach of such individual's fiduciary or other responsibilities under the Act or any other law, except for those acts, omissions or conduct resulting from his own willful misconduct, willful failure to act, or gross negligence; provided, however, that if any party would otherwise be entitled to indemnification hereunder in respect of any liability and such party shall be insured against loss as a result of such liability by any insurance contract or contracts, such party shall be entitled to indemnification hereunder only to the extent by which the amount of such liability shall exceed the amount thereof payable under such insurance contract or contracts. (g) INSURANCE. The Employers may obtain insurance --------- covering themselves and others for breaches of fiduciary obligations under this Plan to the extent permitted by law, and nothing in this Plan shall restrict the right of any person to obtain such insurance for himself in connection with the performance of his duties under this Plan. The Corporation and the Advisory Committee shall be the Named Fiduciaries under the Plan, and the Corporation shall be the plan administrator. 12.6. EXPENSES. -------- Any brokerage commissions, transfer taxes and other charges and expenses in connection with the purchase and sale of securities or other property for a Fund shall be charged to such Fund. Any income taxes or other taxes payable with respect to a Fund shall likewise be charged to that Fund. Any other expenses associated with the administration of the Plan or the Trust Fund shall be paid from the Trust Fund if not paid by the Corporation or an Affiliated Company. 12.7. TRUST AGREEMENTS. ---------------- The Board shall maintain a Trust Agreement pursuant to which the Administrative Trustee shall be appointed providing for the general administration of the Trust Fund in such form as the Board may deem appropriate. The Board shall also maintain an ESOP Trust Agreement pursuant to which the ESOP Trustees shall be appointed providing for the administration of the ESOP Fund in such form and containing such provisions as the Board may deem appropriate. To the extent that duties have been allocated to the ESOP Trustees under the ESOP Trust Agreement, such duties shall not be the responsibility of the Administrative Trustee, and to the extent that duties have been allocated to the Administrative Trustee under the Trust Agreement such duties shall not be the responsibility of the ESOP Trustees. The Trust Agreement and the ESOP Trust Agreement shall contain such terms as the Board may deem appropriate, including, but not limited to, provisions with respect to the powers and authority of the Administrative Trustee or the ESOP Trustee or the ESOP Trust Agreement, and the authority of the Board to amend the Trust Agreement, to terminate the trust and to settle the accounts of the Administrative Trustee or the ESOP Trustee on behalf of all persons having an interest in the Trust Fund or the ESOP Fund. The Trust Agreement and the ESOP Trust Agreement shall form a part of the Plan and any and all rights and benefits which may accrue to any persons under the Plan shall be subject to all the terms and provisions of the Trust Agreement and the ESOP Trust Agreement. 12.8. VOTING OF EMPLOYER SECURITIES. ----------------------------- (a) GENERAL RULE. Except as otherwise provided herein, ------------ and unless such responsibilities or duties are properly delegated to a named fiduciary or investment manager other than the ESOP Trustee, the ESOP Trustee shall vote all voting Employer Securities held as assets of the ESOP Fund in its discretion. (b) VOTING PASS THROUGH. Notwithstanding anything to the ------------------- contrary in paragraph (a) above, and subject to the limitations contained in paragraph (f) herein, a Participant (or the Beneficiary if the Participant has died) shall direct the ESOP Trustee, or an agent designated by the ESOP Trustee for that purpose, with respect to the voting of shares of the Employer Securities allocated to the Participant's Accounts to the extent that, and with respect to matters for which, Participants are granted pass through voting rights as provided in paragraphs (c) or (d), whichever is applicable. The pass through voting rights provided herein shall not apply to, and the ESOP Trustee shall be responsible for voting in its discretion, shares of Employer Securities which are not yet allocated to Participants' Accounts. Similarly, the ESOP Trustee shall retain responsibility for voting in its discretion, shares of Employer Securities which are subject to the pass through voting rights provided herein to the extent that Participants fail to give directions with respect to such allocated shares. Notwithstanding the foregoing, nothing in this Section 12.8 shall prohibit delegation of the ESOP Trustee's voting responsibilities or duties to another named fiduciary or investment manager to the extent permitted by, and in accordance with, the Act. To the extent permitted by law, the ESOP Trustee shall not be liable for following the proper directions of Participants, an investment manager, or another named fiduciary in accordance with the rules herein. (c) NO REGISTRATION-TYPE CLASS OF SECURITIES. If the ---------------------------------------- Corporation does not have a "registration-type class of securities," the voting pass through rights provided in paragraph (b) above shall apply to all voting Employer Securities allocated to Participant Accounts with respect to all matters involving approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all the assets of a trade or business, or any similar transaction (as defined in the applicable regulations under Section 409(e)(3) of the Code). (d) REGISTRATION-TYPE CLASS OF SECURITIES. If the ------------------------------------- Corporation has a "registration-type class of securities", the voting pass through rights provided in paragraph (b) above shall apply to all voting Employer Securities allocated to Participant Accounts with respect to all matters submitted to shareholders for their vote. (e) PROXY MATERIALS; VOTING DIRECTION. Prior to the --------------------------------- holding of any annual or special meeting of the shareholders of the Corporation at which such matters are to be voted upon, the ESOP Trustee, or an agent designated by the ESOP Trustee for that purpose, shall verify that the Corporation or its agent has sent to each Participant (or Beneficiary if the Participant has died) entitled to pass through voting rights as described herein, a proxy statement and/or other neutral information which the ESOP Trustee deems appropriate in order to provide Participants necessary and accurate information regarding the voting decisions being passed through, together with a form to be returned to the ESOP Trustee or its designated agent instructing the ESOP Trustee to vote the shares of Employer Securities allocated to the Participant's Accounts in accordance with the Participant's wishes. Alternatively, or if the Corporation fails to provide such information, the ESOP Trustee shall send or cause to be sent such information to Participants who are entitled to direct the voting of Employer Securities hereunder. Each Participant shall have the right to direct the ESOP Trustee how to vote the number of votes attributable to the full and fractional shares of Employer Securities that are subject to pass through voting herein by completing the voting direction form and returning it to the ESOP Trustee or its designated agent. If the ESOP Trustee, or its designated agent, does not receive instructions from a Participant at least two (2) days prior to such meeting, the ESOP Trustee shall vote all of the Employer Securities attributable to the Accounts of such a Participant, in its discretion, subject to the directions of the independent fiduciary, if one has been appointed. If the ESOP Trustee has designated an agent for purposes of this Section 12.8, the ESOP Trustee may remove such agent and appoint a new agent, or exercise its powers without the use of an agent, as it shall determine in its sole discretion. (f) VOTING RIGHTS OVERRIDE. Notwithstanding anything in ---------------------- this Section 12.8 to the contrary, the ESOP Trustee shall disregard any Participant directions made under authority of paragraph (b), and vote any Employer Securities subject to such directions in the ESOP Trustee's sole discretion, to the extent required by the Act or the Code. (g) REGISTRATION-TYPE CLASS OF SECURITIES DEFINED. For --------------------------------------------- purposes of this Section 12.8, the phrase "registration-type class of securities" means: (1) a class of securities required to be registered under section 12 of the Security Exchange Act of 1934, and (2) a class of securities which would be required to be so registered except for the exemption from registration provided in subsection (g)(2)(H) of such section 12. 12.9. SECURITIES REGISTRATION. ----------------------- In the event that, in the opinion of counsel for the Corporation or the Advisory Committee, any acquisition, sale or distribution of Employer Securities shall be made in circumstances requiring registration of the securities or Participants' interests in the Trust Fund under the Securities Act of 1933 or qualification of the securities under the "blue sky" laws of any state or states, or requiring any other form of compliance with Federal or state securities laws, then the Employers may, in their sole discretion and at their own expense, take or cause to be taken any and all such action as may be necessary or appropriate to effect such registration, qualification or other form of compliance, but shall not be required to take such action. 12.10. SECURITIES RESTRICTIONS. ----------------------- The Advisory Committee may, in its sole discretion and subject to ARTICLE SEVEN, condition delivery of Employer Securities distributable pursuant to ARTICLE ELEVEN upon delivery by the Participant to the Advisory Committee of a written statement, in such form as the Advisory Committee may reasonably require, containing all or any of the following: (a) A certification that he is acquiring the Employer Securities for his own account and not with a view to or for sale in connection with any distribution of such shares; (b) An acknowledgment that the Employer Securities are being acquired in a transaction not involving any public offering and without being registered under the Securities Act of 1933 and that the shares may not be sold except in a transaction that complies with the requirements of the Securities Act of 1933 and the rules and regulations promulgated thereunder; (c) An acknowledgment that his right to transfer such Employer Securities and the right of any person to acquire such Employer Securities may be restricted by the provisions of this ARTICLE TWELVE and/or ARTICLE SEVEN of this Plan, and that the certificates evidencing the Employer Securities may contain a legend setting forth or referring to the various restrictions to which transfer of such Employer Securities are or may be subject; (d) An acknowledgment that the Employer Securities are being acquired in a private transaction, that such shares have not been registered under the Securities Act of 1933 and that the Corporation, Administrative Trustee, ESOP Trustees and Advisory Committee have neither the obligation or the intention to effect any such registration and therefore such Employer Securities must be held by the distributee indefinitely and without any market therefor unless the shares are subsequently registered under the Securities Act of 1933 or an exemption from the registration provisions of such Act is available; and (e) An acknowledgment, if appropriate, that he has been advised that Rule 144 under the Securities Act of 1933 (which Rule permits sales of securities in limited amounts in accordance with the terms and conditions of such Rule) or any successor thereto may not be applicable to resales of the Employer Securities, and that no assurance has been given him as to whether or when there may be any registration statement under such Act covering the Employer Securities being distributed, or whether or when such Rule or any other exemption from the requirements for registration under such Act might be applicable. ARTICLE THIRTEEN ---------------- AMENDMENT, MERGER AND TERMINATION --------------------------------- 13.1. AMENDMENT OF PLAN AND TRUST AGREEMENTS. -------------------------------------- The Plan, the Trust Agreement and the ESOP Trust Agreement may be amended at any time and from time to time by an instrument in writing executed pursuant to authority granted by the Board. Upon delivery to the Advisory Committee by the Corporation of such instrument and of evidence of such authority, the Plan, the Trust Agreement and the ESOP Trust Agreement shall be deemed to have been amended in the manner and to the extent therein set forth. No amendment shall substantially increase the duties and liabilities of the members of the Advisory Committee then serving without their written consent. Any such amendment may be in whole or in part and may be prospective or retroactive; provided, however, that no amendment shall be effective to the extent it shall have the effect of reverting to the Corporation or any other Employer the whole or any part of the principal or income of the Trust Fund or of diverting any part of the principal or income of the Trust Fund to purposes other than for the exclusive benefit of the Participants or their Beneficiaries. No such amendment shall diminish the rights of any Participant with respect to contributions made by him prior to the date of such amendment. 13.2. MERGER OR CONSOLIDATION. ----------------------- In the event of merger or consolidation of this Plan with another stock bonus plan, employee stock ownership plan, profit sharing plan, pension plan or other plan, or a transfer of assets or liabilities of the Trust Fund to any other such fund, each Participant shall have a right to a benefit immediately after such merger, consolidation or transfer (if the Plan was then terminated) that is at least equal to, and may be greater than, the benefit to which he had a right immediately before such merger, consolidation or transfer (if the Plan was then terminated). 13.3. DISCONTINUANCE AND TERMINATION OF PLAN. -------------------------------------- The Board shall have the right to terminate the Plan and to direct distribution of the Trust Fund. In the event of termination of the Plan, the Board shall have the power to terminate contributions by appropriate resolution. A certified copy of such resolution or resolutions shall be delivered to the Advisory Committee. In the event of termination of the Plan or discontinuance of contributions (and the Employer does not establish or maintain a successor defined contribution plan, in accordance with the provisions set forth in Treasury Regulations Section 1.401(k)-1(d)(3)), the Board may direct the Advisory Committee to instruct the Administrative Trustee and the ESOP Trustees to make distribution to the Participants as soon as practicable in the same manner as if their employment with the Employer had then terminated (provided that in any event distribution of the Trust Fund may be delayed pending liquidation of any loan obligation entered into pursuant to ARTICLE SEVEN), or the Board may direct that the Plan shall be continued without any further contributions. No distributions shall be made after termination of contributions by the Employers until a reasonable time after the Corporation has received from the United States Treasury Department a determination under the provisions of the Code as to the effect of such termination or discontinuance upon the qualification of the Plan. In the event such determination is unfavorable, then prior to making any distributions hereunder, the Administrative Trustee and the ESOP Trustees shall pay any Federal or state income taxes due because of the income of the Trust Fund and shall then distribute the balance in the manner above provided. The Corporation may, by written notice delivered to the Administrative Trustee, the ESOP Trustees and the Advisory Committee, waive the Corporation's right hereunder to apply for such a determination, and if no application for determination shall have been made within sixty (60) days after the date specified in the terminating resolution or after the date of discontinuance of contributions, the Corporation shall be deemed to have waived such right. A mere suspension of contributions by the Employers shall not be construed by the Advisory Committee as a discontinuance thereof. In the event of a complete or partial termination of the Plan, or complete discontinuance of contributions under the Plan, the Account balances of each affected Participant shall be non-forfeitable to the extent funded. 13.4. SUCCESSORS. ---------- In case of the merger, consolidation, liquidation, dissolution or reorganization of an Employer, or the sale by an Employer of all or substantially all of its assets, provision may be made by written agreement between the Corporation and any successor corporation acquiring or receiving a substantial part of the Employer's assets, whereby the Plan will be continued by the successor. If the Plan is to be continued by the successor, then effective as of the date of the applicable event the successor corporation shall be substituted for the Employer under the Plan. The substitution of a successor corporation for an Employer will not in any way be considered a termination of the Plan. ARTICLE FOURTEEN ---------------- INALIENABILITY OF BENEFITS -------------------------- 14.1. NO ASSIGNMENT PERMITTED. ----------------------- (a) GENERAL PROHIBITION. No Participant or Beneficiary, ------------------- and no creditor of a Participant or Beneficiary, shall have any right to assign, pledge, hypothecate, anticipate or in any way create a lien upon the Trust Fund. All payments to be made to Participants or their Beneficiaries shall be made only upon their personal receipt or endorsement, except as provided in Section 11.7, and no interest in the Trust Fund shall be subject to assignment or transfer or otherwise be alienable, either by voluntary or involuntary act or by operation of law or equity, or subject to attachment, execution, garnishment, sequestration, levy or other seizure under any legal, equitable or other process, or be liable in any way for the debts or defaults of Participants and Beneficiaries. (b) PERMITTED ARRANGEMENTS. This Section shall not ---------------------- preclude arrangements for the withholding of taxes from benefit payments, arrangements for the recovery of benefit overpayments, arrangements for the transfer of benefit rights to another plan, or arrangements for direct deposit of benefit payments to an account in a bank, savings and loan association or credit union (provided that such arrangement is not part of an arrangement constituting an assignment or alienation). A Participant may also grant the Administrative Trustee a security interest in his Accounts as collateral for the repayment of a loan to the Participant pursuant to and in accordance with Section 6.5. Additionally, this Section shall not preclude: (1) arrangements for the distribution of the benefits of a Participant or Beneficiary pursuant to the terms and provisions of a Qualified Domestic Relations Order in accordance with the following provisions of this ARTICLE FOURTEEN; or (2) effective for Plan Years commencing on or after August 5, 1997, the offsetting of benefits of a Participant or Beneficiary as permitted by Code Section 401(a)(13)(C). 14.2. QUALIFIED DOMESTIC RELATIONS ORDERS. ----------------------------------- (a) DEFINITIONS. A Qualified Domestic Relations Order is ----------- any judgment, decree, or order (including an order approving a property settlement agreement) which relates to the provision of child support, alimony, or marital property rights to a spouse, child, or other dependent of a Participant and which is entered or made pursuant to the domestic relations or community property laws of any State and which creates or recognizes the right of an "alternate payee" to receive all or a portion of the benefits payable with respect to a Participant under this Plan or assigns to an "alternate payee" the right to receive all or a portion of said benefits. For purposes of this ARTICLE FOURTEEN, an "alternate payee" is the spouse, former spouse, child or other dependent of a Participant who is recognized by a Qualified Domestic Relations Order as having the right to receive all or a portion of the benefits payable under the Plan with respect to the Participant. (b) REQUIREMENTS. In accordance with Section 414(p) of ------------ the Code, a judgment, decree or order (hereinafter collectively referred to as an "order") shall not be treated as a Qualified Domestic Relations Order unless it satisfies all of the following conditions: (1) The order clearly specifies the name and last known mailing address (if any) of the Participant and the name and last known mailing address of each alternate payee covered by the order, the amount or percentage of the Participant's benefits to be paid to each alternate payee or the manner in which such amount or percentage is to be determined, and the number of payments or period to which such order applies. (2) The order specifically indicates that it applies to this Plan. (3) The order does not require this Plan to provide any type or form of benefit, or any option, not otherwise provided under the Plan, and it does not require the Plan to provide increased benefits (determined on the basis of actuarial value). (4) The order does not require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to qualify as a Qualified Domestic Relations Order. 14.3. EARLY COMMENCEMENT OF PAYMENTS TO ALTERNATE PAYEES. -------------------------------------------------- (a) EARLY PAYMENTS. An order requiring payment to an -------------- alternate payee before a Participant has separated from employment may qualify as a Qualified Domestic Relations Order even if it requires payment prior to the Participant's "earliest retirement age." For purposes of this Section, "earliest retirement age" shall mean the earlier of (i) the date on which the Participant attains age fifty (50) or (ii) the earliest date on which the Participant could begin receiving benefits under the Plan if the Participant separated from service. If the Order requires payments to commence prior to a Participant's actual retirement, the amounts of the payments must be determined as if the Participant had retired on the date on which such payments are to begin under such order, but taking into account only the present account balances at that time. (b) ALTERNATE PAYMENT FORMS. The order may call for the ----------------------- payment of benefits to an alternate payee in any form in which benefits may be paid under the Plan to the Participant, other than in the form of a joint and survivor annuity with respect to the alternate payee and his or her subsequent spouse. 14.4. PROCESSING OF QUALIFIED DOMESTIC RELATIONS ORDERS. ------------------------------------------------- (a) NOTICE. The Advisory Committee shall promptly notify ------ the Participant and any alternate payee who may be entitled to benefits pursuant to a previously received Qualified Domestic Relations Order of the receipt of any order which could qualify as a Qualified Domestic Relations Order. At the same time, the Advisory Committee shall advise the Participant and any alternate payees (including the alternate payee designated in the order) of the provisions of this Section relating to the determination of the qualified status of such orders. (b) QUALIFIED NATURE OF ORDER. Within a reasonable period ------------------------- of time after receipt of a copy of the order, the Advisory Committee shall determine whether the order is a Qualified Domestic Relations Order and notify the Participant and each alternate payee of its determination. The determination of the status of an order as a Qualified Domestic Relations Order shall be made in accordance with such uniform and nondiscriminatory rules and procedures as may be adopted by the Advisory Committee from time to time. If benefits are presently being paid with respect to a Participant named in an order which may qualify as a Qualified Domestic Relations Order or if benefits become payable after receipt of the order, the Advisory Committee shall notify the Trustee to segregate and hold the amounts which would be payable to the alternate payee or payees designated in the order if the order is ultimately determined to be a Qualified Domestic Relations Order. If the Advisory Committee determines that the order is a Qualified Domestic Relations Order within eighteen (18) months of receipt of the order, the Advisory Committee shall instruct the Trustee to pay the segregated amounts (plus any earnings thereon) to the alternate payee specified in the Qualified Domestic Relations Order. If within the same eighteen (18) month period the Advisory Committee determines that the order is not a Qualified Domestic Relations Order or if the status of the order as a Qualified Domestic Relations Order is not resolved, the Advisory Committee shall instruct the Trustee to pay the segregated amounts (plus any earnings thereon) to the person or persons who would have been entitled to such amounts if the order had not been entered. If the Advisory Committee determines that an order is a Qualified Domestic Relations Order after the close of the eighteen (18) month period mentioned above, the determination shall be applied prospectively only. The determination of the Advisory Committee as to the status of an order as a Qualified Domestic Relations Order shall be binding and conclusive on all interested parties, present and future, subject to the claims review provisions of Section 12.3. 14.5. RESPONSIBILITY OF ALTERNATE PAYEES. ---------------------------------- Any person claiming to be an alternate payee under a Qualified Domestic Relations Order shall be responsible for supplying the Advisory Committee with a certified or otherwise authenticated copy of the order and any other information or evidence that the Advisory Committee deems necessary in order to substantiate the individual's claim or the status of the order as a Qualified Domestic Relations Order. ARTICLE FIFTEEN --------------- GENERAL PROVISIONS ------------------ 15.1. SOURCE OF PAYMENT. ----------------- Benefits under the Plan shall be payable only out of the Trust Fund and the Corporation and other Employers shall have no legal obligation, responsibility or liability to make any direct payment of benefits under the Plan. Neither the Corporation, any other Employer, the Advisory Committee, the Administrative Trustee nor the ESOP Trustees guarantee the Trust Fund against any loss or depreciation or guarantees the payment of any benefits hereunder. No persons shall have any rights under the Plan with respect to the Trust Fund or against the Administrative Trustee, the ESOP Trustees, the Advisory Committee, the Corporation or any Employer, except as specifically provided for herein. 15.2. BONDING. ------- The Corporation shall procure bonds for every "bondable fiduciary" in an amount not less than ten percent (10%) of the amount of funds handled and in no event less than One Thousand Dollars ($1,000.00), except the Corporation shall not be required to procure such bonds if the person is exempted from the bonding requirement by law or regulation or if the Secretary of Labor exempts the Trust from the bonding requirements. The bonds shall conform to the requirements of the Act and regulations thereunder. For purposes of this Section, the term "bondable fiduciary" shall mean any person who handles funds or other property of the Trust Fund. 15.3. EXCLUSIVE BENEFIT. ----------------- Except as otherwise provided herein or in the Trust Agreement or the ESOP Trust Agreement, it shall be impossible for any part of the Trust Fund to be used for or diverted to purposes other than for the exclusive benefit of Participants and their Beneficiaries, except that payment of taxes and administration expenses may be made from the Trust Fund as provided in the Trust Agreement. 15.4. UNIFORM ADMINISTRATION; EXERCISE OF DISCRETION. ---------------------------------------------- Whenever in the administration of the Plan any action is required by the Advisory Committee, including, but not limited to, action with respect to valuation, such action shall be uniform in nature as applied to all persons similarly situated and no such action shall be taken which will discriminate in favor of Highly Compensated Employees. All actions to be taken by the Advisory Committee, the Administrative Trustee or the ESOP Trustees shall be taken in the exercise of their discretion and shall be binding and conclusive on all persons. 15.5. NO RIGHT TO EMPLOYMENT. ---------------------- Participation in the Plan or as a Beneficiary shall not give any person the right to be retained in the employ of the Corporation or any other Employer nor, upon dismissal, to have any right or interest in the Trust Fund other than as provided in the Plan. 15.6. HEIRS AND SUCCESSORS.6. HEIRS AND SUCCESSORS. -------------------------------------------- All of the provisions of this Plan shall be binding upon all persons who shall be entitled to any benefits hereunder, and their heirs and legal representatives. 15.7. ASSUMPTION OF QUALIFICATION. --------------------------- Unless and until advised to the contrary, the Administrative Trustee and the ESOP Trustees may assume that the Plan is a qualified plan under the provisions of the Code relating to such plans, and that the Trust Fund is entitled to exemption from income tax under such provisions. 15.8. EFFECT OF AMENDMENT. ------------------- This Plan is not a new plan succeeding the Plan as constituted prior to the Effective Date, but is an amendment and restatement of the Plan as so constituted. The amount, right to and form of any benefits under this Plan, if any, of each person who is an Employee after the Effective Date, or the persons who are claiming through such an Employee, shall be determined under this Plan. The amount, right to and form of benefits, if any, of each person who separated from employment with the Employer prior to the Effective Date, or of persons who are claiming benefits through such a former Employee, shall be determined in accordance with the provisions of the Plan in effect on the date of termination of his employment, except as may be otherwise expressly provided under this Plan, unless he shall again become an Employee after the Effective Date. 15.9. COMPLIANCE WITH SECTION 414(U) OF THE CODE. Notwithstanding any ------------------------------------------ provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code effective December 12, 1994. IN WITNESS WHEREOF, AMERCO has caused this Plan to be executed and its corporate seal to be hereunto affixed by its duly authorized officers, this 13th day of May, 1998. AMERCO By /S/ EDWARD J. SHOEN --------------------------- Its President --------------------------- ATTEST: By /S/ GARY V. KLINEFELTER --------------------------- Its Secretary --------------------------- EX-10.1A 3 0003.txt AMENDMENT TO ESOP PLAN FIRST AMENDMENT TO THE AMERCO EMPLOYEE SAVINGS, PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN On March 16, 1973, Amerco, a Nevada Corporation (the "Corporation") established the "Amerco Profit Sharing Retirement Trust" (the "Profit Sharing Plan"), which was subsequently amended from time to time. Effective April 1, 1984, the Corporation established the "Amerco Employee Savings and Protection Plan", which was amended from time to time, and effective January 1, 1988, was merged with the Profit Sharing Plan to form a single plan called the "Amerco Retirement Savings and Profit Sharing Plan". Effective July 24, 1988, the Amerco Retirement Savings and Profit Sharing Plan was amended and restated as an employee stock ownership plan, which was most recently amended and restated in its entirety on December 21, 1993, and is now known as the "Amerco Employee Savings, Profit Sharing and Employee Stock Ownership Plan" (the "Plan"). The Plan was subsequently amended on four occasions and then again amended and restated effective January 1, 1997. By this instrument, the Corporation wishes to amend the Plan to make certain changes requested by the Internal Revenue Service in connection with the Company's June 12, 1998 request for a favorable determination letter. 1. Except as otherwise provided herein, the provisions of this First Amendment shall be effective as of the date this Amendment is signed. 2. Effective January 1, 1998, the last sentence of Section 2.1(r) of the Plan is hereby amended and restated in its entirety to provide as follows: Effective for Plan Years beginning on or after January 1, 1998, the term "Compensation" shall also include, for all purposes, except for the purpose of making allocations under Top Heavy Plans pursuant to Section 8.2, amounts (such as Pre-Tax Contributions to this Plan) which are not currently includible in the Participant's gross taxable income by reason of the application of Sections 125, 402(a)(8) or 402(h)(1)(B) of the Code, if such amounts are attributable to the performance of services for the Employer or any Affiliate. 3. The fourth sentence of Section 2.1(v) is hereby amended and restated to provide as follows: Notwithstanding the foregoing, Earnings in excess of One Hundred Fifty Thousand Dollars ($150,000) shall be disregarded for all purposes. 4. Sections 2.2(b) and 9.3(b) of the Plan are hereby amended by substituting the term "Accounting Date" for the term "Valuation Date" wherever used therein. 5. Effective January 1, 1997, Section 2.3(b)(2) of the Plan is hereby amended and restated in its entirety to provide as follows: (2) For the preceding year received Compensation from the Employer or its Affiliates in excess of Eighty Thousand Dollars ($80,000). 6. The last sentence of Section 2.3(c) of the Plan is hereby amended and restated in its entirety to provide as follows: If, at any time prior to the termination of employment and prior to attaining fifty-five (55) years of age, a highly compensated active employee receives Compensation which is less than fifty percent (50%) of the Employee's annual average compensation for the three (3) consecutive years preceding the determination year during which the Employee received the greatest amount of compensation from the Employer, then such Employee shall not be deemed to be a highly compensated former employee upon his actual separation from employment with the Employer if, after the "deemed separation year," as defined in Section 1.414(q)-1T Q & A-5(a)(3) of the regulations, and before the Employee's actual year of separation such Employee's services for and Compensation from the Employer, under all the facts and circumstances, increase significantly so as to result in a deemed a resumption of employment. 7. Effective January 1, 1997, Section 2.3(d) is hereby deleted from the Plan and Section 2.3(e) of the Plan is relettered Section 2.3(d). 8. Effective January 1, 1997, Section 4.3(c)(4) is hereby deleted from the Plan and the remaining paragraphs are renumbered accordingly. 9. Effective January 1, 1997, Section 4.3(d) of the Plan is hereby amended and restated in its entirety to provide as follows: (d) DISTRIBUTION OF EXCESS CONTRIBUTIONS. No -------------------------------------- later than the last day of each Plan Year, any "excess Pre-Tax Contributions" and the income allocable thereto will be distributed to Participants who made the excess Pre-Tax Contributions during the preceding Plan Year. For purposes of this paragraph, the term "excess Pre-Tax Contributions" means, with respect to any Plan Year, the aggregate amount of Pre-Tax Contributions paid to the Plan by the Highly Compensated Employees for the Plan Year over the maximum amount of Pre-Tax Contributions permitted pursuant to Section 4.3(a) and Section 401(k)(3)(A)(ii) of the Code. The distribution of excess Pre-Tax Contributions for any Plan Year shall be made to Highly Compensated Employees on the basis of the dollar amount of Pre-Tax Contributions made by each Highly Compensated Employee in accordance with the following procedure: (1) Step One: The dollar amount of the excess Pre-Tax Contribution for each Highly Compensated Employee shall be calculated in the manner described in Code Section 401(k)(8)(B) and Treasury Regulation Section 1.401(k)- 1(f)(2). However, in applying these rules, rather than distributing the amount necessary to reduce the actual deferral percentage of each Highly Compensated Employee in order of these Employees' actual deferral percentages, the Plan uses these dollar amounts in Step Two; (2) Step Two: The sum of the dollar amounts calculated pursuant to Step One shall be calculated. The total amount calculated in this Step Two shall be distributed in accordance with Steps Three and Four; (3) Step Three: The Pre-Tax Contributions of the Highly Compensated Employee with the highest dollar amount of Pre-Tax Contributions shall be reduced by the dollar amount required to cause that Highly Compensated Employee's Pre- Tax Contributions to equal the dollar amount of the Pre-Tax Contributions of the Highly Compensated Employee with the next highest dollar amount of Pre-Tax Contributions. This dollar amount is then distributed to the Highly Compensated Employee with the highest dollar amount of Pre-Tax Contributions. However, if a lesser reduction, when added to the total dollar amount already distributed under this Step Three, would equal the total calculated under Step Two, the lesser amount shall be distributed; and (4) Step Four: If the total amount distributed is less than the amount calculated pursuant to Step Two, Step 3 is repeated. The income allocable to excess Pre-Tax Contributions shall be determined by multiplying the income allocable for the Plan Year to the Participant's Pre-Tax Contributions Account from which the excess contributions are to be distributed by a fraction, the numerator of which is the excess Pre-Tax Contribution on behalf of the Participant for the preceding Plan Year and the denominator of which is the sum of the Participant's Pre-Tax Contributions Account balance on the last business day of the preceding Plan Year plus the Pre-Tax Contributions (other than excess Pre-Tax Contributions) allocated to that account during the Plan Year. If there is a loss, the total excess Pre-Tax Contributions shall nonetheless be distributed to the Participant, but the amount distributed shall not exceed the balance of the Pre-Tax Contributions Account from which the distribution is made. The amount of any excess contributions to be distributed shall be reduced by excess deferrals previously distributed for the taxable year ending in the same Plan Year in accordance with Section 402(g)(2) of the Code and excess deferrals to be distributed for a taxable year shall be reduced by excess contributions previously distributed for the Plan beginning in such taxable year. 10. Section 5.4(a) of the Plan is hereby amended and restated in its entirety to provide as follows: (a) DISCRETIONARY MATCHING CONTRIBUTIONS. ------------------------------------ Subject to the Board's right to terminate or amend this Plan, the Employer shall contribute to the Trust Fund for each Plan Year as an Employer Matching Contribution such amount, if any, as the Board shall determine in its sole and absolute discretion. The amount of the Employer Matching Contribution made on behalf of each Participant shall be based on the Pre-Tax Contributions made by the Participant for the Plan Year. 11. Effective January 1, 1997, Section 5.4(d)(3) is hereby deleted from the Plan and the remaining paragraphs are renumbered accordingly. 12.Effective January 1, 1997, Section 5.4(e) of the Plan is hereby amended and restated in its entirety to provide as follows: (e) DISTRIBUTION OF EXCESS CONTRIBUTIONS. No ------------------------------------ later than the last day of each Plan Year, any "excess aggregate contributions" and the income allocable thereto will be distributed to Participants who made excess aggregate contributions during the preceding Plan Year. For purposes of this paragraph, an "excess aggregate contribution" is the amount described in Section 401(m)(6)(B) of the Code. The distribution of excess aggregate contributions for any Plan Year shall be made to Highly Compensated Employees on the basis of the dollar amount of excess aggregate contributions made on behalf of each Highly Compensated Employee in accordance with the following procedure: (1) Step One: The dollar amount of the excess Matching Contribution for each Highly Compensated Employee shall be calculated in the manner described in Code Section 401(k)(8)(B) and Treasury Regulation Section 1.401(k)- 1(f)(2). However, in applying these rules, rather than distributing the amount necessary to reduce the average contribution percentage of each Highly Compensated Employee in order of these Employees', average contribution percentages, the Plan uses these dollar amounts in Step Two; (2) Step Two: The sum of the dollar amounts calculated pursuant to Step One shall be calculated. The total amount calculated in this Step Two shall be distributed in accordance with Steps Three and Four; (3) Step Three: The Matching Contributions of the Highly Compensated Employee with the highest dollar amount of Matching Contributions shall be reduced by the dollar amount required to cause that Highly Compensated Employee's Matching Contributions to equal the dollar amount of the Matching Contributions of the Highly Compensated Employee with the next highest dollar amount of Matching Contributions. This dollar amount is then distributed to the Highly Compensated Employee with the highest dollar amount of Matching Contributions. However, if a lesser reduction, when added to the total dollar amount already distributed under this Step Three, would equal the total calculated under Step Two, the lesser amount shall be distributed; and (4) Step Four: If the total amount distributed is less than the amount calculated pursuant to Step Two, Step 3 is repeated. The income allocable to excess aggregate contributions was to be determined by multiplying the income allocable to the Participant's Matching Contributions Account for the Plan Year by a fraction, the numerator of which is the excess aggregate contributions on behalf of the Participant for the preceding Plan Year and the denominator of which is the Participant's Matching Contributions Account balance on the last business day of the preceding Plan Year. The excess aggregate contributions to be distributed to the Participant shall be adjusted for income and losses. In the case of a loss, the total excess aggregate contributions would nonetheless be distributed to the Participant, but the amount distributed could not exceed the Participant's Matching Contributions Account balance. 13. Section 5.4(f) of the Plan is hereby amended and restated in its entirety to provide as follows: (f) MULTIPLE USE OF THE ALTERNATIVE LIMITATION. ------------------------------------------- For purposes of determining whether the limitations in Sections 4.3 and 5.4 are met, the Plan shall satisfy the test for multiple use of the "alternative limitation" (as described in Sections 401(k)(3)(A)(ii)(II) and 401(m)(2)(A)(ii) of the Code) set forth in Treasury Regulation Section 1.401(m)-2. If multiple use of the alternative limitation occurs with respect to two or more plans or arrangements maintained by the Employer it must be corrected by reducing actual contribution percentages of all Highly Compensated Employees in the manner described in Treasury Regulation Section 1.401(m)-2(c)(3); provided that the Employer may instead eliminate the multiple use of the alternative limitation by making qualified nonelective contributions. For purposes of this paragraph, Section 4.3(c)(2), and Section 5.4(d)(1) of the Plan, the term "qualified nonelective contribution" shall mean any Employer contribution with respect to which (i) the Employee may not elect to have a contribution paid to the Employee in cash instead of being contributed to the Plan, (ii) the Employee may not elect to receive a distribution from the Plan earlier than separation from employment, death, Disability, an event described in Section 401(k)(10) of the Code, attainment of age fifty- nine and one-half (59 1/2) years, or hardship, and (iii) the Employee is fully vested at all times. 14. Section 6.4(b) of the Plan is hereby amended and restated in its entirety to provide as follows: (b) ESOP DIVERSIFICATION ELECTION. ESOP --------------------------------- Contributions allocable to a Participant's ESOP Account and amounts transferred to the ESOP Fund from amounts credited to a Participant's other Accounts may not be transferred from the ESOP Fund to another Fund or Funds, except as provided in this Section 6.4(b). A Participant shall become a "qualified Participant" and may elect to diversify his ESOP Account after attaining age fifty-five (55) and being credited with ten (10) or more years of participation in the Plan since the later of (1) the date he commenced participation in the Plan or (2) January 1, 1988 (which is the date as of which the ESOP feature was added to this Plan). (In other words, no Participant will be allowed to diversify his ESOP Account prior to January 1, 1998.) Within ninety (90) days after the close of each Plan Year during the "qualified election period," a qualified Participant may elect to diversify twenty-five percent (25%) of the number of shares of Employer Securities acquired by or contributed to the Plan after December 31, 1986 that have ever been allocated to the Participant's accounts on or before the most recent Plan allocation date less the number of shares of Employer Securities previously distributed, transferred, or diversified pursuant to a diversification election made after December 31, 1986. The "qualified election period" is the six (6) year period commencing with the Plan Year in which the Participant becomes a qualified Participant. In addition, in the final year of the six (6) year qualified election period, a Participant may diversify fifty percent (50%) of the number of shares of Employer Securities acquired by or contributed to the Plan after December 31, 1986 that have ever been allocated to the Participant's accounts on or before the most recent Plan allocation date less the number of shares of Employer Securities previously distributed, transferred, or diversified pursuant to a diversification election made after December 31, 1986. A qualified Participant may elect to diversify his ESOP Account by directing the investment of up to the available percentage of such account (twenty-five percent (25%) or fifty percent (50%) as the case may be) to one or more of the Funds (other than the ESOP Fund) in accordance with the provisions of Sections 6.3 and 6.4, commencing as of the first day of the first Plan Year falling within the qualified election period. Beginning with the first day of the first Plan Year falling within the qualified election period, the restrictions on the transfer of the portion of any Account other than the ESOP Account from the ESOP Fund to any other Fund, as set forth in the first sentence of this paragraph, shall no longer be applicable to such qualified Participant and such transfers may be accomplished pursuant to the rules of Section 6.4(a). 15. The third sentence of Section 8.2(b) is hereby amended and restated in its entirety to provide as follows: Special ESOP Contributions made pursuant to Section 5.2(b) shall be allocated to the ESOP Accounts of each Participant on whose behalf such contribution is made by crediting each such Participant's ESOP Account in the same ratio that each such Participant's Earnings for the Plan Year bear to the Earnings of all such Participants for the Plan Year. Special "per capita" ESOP Contributions made pursuant to Section 5.2(c) shall be allocated to the ESOP Account of each eligible Participant on whose behalf such a contribution has been made in such amount and under such terms and conditions as the Board shall direct, in its sole and absolute discretion. 16. The second sentence of Section 8.2(c) of the Plan is hereby amended and restated in its entirety to provide as follows: Special Profit Sharing Contributions made pursuant to Section 5.1(b) shall be allocated to the Profit Sharing Accounts of each Participant on whose behalf such contribution is made by crediting each such Participant's Profit Sharing Account in the same ratio that each such Participant's Earnings for the Plan Year bear to the Earnings of all such Participants for the Plan Year. Special "per capita" Profit Sharing Contributions made pursuant to Section 5.1(c) shall be allocated to the Profit Sharing Accounts of each eligible Participant on whose behalf such a contribution has been made in such amount and under such terms and conditions as the Board shall direct, in its sole and absolute discretion. 17. The first sentence of Section 8.2(f) is hereby amended and restated to provide as follows: Notwithstanding anything to the contrary in this Section or any other provision of this Plan, in any Plan Year in which the Plan is Top Heavy or Super Top Heavy, the Employer shall make a special ESOP Contribution on behalf of each Participant who is not a Key Employee for the Plan Year in such amount as may be necessary to assure that the sum of the Profit Sharing Contributions, ESOP Contributions, and forfeitures, if any, allocated to the Participant's accounts equals at least the "minimum required contribution." 18. The fifth sentence of Section 8.2(f) of the Plan is hereby amended and restated to provide as follows: The special ESOP Contribution called for by this paragraph shall be allocated on behalf of all Employees who are not Key Employees for the Plan Year and who are employed by the Employer on the last day of the Plan Year without regard to whether such Employees have completed one thousand (1,000) Hours of Service during the Plan Year. 19. Section 8.2(g) of the Plan is hereby amended and restated in its entirety to provide as follows: (g) ALLOCATION TO CERTAIN PERSONS PROHIBITED. ---------------------------------------- Notwithstanding the foregoing, no portion of the assets of the Plan attributable (or allocable in lieu of) Employer Securities acquired by the Plan in a sale to which Section 1042 of the Code applies may accrue or be allocated directly or indirectly under any Plan of the Employer meeting the requirements of Section 401(a) of the Code (1) during the "nonallocation period" for the benefit of (A) any taxpayer who makes an election under Section 1042(a) of the Code with respect to Employer Securities, or (B) any individual who is related to the taxpayer within the meaning of Section 267(b) of the Code, or (2) for the benefit of any other person who owns (after the application of Section 318(a) of the Code) more than twenty-five percent (25%) of (A) any class of outstanding stock of the corporation that issued such Employer Securities or any corporation which is a member of a controlled group of corporations (within the meaning of Section 409(l)(4) of the Code) of such corporation or (B) the total value of any class of outstanding stock of any such corporation. Clause (1)(B) of the preceding sentence shall not apply to any individual if the individual is the lineal descendant of the taxpayer and the aggregate amount allocated to the benefit of all lineal descendants during the nonallocation period does not exceed more than five percent (5%) of the Employer Securities (or amounts allocated in lieu thereof) held by the Plan which are attributable to a sale to the Plan by any person related to such descendants (within the meaning of Section 267(c)(4) of the Code) in a transaction to which Section 1042 of the Code applied. For purposes of this Section, "nonallocation period" means the period beginning on the date of the sale of the qualified securities and ending on the later of: (1) the date which is ten (10) years after the date of the sale; or (2) the date of the Plan allocation attributable to the final payment of acquisition indebtedness incurred in connection with the sale. 20. The first sentence of Section 8.5(d) of the Plan is hereby amended and restated in its entirety to provide as follows: In the event it is necessary to limit the Annual Additions to the Accounts of a Participant under this Plan due to the allocation of forfeitures, a reasonable error in estimating a Participant's Compensation, a reasonable error in determining the amount of Pre-Tax Contributions made by a Participant, or for any other reason the Commissioner determines to be justifiable, the Advisory Committee shall limit the allocation of Pre-Tax Contributions to the Participant's Pre-Tax Contribution Account and/or return any such excess Pre- Tax Contribution plus earnings allocable to any such excess Pre-Tax Contributions to the Participant. 21. Section 9.3(b) of the Plan is hereby amended by adding to the end thereof the following new sentence: Notwithstanding any provision in the Plan to the contrary, hardship distributions may not be made from earnings credited to the Participant's Pre-Tax Contributions Accounts that were credited after December 31, 1988. 22. Section 10.2(d) of the Plan is hereby amended and restated to provide as follows: (d) Termination or partial termination of this Plan as provided in Section 13.3 of this Plan; 23. The last sentence of Section 10.3(b) of the Plan is hereby amended and restated in its entirety to provide as follows: If a portion of a Participant's ESOP Account or Profit Sharing Account is forfeited, Employer Securities allocated pursuant to Section 8.2(b) must be forfeited only after other assets have been forfeited. Furthermore, if interests in more than one class of Employer Securities are allocable to the Participant's ESOP Account, the Participant shall be treated as forfeiting the same proportion of each class. 24. The first sentence of Section 10.5 of the Plan is hereby amended and restated to provide as follows: If the vesting schedule set forth in Section 10.3 is amended, in the case of an Employee who is a Participant on the later of (a) the date the amendment is adopted, or (b) the date the amendment is effective, the non-forfeitable percentage of the benefit to which the Employee is entitled (determined as of such date) shall not be less than the non-forfeitable percentage of the benefit to which he is entitled under the Plan without regard to such amendment. IN WITNESS WHEREOF, the Corporation has caused this First Amendment to be executed by its duly authorized representative this 2nd day of December, 1998. AMERCO By: /S/ EDWARD J. SHOEN --------------------------- Its: President --------------------------- EX-10.25 4 0004.txt MGMT AGREEMENT SIX-A SAC PROPERTY MANAGEMENT AGREEMENT ----------------------------- THIS PROPERTY MANAGEMENT AGREEMENT (this "Agreement") is entered into as of March 24, 2000 among Six-A SAC Self-Storage Corporation, a Nevada corporation, with its principal place of business at 715 South Country Club Drive, Mesa, AZ 85210 ("Owner"), and the property managers identified on Exhibit A --------- attached hereto and incorporated herein by reference (each such property manager is respectively referred to herein as "U-Haul"). RECITALS -------- A. Owner owns the leasehold estate in the real property and self-storage related improvements thereon located at the street addresses identified on Exhibit A hereto (hereinafter, collectively the "Property"). B. Owner intends that the Property be rented on a space-by- space retail basis to corporations, partnerships, individuals and/or other entities for use as self-storage facilities. C. Owner desires that U-Haul manage the Property and U-Haul desires to act as the property manager for the Property, all in accordance with the terms and conditions of this Agreement and as more specifically designated on Exhibit A hereto. NOW, THEREFORE, in consideration of the mutual covenants herein contained, Owner and U-Haul hereby agree as follows. 1. Employment. ---------- (a) Owner hereby retains U-Haul, and U-Haul agrees to act as manager of the Property upon the terms and conditions hereinafter set forth. (b) Owner acknowledges that U-Haul, and/or U-Haul affiliates, is in the business of managing self-storage facilities, both for its own account and for the account of others. It is hereby expressly agreed that notwithstanding this Agreement, U-Haul and such affiliates may continue to engage in such activities, may manage facilities other than those presently managed by U-Haul and its affiliates (whether or not such other facilities may be in direct or indirect competition with Owner) and may in the future engage in other business which may compete directly or indirectly with activities of Owner. (c) In the performance of their respective duties under this Agreement, each U-Haul property manager shall occupy the position of an independent contractor with respect to Owner. Nothing contained herein shall be construed as making the parties hereto (or any of them) partners or joint venturors, nor (except as expressly otherwise provided for herein) construed as making U-Haul an agent or employee of Owner or of any other U-Haul property manager hereunder. 2. Duties and Authority of U-Haul. ------------------------------ (a) GENERAL DUTIES AND AUTHORITY. Subject only to the restrictions and limitations provided in paragraphs (o) and (p) of this Section 2 and the right of Owner to terminate this Agreement as provided in Section 6 hereof, U-Haul shall have the sole and exclusive authority to fully manage the Property and supervise and direct the business and affairs associated or related to the daily operation thereof, and, to that end on behalf of Owner, to execute such documents and instruments as, in the sole judgment of U-Haul, are reasonably necessary or advisable under the circumstances in order to fulfill U-Haul's duties hereunder. Such duties and authority shall include, without limitation, those set forth below. (b) RENTING OF THE PROPERTY. U-Haul shall establish policies and procedures for the marketing activities for the Property, and may advertise the Property through such media as U-Haul deems advisable, including, without limitation, advertising with the Yellow Pages. U-Haul shall have the sole discretion, which discretion shall be exercised in good faith, to establish the terms and conditions of occupancy by the tenants of the Property, and U-Haul is hereby authorized to enter into rental agreements on behalf and for the account of Owner with such tenants and to collect rent from such tenants. U-Haul may jointly advertise the Property with other properties owned or managed by U-Haul, and in that event, U-Haul shall reasonably allocate the cost of such advertising among such properties. (c) REPAIR, MAINTENANCE AND IMPROVEMENTS. U-Haul shall make, execute, supervise and have control over the making and executing of all decisions concerning the acquisition of furniture, fixtures and supplies for the Property, and may purchase, lease or otherwise acquire the same on behalf of Owner. U-Haul shall make and execute, or supervise and have control over the making and executing of all decisions concerning the maintenance, repair, and landscaping of the Property. U-Haul shall, on behalf of Owner, negotiate and contract for and supervise the installation of all capital improvements related to the Property; provided, however, that U-Haul agrees to secure the prior written approval of Owner on all such expenditures in excess of $5,000.00 for any one item, except monthly or recurring operating charges and/or emergency repairs if in the opinion of U-Haul such emergency-related expenditures are necessary to protect the Property from damage or to maintain services to the tenants as called for in their respective leases. (d) PERSONNEL. U-Haul shall select all vendors, suppliers, contractors, subcontractors and employees with respect to the Property and shall hire, discharge and supervise all labor and employees required for the operation and maintenance of the Property. Any employees so hired shall be employees of U-Haul, and shall be carried on the payroll of U-Haul. Employees may include, but will not be limited to, on-site resident managers, on-site assistant managers, and relief managers located, rendering services, or performing activities on the Property in connection with its operation and management. The cost of employing such persons shall not exceed prevailing rates for comparable persons performing the same or similar services with respect to real estate similar to the Property. (e) AGREEMENTS. U-Haul shall negotiate and execute on behalf of Owner such agreements which U-Haul deems necessary or advisable for the furnishing of utilities, services, concessions and supplies, for the maintenance, repair and operation of the Property and such other agreements which may benefit the Property or be incidental to the matters for which U-Haul is responsible hereunder. (f) OTHER DECISIONS. U-Haul shall make all decisions in connection with the daily operation of the Property. (g) REGULATIONS AND PERMITS. U-Haul shall comply in all material respects with any statute, ordinance, law, rule, regulation or order of any governmental or regulatory body, having jurisdiction over the Property, respecting the use of the Property or the maintenance or operation thereof. U-Haul shall apply for and attempt to obtain and maintain, on behalf of Owner, all licenses and permits required or advisable (in the sole judgment of U-Haul) in connection with the management and operation of the Property. (h) RECORDS AND REPORTS OF DISBURSEMENTS AND COLLECTIONS. U-Haul shall establish, supervise, direct and maintain the operation of a system of record keeping and bookkeeping with respect to all receipts and disbursements in connection with the management and operation of the Property. The books, records and accounts shall be maintained at the U-Haul office or at such other location as U-Haul shall determine, and shall be available and open to examination and audit quarterly by Owner, its representatives, any mortgagee of the Property, and such mortgagee's representative. On or before thirty (30) days after the close of each quarter, U-Haul shall cause to be prepared and delivered to Owner, a monthly statement of receipts, expenses and charges, together with a statement of the disbursements made by U-Haul during such period on Owner's behalf. (i) [Reserved]. (j) COLLECTION. U-Haul shall be responsible for the billing and collection of all accounts receivable and for payment of all accounts payable with respect to the Property and shall be responsible for establishing policies and procedures to minimize the amount of bad debts. (k) LEGAL ACTIONS. U-Haul shall cause to be instituted, on behalf and in the name of Owner, any and all legal actions or proceedings U-Haul deems necessary or advisable to collect charges, rent or other income due to Owner with respect to the Property and to oust or dispossess tenants or other persons unlawfully in possession under any lease, license concession agreement or otherwise, and to collect damages for breach thereof or default thereunder by such tenant, licensee, concessionaire or occupant. (l) INSURANCE. U-Haul shall use its best efforts to assure that there is obtained and maintained in force, fire, comprehensive liability and other insurance policies in amounts generally carried with respect to similar facilities. U-Haul may in its discretion obtain employee theft or similar insurance in amounts and with such deductibles as U-Haul deems appropriate. U-Haul shall promptly provide Owner with such certificates of insurance as Owner may reasonably request in writing, evidencing such insurance coverage. (m) TAXES. During the term of this Agreement, U-Haul shall pay from Owner's funds, prior to delinquency, all real estate taxes, personal property taxes, and all other taxes assessed to, or levied upon, the Property. If required by the holder of any note secured by the Property, U-Haul will set aside, from Owner's funds, a reserve from each month's rent and other income collected, in an amount required by said holder for purposes of payment of real property taxes. (n) RESTRICTIONS. Notwithstanding anything to the contrary set forth in this Section 2, U-Haul shall not be required to do, or cause to be done, anything for the account of Owner (i) which may make U-Haul liable to third parties; (ii) which may not be commenced, undertaken or completed because of insufficient funds of Owner; or, (iii) which may not be commenced, undertaken or completed because of acts of God, strikes, governmental regulations of laws, acts of war or other types of events beyond the control of U-Haul, whether similar or dissimilar to the foregoing. (o) LIMITATIONS ON U-HAUL AUTHORITY. Notwithstanding anything to the contrary set forth in this Section 2, U-Haul shall not, without obtaining the prior written consent of Owner, (i) rent storage space in the Property by written lease or agreement for a stated term in excess of one year, (ii) alter the building or other structures of the Property in any material manner; (iii) make any other agreements which exceed a term of one year and are not terminable on thirty day's notice at the will of Owner, without penalty, payment or surcharge; (iv) act in violation of any law; or (v) act in violation of any duty or responsibility of Owner under any mortgage loan secured by the Property. (p) SHARED EXPENSES. Owner acknowledges that certain economies may be achieved with respect to certain expenses to be incurred by U-Haul on behalf of Owner hereunder if materials, supplies, insurance or services are purchased by U-Haul in quantity for use not only in connection with the Property but in connection with other properties owned or managed by U-Haul or its affiliates. U-Haul shall have the right to purchase such materials, supplies, insurance and/or services in its own name and charge Owner a pro rata allocable share of the cost of the foregoing; provided, however, that the pro rata cost of such purchase to Owner shall not result in expenses greater than would otherwise be incurred at competitive prices and terms available in the area where the Property is located; and provided further, U-Haul shall give Owner access to records so Owner may review any such expenses incurred. (q) DEPOSITS OF GROSS REVENUES. All Gross Revenues (as hereinafter defined) shall be deposited into a trust bank account maintained by U-Haul (or its parent company) as trustee for the benefit of the Owner. To the extent that the Gross Revenues are deposited into a collective trust account maintained by U-Haul (or its parent company) for the benefit of multiple property owners, such trust account will clearly identify the beneficiaries and U-Haul (or its parent company) shall reconcile such account daily and maintain such records as shall clearly identify each day the respective interest of each beneficiary in such collective trust account. Gross Revenues of the Owner shall be applied first to the repayment of Owner's senior debt with respect to the Property, and then to U-Haul in reimbursement of expenses and for management fees as provided under Section 4 below. 3. Duties of Owner. --------------- Owner hereby agrees to cooperate with U-Haul in the performance of U-Haul's duties under this Agreement and to that end, upon the request of U-Haul, to provide, at such rental charges, if any, as are deemed appropriate, reasonable office space for U-Haul employees on the premises of the Property and to give U-Haul access to all files, books and records of Owner relevant to the Property. Owner shall not unreasonably withhold or delay any consent or authorization to U-Haul required or appropriate under this Agreement. 4. Compensation of U-Haul. ---------------------- (a) MANAGEMENT FEE. Owner shall pay to U-Haul as the full amount due for the services herein provided a fee (the "Management Fee") equal to six percent (6%) of the "Gross Revenue" derived from or connected with the Property so managed by U-Haul hereunder. The term "Gross Revenue" shall mean all receipts (excluding security deposits unless and until Owner recognizes the same as income) of Owner (whether or not received by U-Haul on behalf or for the account of Owner) arising from the operation of the Property, including without limitation, rental payments of lessees of space in the Property, vending machine or concessionaire revenues, maintenance charges, if any, paid by the tenants of the Property in addition to basic rent, parking fees, if any, and all monies whether or not otherwise described herein paid for the use of the Property. "Gross Revenue" shall be determined on a cash basis. The Management Fee shall be paid promptly at the end of each calendar quarter and shall be calculated on the basis of the "Gross Revenue" of such preceding quarter. The Management Fee shall be paid to each U-Haul property manager herein identified based on the Gross Revenue of each respective Property for which such property manager is responsible as set forth on Exhibit A hereto. Each property manager agrees --------- that its monthly Management Fee shall be subordinate to that month's principal balance and interest payment on any first lien position mortgage loan on the Property. It is understood and agreed that the Management Fee will not be reduced by the cost to Owner of those employees and independent contractors engaged by or for Owner, including but not limited to the categories of personnel specifically referred to in Section 2(d). Except as provided in this Section 4, it is further understood and agreed that U-Haul shall not be entitled to additional compensation of any kind in connection with the performance by it of its duties under this Agreement. (b) REIMBURSEMENT OF CERTAIN EXPENSES. In addition to the Management Fee described above, U-Haul shall be entitled to reimbursement from Owner, on a quarterly basis, for all out-of- pocket expenses incurred by U-Haul hereunder in connection with the management and operation of the Property, including, without limitation, taxes, insurance, operational expenses, overhead, litigation and dispute resolution related expenses, capital improvement expenses, and costs of sales. 5. Use of Trademarks, Service Marks and Related Items. -------------------------------------------------- Owner acknowledges the significant value of the "U-Haul" name in the operations of Owner's property and it is therefore understood and agreed that the name, trademark and service mark, "U-Haul", and related marks, slogans, caricatures, designs and other trade or service items shall be utilized for the non- exclusive benefit of Owner in the rental and operation of the Property, and in comparable operations elsewhere. It is further understood and agreed that this name and all such marks, slogans, caricatures, designs and other trade or service items shall remain and be at all times the property of U-Haul and its affiliates, and that, except during the term hereof and as expressly provided herein, Owner shall have no right whatsoever therein. Owner agrees that during the term of this agreement the sign faces at the property will have the name "U-Haul." The U-Haul sign faces will be paid for by Owner. Upon termination of this agreement at any time for any reason, all such use by and for the benefit of Owner of any such name, mark, slogan, caricature, design or other trade or service item in connection with the Property shall, in any event, be terminated and any signs bearing any of the foregoing shall be removed from view and no longer used by Owner. In addition, upon termination of this Agreement at any time for any reason, Owner shall not enter into any new leases of Property using the U-Haul lease form or use other forms prepared by U-Haul. It is understood and agreed that U-Haul will use and shall be unrestricted in its use of such name, mark, slogan, caricature, design or other trade or service item in the management and operation of other storage facilities both during and after the expiration or termination of the term of this Agreement. 6. Termination. ----------- Owner or U-Haul may terminate this Agreement with or without cause by giving not less than thirty days' written notice to the other party pursuant to Section 11 hereof. In addition, if Owner fails to pay U-Haul any amounts owed under this Agreement when due, U-Haul may terminate this Agreement by giving Owner not less than ten days written notice pursuant to Section 11 hereof. Notwithstanding the foregoing, however, U-Haul shall not resign as property manager of the Property until a nationally recognized and reputable successor property manager is available and prepared to assume property management responsibilities with respect to the Property in question Upon termination of this Agreement, U-Haul shall promptly return to Owner all monies, books, records and other materials held by U-Haul for or on behalf of Owner. In addition, if U-Haul has contracted to advertise the Property in the Yellow Pages, Owner shall, at the option of U-Haul, continue to be responsible for the cost of such advertisement and shall either (i) pay U-Haul the remaining amount due under such contract in a lump sum; or (ii) pay U-Haul monthly for the amount due under such contract. 7. Indemnification. --------------- Owner hereby agrees to indemnify and hold each of U-Haul, all persons and companies affiliated with U-Haul, and all officers, shareholders, directors, employees and agents of U-Haul and of any affiliated companies or persons (collectively, the "Indemnified Persons") harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages, and claims in connection with the management of the Property (including the loss of use thereof following any damage, injury or destruction), arising from any cause except for the willful misconduct or gross negligence on the part of the Indemnified Persons. In addition, no Indemnified Person shall be liable for any error of judgment or for any mistake of fact or law, or for anything which it may do or refrain from doing hereafter, except in cases of willful misconduct or gross negligence. U-Haul hereby agrees to indemnify and hold Owner harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages and claims in connection with the management of the Property arising from the willful misconduct of, gross negligence of, or breach of this Agreement by the Indemnified Persons. In addition, U-Haul shall not be liable to Owner for the acts or omissions of U-Haul's officers, shareholders, directors, employees, and agents except for U-Haul's own gross negligence or willful misconduct. 8. Assignment. ---------- This Agreement may be assigned by Owner in connection with any mortgage loan on the Property, whether pursuant to a conditional or unconditional, absolute assignment. U-Haul shall have the right to assign this Agreement to an affiliate or a wholly or majority owned subsidiary; provided, however, any such assignee must assume all obligations of U-Haul hereunder, Owner's rights hereunder will be enforceable against any such assignee and U-Haul shall not be released from its liabilities hereunder unless Owner shall expressly agree thereto in writing. 9. Headings. -------- The headings contained herein are for convenience of reference only and are not intended to define, limit or describe the scope or intent of any provision of this Agreement. 10. Governing Law. ------------- The validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties shall be governed by the internal laws of the State of Arizona. 11. Notices. ------- Any notice required or permitted herein shall be in writing and shall be personally delivered or mailed first class postage prepaid or delivered by an overnight delivery service to the respective addresses of the parties set forth below their signatures on the signature page thereof, or to such other address as any party may give to the other in writing. Any notice required by this Agreement will be deemed to have been given when personally served or one day after delivery to an overnight delivery service or five days after deposit in the first class mail. 12. Severability. ------------ Should any term or provision hereof be deemed invalid, void or unenforceable either in its entirety or in a particular application, the remainder of this Agreement shall nonetheless remain in full force and effect and, if the subject term or provision is deemed to be invalid, void or unenforceable only with respect to a particular application, such term or provision shall remain in full force and effect with respect to all other applications. 13. Successors. ---------- This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their permitted assigns and successors in interest. 14. Attorneys' Fees. --------------- If it shall become necessary for any party hereto to engage attorneys to institute legal action for the purpose of enforcing their respective rights hereunder or for the purpose of defending legal action brought by the other party hereto, the party or parties prevailing in such litigation shall be entitled to receive all costs, expenses and fees (including reasonable attorneys' fees) incurred by it in such litigation (including appeals). 15. Counterparts. ------------ This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16. Scope of Property Manager Responsibility. ---------------------------------------- The duties, obligations and liability of each property manager identified herein shall extend only so far as to relate to the Property for which such property manager is managing located in the domicile state of such property manager, as more specifically described on Exhibit A hereto, and no individual property manager hereunder shall be liable for the acts or omissions of any other property manager hereunder. Each property manager shall use its best efforts to assist Owner in fulfilling Owner's obligations arising under any loan to Owner that is secured by the Property, including but not limited to preparing and providing financial and accounting reports, and maintaining the Property. Each property manager agrees that it will perform its obligations hereunder according to reasonable industry standards, in good faith, and in a commercially reasonable manner. U-Haul agrees that, in discharging its duties hereunder, it will not have any relationship with any of its affiliates that would be less favorable to Owner than would reasonably be available in a transaction with an unaffiliated party. [Rest of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date first above written. "Owner" Six-A SAC Self-Storage Corporation, a Nevada corporation By: /S/ MARK V. SHOEN ---------------------------- Mark V. Shoen, President "U-Haul" U-Haul Co. of Maryland, Inc., a Maryland corporation By: /S/ GARY V. KLINEFELTER ---------------------------------- Gary V. Klinefelter, Secretary U-Haul Co. of Texas, Inc., a Texas corporation By: /S/ GARY V. KLINEFELTER ---------------------------------- Gary V. Klinefelter, Secretary U-Haul Co. of Oregon, Inc., An Oregon corporation By: /S/ GARY V. KLINEFELTER ---------------------------------- Gary V. Klinefelter, Secretary U-Haul Co. of New Hampshire, Inc., a New Hampshire corporation By: /S/ GARY V. KLINEFELTER ------------------------------ Gary V. Klinefelter, Secretary SIX SAC SELF-STORAGE CORPORATION, a Nevada corporation, fee owner of each Property, hereby consents to this Agreement and the transactions contemplated hereby. DATED: March __ 2000 SIX SAC Self-Storage Corporation, a Nevada corporation By: /S/ MARK V. SHOEN ------------------------ Mark V. Shoen, President
EXHIBIT A --------- Address: Name of Property Manager: U-Haul Hyattsville, 2421 Chillum Rd. Hyattsville, MD U-Haul Co. of Maryland, Inc. U-Haul Center Research, 8710 Burnet Rd., Austin, TX U-Haul Co. of Texas, Inc. U-Haul Beaverton, 14225 SW TV Highway, Beaverton, OR U-Haul Co. of Oregon, Inc. U-Haul S. Willow, 5155 Willow Street, Manchester, NH U-Haul Co of New Hampshire, Inc.
EX-10.26 5 0005.txt MGMT AGREEMENT SIX-B SAC PROPERTY MANAGEMENT AGREEMENT ----------------------------- THIS PROPERTY MANAGEMENT AGREEMENT (this "Agreement") is entered into as of March 24, 2000 among Six-B SAC Self-Storage Corporation, a Nevada corporation, with its principal place of business at 715 South Country Club Drive, Mesa, AZ 85210 ("Owner"), and the property managers identified on Exhibit A --------- attached hereto and incorporated herein by reference (each such property manager is respectively referred to herein as "U-Haul"). RECITALS -------- A. Owner owns the leasehold estate in the real property and self-storage related improvements thereon located at the street addresses identified on Exhibit A hereto (hereinafter, collectively the "Property"). B. Owner intends that the Property be rented on a space-by- space retail basis to corporations, partnerships, individuals and/or other entities for use as self-storage facilities. C. Owner desires that U-Haul manage the Property and U-Haul desires to act as the property manager for the Property, all in accordance with the terms and conditions of this Agreement and as more specifically designated on Exhibit A hereto. NOW, THEREFORE, in consideration of the mutual covenants herein contained, Owner and U-Haul hereby agree as follows. 1. Employment. ---------- (a) Owner hereby retains U-Haul, and U-Haul agrees to act as manager of the Property upon the terms and conditions hereinafter set forth. (b) Owner acknowledges that U-Haul, and/or U-Haul affiliates, is in the business of managing self-storage facilities, both for its own account and for the account of others. It is hereby expressly agreed that notwithstanding this Agreement, U-Haul and such affiliates may continue to engage in such activities, may manage facilities other than those presently managed by U-Haul and its affiliates (whether or not such other facilities may be in direct or indirect competition with Owner) and may in the future engage in other business which may compete directly or indirectly with activities of Owner. (c) In the performance of their respective duties under this Agreement, each U-Haul property manager shall occupy the position of an independent contractor with respect to Owner. Nothing contained herein shall be construed as making the parties hereto (or any of them) partners or joint venturors, nor (except as expressly otherwise provided for herein) construed as making U-Haul an agent or employee of Owner or of any other U-Haul property manager hereunder. 2. Duties and Authority of U-Haul. ------------------------------ (a) GENERAL DUTIES AND AUTHORIY. Subject only to the restrictions and limitations provided in paragraphs (o) and (p) of this Section 2 and the right of Owner to terminate this Agreement as provided in Section 6 hereof, U-Haul shall have the sole and exclusive authority to fully manage the Property and supervise and direct the business and affairs associated or related to the daily operation thereof, and, to that end on behalf of Owner, to execute such documents and instruments as, in the sole judgment of U-Haul, are reasonably necessary or advisable under the circumstances in order to fulfill U-Haul's duties hereunder. Such duties and authority shall include, without limitation, those set forth below. (b) RENTING OF THE PROPERTY. U-Haul shall establish policies and procedures for the marketing activities for the Property, and may advertise the Property through such media as U-Haul deems advisable, including, without limitation, advertising with the Yellow Pages. U-Haul shall have the sole discretion, which discretion shall be exercised in good faith, to establish the terms and conditions of occupancy by the tenants of the Property, and U-Haul is hereby authorized to enter into rental agreements on behalf and for the account of Owner with such tenants and to collect rent from such tenants. U-Haul may jointly advertise the Property with other properties owned or managed by U-Haul, and in that event, U-Haul shall reasonably allocate the cost of such advertising among such properties. (c) REPAIR, MAINTENANCE AND IMPROVEMENTS. U-Haul shall make, execute, supervise and have control over the making and executing of all decisions concerning the acquisition of furniture, fixtures and supplies for the Property, and may purchase, lease or otherwise acquire the same on behalf of Owner. U-Haul shall make and execute, or supervise and have control over the making and executing of all decisions concerning the maintenance, repair, and landscaping of the Property. U-Haul shall, on behalf of Owner, negotiate and contract for and supervise the installation of all capital improvements related to the Property; provided, however, that U-Haul agrees to secure the prior written approval of Owner on all such expenditures in excess of $5,000.00 for any one item, except monthly or recurring operating charges and/or emergency repairs if in the opinion of U-Haul such emergency-related expenditures are necessary to protect the Property from damage or to maintain services to the tenants as called for in their respective leases. (d) PERSONNEL. U-Haul shall select all vendors, suppliers, contractors, subcontractors and employees with respect to the Property and shall hire, discharge and supervise all labor and employees required for the operation and maintenance of the Property. Any employees so hired shall be employees of U-Haul, and shall be carried on the payroll of U-Haul. Employees may include, but will not be limited to, on-site resident managers, on-site assistant managers, and relief managers located, rendering services, or performing activities on the Property in connection with its operation and management. The cost of employing such persons shall not exceed prevailing rates for comparable persons performing the same or similar services with respect to real estate similar to the Property. (e) AGREEMENTS. U-Haul shall negotiate and execute on behalf of Owner such agreements which U-Haul deems necessary or advisable for the furnishing of utilities, services, concessions and supplies, for the maintenance, repair and operation of the Property and such other agreements which may benefit the Property or be incidental to the matters for which U-Haul is responsible hereunder. (f) OTHER DECISIONS. U-Haul shall make all decisions in connection with the daily operation of the Property. (g) REGULATIONS AND PERMITS. U-Haul shall comply in all material respects with any statute, ordinance, law, rule, regulation or order of any governmental or regulatory body, having jurisdiction over the Property, respecting the use of the Property or the maintenance or operation thereof. U-Haul shall apply for and attempt to obtain and maintain, on behalf of Owner, all licenses and permits required or advisable (in the sole judgment of U-Haul) in connection with the management and operation of the Property. (h) RECORDS AND REPORTS OF DISBURSEMENTS AND COLLECTIONS. U-Haul shall establish, supervise, direct and maintain the operation of a system of record keeping and bookkeeping with respect to all receipts and disbursements in connection with the management and operation of the Property. The books, records and accounts shall be maintained at the U-Haul office or at such other location as U-Haul shall determine, and shall be available and open to examination and audit quarterly by Owner, its representatives, any mortgagee of the Property, and such mortgagee's representative. On or before thirty (30) days after the close of each quarter, U-Haul shall cause to be prepared and delivered to Owner, a monthly statement of receipts, expenses and charges, together with a statement of the disbursements made by U-Haul during such period on Owner's behalf. (i) [Reserved]. (j) COLLECTION. U-Haul shall be responsible for the billing and collection of all accounts receivable and for payment of all accounts payable with respect to the Property and shall be responsible for establishing policies and procedures to minimize the amount of bad debts. (k) LEGAL ACTIONS. U-Haul shall cause to be instituted, on behalf and in the name of Owner, any and all legal actions or proceedings U-Haul deems necessary or advisable to collect charges, rent or other income due to Owner with respect to the Property and to oust or dispossess tenants or other persons unlawfully in possession under any lease, license concession agreement or otherwise, and to collect damages for breach thereof or default thereunder by such tenant, licensee, concessionaire or occupant. (l) INSURANCE. U-Haul shall use its best efforts to assure that there is obtained and maintained in force, fire, comprehensive liability and other insurance policies in amounts generally carried with respect to similar facilities. U-Haul may in its discretion obtain employee theft or similar insurance in amounts and with such deductibles as U-Haul deems appropriate. U-Haul shall promptly provide Owner with such certificates of insurance as Owner may reasonably request in writing, evidencing such insurance coverage. (m) TAXES. During the term of this Agreement, U-Haul shall pay from Owner's funds, prior to delinquency, all real estate taxes, personal property taxes, and all other taxes assessed to, or levied upon, the Property. If required by the holder of any note secured by the Property, U-Haul will set aside, from Owner's funds, a reserve from each month's rent and other income collected, in an amount required by said holder for purposes of payment of real property taxes. (n) RESTRICTIONS. Notwithstanding anything to the contrary set forth in this Section 2, U-Haul shall not be required to do, or cause to be done, anything for the account of Owner (i) which may make U-Haul liable to third parties; (ii) which may not be commenced, undertaken or completed because of insufficient funds of Owner; or, (iii) which may not be commenced, undertaken or completed because of acts of God, strikes, governmental regulations of laws, acts of war or other types of events beyond the control of U-Haul, whether similar or dissimilar to the foregoing. (o) LIMITATIONS ON U-HAUL AUTHORITY. Notwithstanding anything to the contrary set forth in this Section 2, U-Haul shall not, without obtaining the prior written consent of Owner, (i) rent storage space in the Property by written lease or agreement for a stated term in excess of one year, (ii) alter the building or other structures of the Property in any material manner; (iii) make any other agreements which exceed a term of one year and are not terminable on thirty day's notice at the will of Owner, without penalty, payment or surcharge; (iv) act in violation of any law; or (v) act in violation of any duty or responsibility of Owner under any mortgage loan secured by the Property. (p) SHARED EXPENSES. Owner acknowledges that certain economies may be achieved with respect to certain expenses to be incurred by U-Haul on behalf of Owner hereunder if materials, supplies, insurance or services are purchased by U-Haul in quantity for use not only in connection with the Property but in connection with other properties owned or managed by U-Haul or its affiliates. U-Haul shall have the right to purchase such materials, supplies, insurance and/or services in its own name and charge Owner a pro rata allocable share of the cost of the foregoing; provided, however, that the pro rata cost of such purchase to Owner shall not result in expenses greater than would otherwise be incurred at competitive prices and terms available in the area where the Property is located; and provided further, U-Haul shall give Owner access to records so Owner may review any such expenses incurred. (q) DEPOSIT OF GROSS REVENUES. All Gross Revenues (as hereinafter defined) shall be deposited into a trust bank account maintained by U-Haul (or its parent company) as trustee for the benefit of the Owner. To the extent that the Gross Revenues are deposited into a collective trust account maintained by U-Haul (or its parent company) for the benefit of multiple property owners, such trust account will clearly identify the beneficiaries and U-Haul (or its parent company) shall reconcile such account daily and maintain such records as shall clearly identify each day the respective interest of each beneficiary in such collective trust account. Gross Revenues of the Owner shall be applied first to the repayment of Owner's senior debt with respect to the Property, and then to U-Haul in reimbursement of expenses and for management fees as provided under Section 4 below. 3. Duties of Owner. --------------- Owner hereby agrees to cooperate with U-Haul in the performance of U-Haul's duties under this Agreement and to that end, upon the request of U-Haul, to provide, at such rental charges, if any, as are deemed appropriate, reasonable office space for U-Haul employees on the premises of the Property and to give U-Haul access to all files, books and records of Owner relevant to the Property. Owner shall not unreasonably withhold or delay any consent or authorization to U-Haul required or appropriate under this Agreement. 4. Compensation of U-Haul. ---------------------- (a) MANAGEMENT FEE. Owner shall pay to U-Haul as the full amount due for the services herein provided a fee (the "Management Fee") equal to six percent (6%) of the "Gross Revenue" derived from or connected with the Property so managed by U-Haul hereunder. The term "Gross Revenue" shall mean all receipts (excluding security deposits unless and until Owner recognizes the same as income) of Owner (whether or not received by U-Haul on behalf or for the account of Owner) arising from the operation of the Property, including without limitation, rental payments of lessees of space in the Property, vending machine or concessionaire revenues, maintenance charges, if any, paid by the tenants of the Property in addition to basic rent, parking fees, if any, and all monies whether or not otherwise described herein paid for the use of the Property. "Gross Revenue" shall be determined on a cash basis. The Management Fee shall be paid promptly at the end of each calendar quarter and shall be calculated on the basis of the "Gross Revenue" of such preceding quarter. The Management Fee shall be paid to each U-Haul property manager herein identified based on the Gross Revenue of each respective Property for which such property manager is responsible as set forth on Exhibit A hereto. Each property manager agrees --------- that its monthly Management Fee shall be subordinate to that month's principal balance and interest payment on any first lien position mortgage loan on the Property. It is understood and agreed that the Management Fee will not be reduced by the cost to Owner of those employees and independent contractors engaged by or for Owner, including but not limited to the categories of personnel specifically referred to in Section 2(d). Except as provided in this Section 4, it is further understood and agreed that U-Haul shall not be entitled to additional compensation of any kind in connection with the performance by it of its duties under this Agreement. (b) REIMBURSEMENT OF CERTAIN EXPENSES. In addition to the Management Fee described above, U-Haul shall be entitled to reimbursement from Owner, on a quarterly basis, for all out-of- pocket expenses incurred by U-Haul hereunder in connection with the management and operation of the Property, including, without limitation, taxes, insurance, operational expenses, overhead, litigation and dispute resolution related expenses, capital improvement expenses, and costs of sales. 5. Use of Trademarks, Service Marks and Related Items. -------------------------------------------------- Owner acknowledges the significant value of the "U-Haul" name in the operations of Owner's property and it is therefore understood and agreed that the name, trademark and service mark, "U-Haul", and related marks, slogans, caricatures, designs and other trade or service items shall be utilized for the non- exclusive benefit of Owner in the rental and operation of the Property, and in comparable operations elsewhere. It is further understood and agreed that this name and all such marks, slogans, caricatures, designs and other trade or service items shall remain and be at all times the property of U-Haul and its affiliates, and that, except during the term hereof and as expressly provided herein, Owner shall have no right whatsoever therein. Owner agrees that during the term of this agreement the sign faces at the property will have the name "U-Haul." The U-Haul sign faces will be paid for by Owner. Upon termination of this agreement at any time for any reason, all such use by and for the benefit of Owner of any such name, mark, slogan, caricature, design or other trade or service item in connection with the Property shall, in any event, be terminated and any signs bearing any of the foregoing shall be removed from view and no longer used by Owner. In addition, upon termination of this Agreement at any time for any reason, Owner shall not enter into any new leases of Property using the U-Haul lease form or use other forms prepared by U-Haul. It is understood and agreed that U-Haul will use and shall be unrestricted in its use of such name, mark, slogan, caricature, design or other trade or service item in the management and operation of other storage facilities both during and after the expiration or termination of the term of this Agreement. 6. Termination. ----------- Owner or U-Haul may terminate this Agreement with or without cause by giving not less than thirty days' written notice to the other party pursuant to Section 11 hereof. In addition, if Owner fails to pay U-Haul any amounts owed under this Agreement when due, U-Haul may terminate this Agreement by giving Owner not less than ten days written notice pursuant to Section 11 hereof. Notwithstanding the foregoing, however, U-Haul shall not resign as property manager of the Property until a nationally recognized and reputable successor property manager is available and prepared to assume property management responsibilities with respect to the Property in question Upon termination of this Agreement, U-Haul shall promptly return to Owner all monies, books, records and other materials held by U-Haul for or on behalf of Owner. In addition, if U-Haul has contracted to advertise the Property in the Yellow Pages, Owner shall, at the option of U-Haul, continue to be responsible for the cost of such advertisement and shall either (i) pay U-Haul the remaining amount due under such contract in a lump sum; or (ii) pay U-Haul monthly for the amount due under such contract. 7. Indemnification. --------------- Owner hereby agrees to indemnify and hold each of U-Haul, all persons and companies affiliated with U-Haul, and all officers, shareholders, directors, employees and agents of U-Haul and of any affiliated companies or persons (collectively, the "Indemnified Persons") harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages, and claims in connection with the management of the Property (including the loss of use thereof following any damage, injury or destruction), arising from any cause except for the willful misconduct or gross negligence on the part of the Indemnified Persons. In addition, no Indemnified Person shall be liable for any error of judgment or for any mistake of fact or law, or for anything which it may do or refrain from doing hereafter, except in cases of willful misconduct or gross negligence. U-Haul hereby agrees to indemnify and hold Owner harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages and claims in connection with the management of the Property arising from the willful misconduct of, gross negligence of, or breach of this Agreement by the Indemnified Persons. In addition, U-Haul shall not be liable to Owner for the acts or omissions of U-Haul's officers, shareholders, directors, employees, and agents except for U-Haul's own gross negligence or willful misconduct. 8. Assignment. ---------- This Agreement may be assigned by Owner in connection with any mortgage loan on the Property, whether pursuant to a conditional or unconditional, absolute assignment. U-Haul shall have the right to assign this Agreement to an affiliate or a wholly or majority owned subsidiary; provided, however, any such assignee must assume all obligations of U-Haul hereunder, Owner's rights hereunder will be enforceable against any such assignee and U-Haul shall not be released from its liabilities hereunder unless Owner shall expressly agree thereto in writing. 9. Headings. -------- The headings contained herein are for convenience of reference only and are not intended to define, limit or describe the scope or intent of any provision of this Agreement. 10. Governing Law. ------------- The validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties shall be governed by the internal laws of the State of Arizona. 11. Notices. ------- Any notice required or permitted herein shall be in writing and shall be personally delivered or mailed first class postage prepaid or delivered by an overnight delivery service to the respective addresses of the parties set forth below their signatures on the signature page thereof, or to such other address as any party may give to the other in writing. Any notice required by this Agreement will be deemed to have been given when personally served or one day after delivery to an overnight delivery service or five days after deposit in the first class mail. 12. Severability. ------------ Should any term or provision hereof be deemed invalid, void or unenforceable either in its entirety or in a particular application, the remainder of this Agreement shall nonetheless remain in full force and effect and, if the subject term or provision is deemed to be invalid, void or unenforceable only with respect to a particular application, such term or provision shall remain in full force and effect with respect to all other applications. 13. Successors. ---------- This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their permitted assigns and successors in interest. 14. Attorneys' Fees. --------------- If it shall become necessary for any party hereto to engage attorneys to institute legal action for the purpose of enforcing their respective rights hereunder or for the purpose of defending legal action brought by the other party hereto, the party or parties prevailing in such litigation shall be entitled to receive all costs, expenses and fees (including reasonable attorneys' fees) incurred by it in such litigation (including appeals). 15. Counterparts. ------------ This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16. Scope of Property Manager Responsibility. ---------------------------------------- The duties, obligations and liability of each property manager identified herein shall extend only so far as to relate to the Property for which such property manager is managing located in the domicile state of such property manager, as more specifically described on Exhibit A hereto, and no individual property manager hereunder shall be liable for the acts or omissions of any other property manager hereunder. Each property manager shall use its best efforts to assist Owner in fulfilling Owner's obligations arising under any loan to Owner that is secured by the Property, including but not limited to preparing and providing financial and accounting reports, and maintaining the Property. Each property manager agrees that it will perform its obligations hereunder according to reasonable industry standards, in good faith, and in a commercially reasonable manner. U-Haul agrees that, in discharging its duties hereunder, it will not have any relationship with any of its affiliates that would be less favorable to Owner than would reasonably be available in a transaction with an unaffiliated party. [Rest of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date first above written. "Owner" Six-B SAC Self-Storage Corporation, a Nevada corporation By: /S/ MARK V. SHOEN ---------------------------- Mark V. Shoen, President "U-Haul" U-Haul Co. of Missouri, Inc., a Missouri corporation By: /S/ GARY V. KLINEFELTER ---------------------------------- Gary V. Klinefelter, Secretary U-Haul Co. of Virginia, Inc., a Virginia corporation By: /S/ GARY V. KLINEFELTER ---------------------------------- Gary V. Klinefelter, Secretary U-Haul Co. of Texas, Inc., a Texas corporation By: /S/ GARY V. KLINEFELTER ---------------------------------- Gary V. Klinefelter, Secretary U-Haul Co. of Oregon, Inc., an Oregon corporation By: /S/ GARY V. KLINEFELTER ---------------------------------- Gary V. Klinefelter, Secretary U-Haul Co. of Louisiana, Inc., a Louisiana corporation By: /S/ GARY V. KLINEFELTER ---------------------------------- Gary V. Klinefelter, Secretary SIX SAC SELF-STORAGE CORPORATION, a Nevada corporation, fee owner of each Property, hereby consents to this Agreement and the transactions contemplated hereby. DATED: March __, 2000 SIX SAC Self-Storage Corporation, a Nevada corporation By: /S/ MARK V. SHOEN ---------------------------- Mark V. Shoen, President
EXHIBIT A --------- Address Name of Property Manager U-Haul Franklin, 4400 Franklin Blvd., Eugene, OR U-Haul Co. of Oregon, Inc. U-Haul Downtown, 1530 Locust St., Kansas City, MO U-Haul Co. of Missouri, Inc. U-Haul Ctr. LBJ, 12215 LBJ Freeway, Garland, TX U-Haul Co. of Texas, Inc. U-Haul Hollywood, 2205 Hollywood, Shreveport, LA U-Haul Co. of Louisiana, Inc. U-Haul Lombardy, 900 North Lombardy, Richmond, VA U-Haul Co. of Vriginia, Inc.
EX-10.27 6 0006.txt MGMT AGREEMENT SIX-C SAC PROPERTY MANAGEMENT AGREEMENT ----------------------------- THIS PROPERTY MANAGEMENT AGREEMENT (this "Agreement") is entered into as of March 24, 2000 among Six-C SAC Self-Storage Corporation, a Nevada corporation, with its principal place of business at 715 South Country Club Drive, Mesa, AZ 85210 ("Owner"), and the property managers identified on Exhibit A attached hereto and incorporated herein by reference (each --------- such property manager is respectively referred to herein as "U-Haul"). RECITALS -------- A. Owner owns the leasehold estate in the real property and self- storage related improvements thereon located at the street addresses identified on Exhibit A hereto (hereinafter, collectively the "Property"). B. Owner intends that the Property be rented on a space-by-space retail basis to corporations, partnerships, individuals and/or other entities for use as self-storage facilities. C. Owner desires that U-Haul manage the Property and U-Haul desires to act as the property manager for the Property, all in accordance with the terms and conditions of this Agreement and as more specifically designated on Exhibit A hereto. NOW, THEREFORE, in consideration of the mutual covenants herein contained, Owner and U-Haul hereby agree as follows. 1. Employment. ---------- (a) Owner hereby retains U-Haul, and U-Haul agrees to act as manager of the Property upon the terms and conditions hereinafter set forth. (b) Owner acknowledges that U-Haul, and/or U-Haul affiliates, is in the business of managing self-storage facilities, both for its own account and for the account of others. It is hereby expressly agreed that notwithstanding this Agreement, U-Haul and such affiliates may continue to engage in such activities, may manage facilities other than those presently managed by U-Haul and its affiliates (whether or not such other facilities may be in direct or indirect competition with Owner) and may in the future engage in other business which may compete directly or indirectly with activities of Owner. (c) In the performance of their respective duties under this Agreement, each U-Haul property manager shall occupy the position of an independent contractor with respect to Owner. Nothing contained herein shall be construed as making the parties hereto (or any of them) partners or joint venturors, nor (except as expressly otherwise provided for herein) construed as making U-Haul an agent or employee of Owner or of any other U-Haul property manager hereunder. 2. Duties and Authority of U-Haul. ------------------------------ (a) GENERAL DUTIES AND AUTHORITY. Subject only to the restrictions and limitations provided in paragraphs (o) and (p) of this Section 2 and the right of Owner to terminate this Agreement as provided in Section 6 hereof, U-Haul shall have the sole and exclusive authority to fully manage the Property and supervise and direct the business and affairs associated or related to the daily operation thereof, and, to that end on behalf of Owner, to execute such documents and instruments as, in the sole judgment of U-Haul, are reasonably necessary or advisable under the circumstances in order to fulfill U-Haul's duties hereunder. Such duties and authority shall include, without limitation, those set forth below. (b) RENTING OF THE PROPERTY. U-Haul shall establish policies and procedures for the marketing activities for the Property, and may advertise the Property through such media as U-Haul deems advisable, including, without limitation, advertising with the Yellow Pages. U-Haul shall have the sole discretion, which discretion shall be exercised in good faith, to establish the terms and conditions of occupancy by the tenants of the Property, and U-Haul is hereby authorized to enter into rental agreements on behalf and for the account of Owner with such tenants and to collect rent from such tenants. U-Haul may jointly advertise the Property with other properties owned or managed by U-Haul, and in that event, U-Haul shall reasonably allocate the cost of such advertising among such properties. (c) REPAIR, MAINTENANCE AND IMPROVEMENTS. U-Haul shall make, execute, supervise and have control over the making and executing of all decisions concerning the acquisition of furniture, fixtures and supplies for the Property, and may purchase, lease or otherwise acquire the same on behalf of Owner. U-Haul shall make and execute, or supervise and have control over the making and executing of all decisions concerning the maintenance, repair, and landscaping of the Property. U-Haul shall, on behalf of Owner, negotiate and contract for and supervise the installation of all capital improvements related to the Property; provided, however, that U-Haul agrees to secure the prior written approval of Owner on all such expenditures in excess of $5,000.00 for any one item, except monthly or recurring operating charges and/or emergency repairs if in the opinion of U-Haul such emergency-related expenditures are necessary to protect the Property from damage or to maintain services to the tenants as called for in their respective leases. (d) PERSONNEL. U-Haul shall select all vendors, suppliers, contractors, subcontractors and employees with respect to the Property and shall hire, discharge and supervise all labor and employees required for the operation and maintenance of the Property. Any employees so hired shall be employees of U-Haul, and shall be carried on the payroll of U-Haul. Employees may include, but will not be limited to, on-site resident managers, on-site assistant managers, and relief managers located, rendering services, or performing activities on the Property in connection with its operation and management. The cost of employing such persons shall not exceed prevailing rates for comparable persons performing the same or similar services with respect to real estate similar to the Property. (e) AGREEMENTS. U-Haul shall negotiate and execute on behalf of Owner such agreements which U-Haul deems necessary or advisable for the furnishing of utilities, services, concessions and supplies, for the maintenance, repair and operation of the Property and such other agreements which may benefit the Property or be incidental to the matters for which U-Haul is responsible hereunder. (f) OTHER DECISIONS. U-Haul shall make all decisions in connection with the daily operation of the Property. (g) REGULATIONS AND PERMITS. U-Haul shall comply in all material respects with any statute, ordinance, law, rule, regulation or order of any governmental or regulatory body, having jurisdiction over the Property, respecting the use of the Property or the maintenance or operation thereof. U-Haul shall apply for and attempt to obtain and maintain, on behalf of Owner, all licenses and permits required or advisable (in the sole judgment of U-Haul) in connection with the management and operation of the Property. (h) RECORDS AND REPORTS OF DISBURSEMENTS AND COLLECTIONS. U-Haul shall establish, supervise, direct and maintain the operation of a system of record keeping and bookkeeping with respect to all receipts and disbursements in connection with the management and operation of the Property. The books, records and accounts shall be maintained at the U-Haul office or at such other location as U-Haul shall determine, and shall be available and open to examination and audit quarterly by Owner, its representatives, any mortgagee of the Property, and such mortgagee's representative. On or before thirty (30) days after the close of each quarter, U-Haul shall cause to be prepared and delivered to Owner, a monthly statement of receipts, expenses and charges, together with a statement of the disbursements made by U-Haul during such period on Owner's behalf. (i) [Reserved]. (j) COLLECTION. U-Haul shall be responsible for the billing and collection of all accounts receivable and for payment of all accounts payable with respect to the Property and shall be responsible for establishing policies and procedures to minimize the amount of bad debts. (k) LEGAL ACTIONS. U-Haul shall cause to be instituted, on behalf and in the name of Owner, any and all legal actions or proceedings U-Haul deems necessary or advisable to collect charges, rent or other income due to Owner with respect to the Property and to oust or dispossess tenants or other persons unlawfully in possession under any lease, license concession agreement or otherwise, and to collect damages for breach thereof or default thereunder by such tenant, licensee, concessionaire or occupant. (l) INSURANCE. U-Haul shall use its best efforts to assure that there is obtained and maintained in force, fire, comprehensive liability and other insurance policies in amounts generally carried with respect to similar facilities. U-Haul may in its discretion obtain employee theft or similar insurance in amounts and with such deductibles as U-Haul deems appropriate. U-Haul shall promptly provide Owner with such certificates of insurance as Owner may reasonably request in writing, evidencing such insurance coverage. (m) TAXES. During the term of this Agreement, U-Haul shall pay from Owner's funds, prior to delinquency, all real estate taxes, personal property taxes, and all other taxes assessed to, or levied upon, the Property. If required by the holder of any note secured by the Property, U-Haul will set aside, from Owner's funds, a reserve from each month's rent and other income collected, in an amount required by said holder for purposes of payment of real property taxes. (n) RESTRICTIONS. Notwithstanding anything to the contrary set forth in this Section 2, U-Haul shall not be required to do, or cause to be done, anything for the account of Owner (i) which may make U-Haul liable to third parties; (ii) which may not be commenced, undertaken or completed because of insufficient funds of Owner; or, (iii) which may not be commenced, undertaken or completed because of acts of God, strikes, governmental regulations of laws, acts of war or other types of events beyond the control of U-Haul, whether similar or dissimilar to the foregoing. (o) LIMITATIONS ON U-HAUL AUTHORITY. Notwithstanding anything to the contrary set forth in this Section 2, U-Haul shall not, without obtaining the prior written consent of Owner, (i) rent storage space in the Property by written lease or agreement for a stated term in excess of one year, (ii) alter the building or other structures of the Property in any material manner; (iii) make any other agreements which exceed a term of one year and are not terminable on thirty day's notice at the will of Owner, without penalty, payment or surcharge; (iv) act in violation of any law; or (v) act in violation of any duty or responsibility of Owner under any mortgage loan secured by the Property. (p) SHARED EXPENSES. Owner acknowledges that certain economies may be achieved with respect to certain expenses to be incurred by U-Haul on behalf of Owner hereunder if materials, supplies, insurance or services are purchased by U-Haul in quantity for use not only in connection with the Property but in connection with other properties owned or managed by U-Haul or its affiliates. U-Haul shall have the right to purchase such materials, supplies, insurance and/or services in its own name and charge Owner a pro rata allocable share of the cost of the foregoing; provided, however, that the pro rata cost of such purchase to Owner shall not result in expenses greater than would otherwise be incurred at competitive prices and terms available in the area where the Property is located; and provided further, U-Haul shall give Owner access to records so Owner may review any such expenses incurred. (q) DEPOSIT OF GROSS REVENUES. All Gross Revenues (as hereinafter defined) shall be deposited into a trust bank account maintained by U-Haul (or its parent company) as trustee for the benefit of the Owner. To the extent that the Gross Revenues are deposited into a collective trust account maintained by U-Haul (or its parent company) for the benefit of multiple property owners, such trust account will clearly identify the beneficiaries and U-Haul (or its parent company) shall reconcile such account daily and maintain such records as shall clearly identify each day the respective interest of each beneficiary in such collective trust account. Gross Revenues of the Owner shall be applied first to the repayment of Owner's senior debt with respect to the Property, and then to U-Haul in reimbursement of expenses and for management fees as provided under Section 4 below. 3. Duties of Owner. --------------- Owner hereby agrees to cooperate with U-Haul in the performance of U-Haul's duties under this Agreement and to that end, upon the request of U-Haul, to provide, at such rental charges, if any, as are deemed appropriate, reasonable office space for U-Haul employees on the premises of the Property and to give U-Haul access to all files, books and records of Owner relevant to the Property. Owner shall not unreasonably withhold or delay any consent or authorization to U-Haul required or appropriate under this Agreement. 4. Compensation of U-Haul. ---------------------- (a) MANAGEMENT FEE. Owner shall pay to U-Haul as the full amount due for the services herein provided a fee (the "Management Fee") equal to six percent (6%) of the "Gross Revenue" derived from or connected with the Property so managed by U-Haul hereunder. The term "Gross Revenue" shall mean all receipts (excluding security deposits unless and until Owner recognizes the same as income) of Owner (whether or not received by U-Haul on behalf or for the account of Owner) arising from the operation of the Property, including without limitation, rental payments of lessees of space in the Property, vending machine or concessionaire revenues, maintenance charges, if any, paid by the tenants of the Property in addition to basic rent, parking fees, if any, and all monies whether or not otherwise described herein paid for the use of the Property. "Gross Revenue" shall be determined on a cash basis. The Management Fee shall be paid promptly at the end of each calendar quarter and shall be calculated on the basis of the "Gross Revenue" of such preceding quarter. The Management Fee shall be paid to each U-Haul property manager herein identified based on the Gross Revenue of each respective Property for which such property manager is responsible as set forth on Exhibit A hereto. Each property manager agrees --------- that its monthly Management Fee shall be subordinate to that month's principal balance and interest payment on any first lien position mortgage loan on the Property. It is understood and agreed that the Management Fee will not be reduced by the cost to Owner of those employees and independent conractors engaged by or for Owner, including but not limited to the categories of personnel specifically referred to in Section 2(d). Except as provided in this Section 4, it is further understood and agreed that U-Haul shall not be entitled to additional compensation of any kind in connection with the performance by it of its duties under this Agreement. (b) REIMBURSEMENT OF CERTAIN EXPENSES. In addition to the Management Fee described above, U-Haul shall be entitled to reimbursement from Owner, on a quarterly basis, for all out-of-pocket expenses incurred by U-Haul hereunder in connection with the management and operation of the Property, including, without limitation, taxes, insurance, operational expenses, overhead, litigation and dispute resolution related expenses, capital improvement expenses, and costs of sales. 5. Use of Trademarks, Service Marks and Related Items. -------------------------------------------------- Owner acknowledges the significant value of the "U-Haul" name in the operations of Owner's property and it is therefore understood and agreed that the name, trademark and service mark, "U-Haul", and related marks, slogans, caricatures, designs and other trade or service items shall be utilized for the non-exclusive benefit of Owner in the rental and operation of the Property, and in comparable operations elsewhere. It is further understood and agreed that this name and all such marks, slogans, caricatures, designs and other trade or service items shall remain and be at all times the property of U-Haul and its affiliates, and that, except during the term hereof and as expressly provided herein, Owner shall have no right whatsoever therein. Owner agrees that during the term of this agreement the sign faces at the property will have the name "U-Haul." The U-Haul sign faces will be paid for by Owner. Upon termination of this agreement at any time for any reason, all such use by and for the benefit of Owner of any such name, mark, slogan, caricature, design or other trade or service item in connection with the Property shall, in any event, be terminated and any signs bearing any of the foregoing shall be removed from view and no longer used by Owner. In addition, upon termination of this Agreement at any time for any reason, Owner shall not enter into any new leases of Property using the U-Haul lease form or use other forms prepared by U-Haul. It is understood and agreed that U-Haul will use and shall be unrestricted in its use of such name, mark, slogan, caricature, design or other trade or service item in the management and operation of other storage facilities both during and after the expiration or termination of the term of this Agreement. 6. Termination. ----------- Owner or U-Haul may terminate this Agreement with or without cause by giving not less than thirty days' written notice to the other party pursuant to Section 11 hereof. In addition, if Owner fails to pay U-Haul any amounts owed under this Agreement when due, U-Haul may terminate this Agreement by giving Owner not less than ten days written notice pursuant to Section 11 hereof. Notwithstanding the foregoing, however, U-Haul shall not resign as property manager of the Property until a nationally recognized and reputable successor property manager is available and prepared to assume property management responsibilities with respect to the Property in question Upon termination of this Agreement, U-Haul shall promptly return to Owner all monies, books, records and other materials held by U-Haul for or on behalf of Owner. In addition, if U-Haul has contracted to advertise the Property in the Yellow Pages, Owner shall, at the option of U-Haul, continue to be responsible for the cost of such advertisement and shall either (i) pay U-Haul the remaining amount due under such contract in a lump sum; or (ii) pay U-Haul monthly for the amount due under such contract. 7. Indemnification. --------------- Owner hereby agrees to indemnify and hold each of U-Haul, all persons and companies affiliated with U-Haul, and all officers, shareholders, directors, employees and agents of U-Haul and of any affiliated companies or persons (collectively, the "Indemnified Persons") harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages, and claims in connection with the management of the Property (including the loss of use thereof following any damage, injury or destruction), arising from any cause except for the willful misconduct or gross negligence on the part of the Indemnified Persons. In addition, no Indemnified Person shall be liable for any error of judgment or for any mistake of fact or law, or for anything which it may do or refrain from doing hereafter, except in cases of willful misconduct or gross negligence. U-Haul hereby agrees to indemnify and hold Owner harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages and claims in connection with the management of the Property arising from the willful misconduct of, gross negligence of, or breach of this Agreement by the Indemnified Persons. In addition, U-Haul shall not be liable to Owner for the acts or omissions of U-Haul's officers, shareholders, directors, employees, and agents except for U-Haul's own gross negligence or willful misconduct. 8. Assignment. ---------- This Agreement may be assigned by Owner in connection with any mortgage loan on the Property, whether pursuant to a conditional or unconditional, absolute assignment. U-Haul shall have the right to assign this Agreement to an affiliate or a wholly or majority owned subsidiary; provided, however, any such assignee must assume all obligations of U-Haul hereunder, Owner's rights hereunder will be enforceable against any such assignee and U-Haul shall not be released from its liabilities hereunder unless Owner shall expressly agree thereto in writing. 9. Headings. -------- The headings contained herein are for convenience of reference only and are not intended to define, limit or describe the scope or intent of any provision of this Agreement. 10. Governing Law. ------------- The validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties shall be governed by the internal laws of the State of Arizona. 11. Notices. ------- Any notice required or permitted herein shall be in writing and shall be personally delivered or mailed first class postage prepaid or delivered by an overnight delivery service to the respective addresses of the parties set forth below their signatures on the signature page thereof, or to such other address as any party may give to the other in writing. Any notice required by this Agreement will be deemed to have been given when personally served or one day after delivery to an overnight delivery service or five days after deposit in the first class mail. 12. Severability. ------------ Should any term or provision hereof be deemed invalid, void or unenforceable either in its entirety or in a particular application, the remainder of this Agreement shall nonetheless remain in full force and effect and, if the subject term or provision is deemed to be invalid, void or unenforceable only with respect to a particular application, such term or provision shall remain in full force and effect with respect to all other applications. 13. Successors. ---------- This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their permitted assigns and successors in interest. 14. Attorneys' Fees. --------------- If it shall become necessary for any party hereto to engage attorneys to institute legal action for the purpose of enforcing their respective rights hereunder or for the purpose of defending legal action brought by the other party hereto, the party or parties prevailing in such litigation shall be entitled to receive all costs, expenses and fees (including reasonable attorneys' fees) incurred by it in such litigation (including appeals). 15. Counterparts. ------------ This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16. Scope of Property Manager Responsibility. ---------------------------------------- The duties, obligations and liability of each property manager identified herein shall extend only so far as to relate to the Property for which such property manager is managing located in the domicile state of such property manager, as more specifically described on Exhibit A hereto, and no individual property manager hereunder shall be liable for the acts or omissions of any other property manager hereunder. Each property manager shall use its best efforts to assist Owner in fulfilling Owner's obligations arising under any loan to Owner that is secured by the Property, including but not limited to preparing and providing financial and accounting reports, and maintaining the Property. Each property manager agrees that it will perform its obligations hereunder according to reasonable industry standards, in good faith, and in a commercially reasonable manner. U-Haul agrees that, in discharging its duties hereunder, it will not have any relationship with any of its affiliates that would be less favorable to Owner than would reasonably be available in a transaction with an unaffiliated party. [Rest of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date first above written. "Owner" Six-B SAC Self-Storage Corporation, a Nevada corporation By: /S/ MARK V. SHOEN ---------------------------- Mark V. Shoen, President "U-Haul" U-Haul Co. of Pennsylvania, Inc., a Pennsylvania corporation By: /S/ GARY V. KLINEFELTER ---------------------------------- Gary V. Klinefelter, Secretary U-Haul Co. of Ohio, Inc., An Ohio corporation By: /S/ GARY V. KLINEFELTER ---------------------------------- Gary V. Klinefelter, Secretary U-Haul Co. of Oklahoma, Inc., An Oklahoma corporation By: /S/ GARY V. KLINEFELTER ---------------------------------- Gary V. Klinefelter, Secretary U-Haul Co. of Texas, Inc., a Texas corporation By: /S/ GARY V. KLINEFELTER ---------------------------------- Gary V. Klinefelter, Secretary U-Haul Co. of Florida, Inc., a Florida corporation By: /S/ DONALD W. MURNEY ------------------------------- Donald W. Murney, Treasurer SIX SAC SELF-STORAGE CORPORATION, a Nevada corporation, fee owner of each Property, hereby consents to this Agreement and the transactions contemplated hereby. DATED: March , 2000 --- SIX SAC Self-Storage Corporation, a Nevada corporation By: /S/ MARK V. SHOEN ---------------------------- Mark V. Shoen, President
EXHIBIT A --------- Address Name of Property Manager U-Haul Memorial, 1010 S. Memorial Dr., Tulsa, OK U-Haul Co. of Oklahoma, Inc. U-Haul Conroe, 1305 S. I-45, Conroe, TX U-Haul Co. of Texas U-Haul Clark, 6000 Clark Avenue, Cleveland, OH U-Haul Co. of Ohio, Inc. U-Haul University, 6701 S. Dixie Highway, Miami, FL U-Haul Co. of Florida, Inc. U-Haul Center City, 1201 Washington Ave., Phila, PA U-Haul Co. of Pennsylvania, Inc.
EX-10.28 7 0007.txt MGMT AGREEMENT ELEVEN SAC PROPERTY MANAGEMENT AGREEMENT ----------------------------- THIS PROPERTY MANAGEMENT AGREEMENT (this "Agreement") is entered into as of August 10, 1999 among Eleven SAC Self-Storage Corporation, a Nevada corporation, with its principal place of business at 715 South Country Club Drive, Mesa, AZ 85210 ("Owner"), and the property managers identified on Exhibit A attached hereto and incorporated herein --------- by reference (each such property manager is respectively referred to herein as "U-Haul"). RECITALS -------- A. Owner owns the leasehold estate in the real property and self- storage related improvements thereon located at the street addresses identified on Exhibit A hereto (hereinafter, collectively the "Property"). B. Owner intends that the Property be rented on a space-by-space retail basis to corporations, partnerships, individuals and/or other entities for use as self-storage facilities. C. Owner desires that U-Haul manage the Property and U-Haul desires to act as the property manager for the Property, all in accordance with the terms and conditions of this Agreement and as more specifically designated on Exhibit A hereto. NOW, THEREFORE, in consideration of the mutual covenants herein contained, Owner and U-Haul hereby agree as follows. 1. Employment. ---------- (a) Owner hereby retains U-Haul, and U-Haul agrees to act as manager of the Property upon the terms and conditions hereinafter set forth. (b) Owner acknowledges that U-Haul, and/or U-Haul affiliates, is in the business of managing self-storage facilities, both for its own account and for the account of others. It is hereby expressly agreed that notwithstanding this Agreement, U-Haul and such affiliates may continue to engage in such activities, may manage facilities other than those presently managed by U-Haul and its affiliates (whether or not such other facilities may be in direct or indirect competition with Owner) and may in the future engage in other business which may compete directly or indirectly with activities of Owner. (c) In the performance of their respective duties under this Agreement, each U-Haul property manager shall occupy the position of an independent contractor with respect to Owner. Nothing contained herein shall be construed as making the parties hereto (or any of them) partners or joint venturors, nor (except as expressly otherwise provided for herein) construed as making U-Haul an agent or employee of Owner or of any other U-Haul property manager hereunder. 2. Duties and Authority of U-Haul. ------------------------------ (a) GENERAL DUTIES AND AUTHORITY. Subject only to the restrictions and limitations provided in paragraphs (o) and (p) of this Section 2 and the right of Owner to terminate this Agreement as provided in Section 6 hereof, U-Haul shall have the sole and exclusive authority to fully manage the Property and supervise and direct the business and affairs associated or related to the daily operation thereof, and, to that end on behalf of Owner, to execute such documents and instruments as, in the sole judgment of U-Haul, are reasonably necessary or advisable under the circumstances in order to fulfill U-Haul's duties hereunder. Such duties and authority shall include, without limitation, those set forth below. (b) RENTING OF THE PROPERTY. U-Haul shall establish policies and procedures for the marketing activities for the Property, and may advertise the Property through such media as U-Haul deems advisable, including, without limitation, advertising with the Yellow Pages. U-Haul shall have the sole discretion, which discretion shall be exercised in good faith, to establish the terms and conditions of occupancy by the tenants of the Property, and U-Haul is hereby authorized to enter into rental agreements on behalf and for the account of Owner with such tenants and to collect rent from such tenants. U-Haul may jointly advertise the Property with other properties owned or managed by U-Haul, and in that event, U-Haul shall reasonably allocate the cost of such advertising among such properties. (c) REPAIR, MAINTENANCE AND IMPROVEMENTS. U-Haul shall make, execute, supervise and have control over the making and executing of all decisions concerning the acquisition of furniture, fixtures and supplies for the Property, and may purchase, lease or otherwise acquire the same on behalf of Owner. U-Haul shall make and execute, or supervise and have control over the making and executing of all decisions concerning the maintenance, repair, and landscaping of the Property. U-Haul shall, on behalf of Owner, negotiate and contract for and supervise the installation of all capital improvements related to the Property; provided, however, that U-Haul agrees to secure the prior written approval of Owner on all such expenditures in excess of $5,000.00 for any one item, except monthly or recurring operating charges and/or emergency repairs if in the opinion of U-Haul such emergency-related expenditures are necessary to protect the Property from damage or to maintain services to the tenants as called for in their respective leases. (d) PERSONNEL. U-Haul shall select all vendors, suppliers, contractors, subcontractors and employees with respect to the Property and shall hire, discharge and supervise all labor and employees required for the operation and maintenance of the Property. Any employees so hired shall be employees of U-Haul, and shall be carried on the payroll of U-Haul. Employees may include, but will not be limited to, on-site resident managers, on-site assistant managers, and relief managers located, rendering services, or performing activities on the Property in connection with its operation and management. The cost of employing such persons shall not exceed prevailing rates for comparable persons performing the same or similar services with respect to real estate similar to the Property. (e) AGREEMENTS. U-Haul shall negotiate and execute on behalf of Owner such agreements which U-Haul deems necessary or advisable for the furnishing of utilities, services, concessions and supplies, for the maintenance, repair and operation of the Property and such other agreements which may benefit the Property or be incidental to the matters for which U-Haul is responsible hereunder. (f) OTHER DECISIONS. U-Haul shall make all decisions in connection with the daily operation of the Property. (g) REGULATIONS AND PERMITS. U-Haul shall comply in all material respects with any statute, ordinance, law, rule, regulation or order of any governmental or regulatory body, having jurisdiction over the Property, respecting the use of the Property or the maintenance or operation thereof. U-Haul shall apply for and attempt to obtain and maintain, on behalf of Owner, all licenses and permits required or advisable (in the sole judgment of U-Haul) in connection with the management and operation of the Property. (h) RECORDS AND REPORTS OF DISBURSEMENTS AND COLLECTIONS. U-Haul shall establish, supervise, direct and maintain the operation of a system of record keeping and bookkeeping with respect to all receipts and disbursements in connection with the management and operation of the Property. The books, records and accounts shall be maintained at the U-Haul office or at such other location as U-Haul shall determine, and shall be available and open to examination and audit quarterly by Owner, its representatives, any mortgagee of the Property, and such mortgagee's representative. On or before thirty (30) days after the close of each quarter, U-Haul shall cause to be prepared and delivered to Owner, a monthly statement of receipts, expenses and charges, together with a statement of the disbursements made by U-Haul during such period on Owner's behalf. (i) [Reserved]. (j) COLLECTION. U-Haul shall be responsible for the billing and collection of all accounts receivable and for payment of all accounts payable with respect to the Property and shall be responsible for establishing policies and procedures to minimize the amount of bad debts. (k) LEGAL ACTIONS. U-Haul shall cause to be instituted, on behalf and in the name of Owner, any and all legal actions or proceedings U-Haul deems necessary or advisable to collect charges, rent or other income due to Owner with respect to the Property and to oust or dispossess tenants or other persons unlawfully in possession under any lease, license concession agreement or otherwise, and to collect damages for breach thereof or default thereunder by such tenant, licensee, concessionaire or occupant. (l) INSURANCE. U-Haul shall use its best efforts to assure that there is obtained and maintained in force, fire, comprehensive liability and other insurance policies in amounts generally carried with respect to similar facilities. U-Haul may in its discretion obtain employee theft or similar insurance in amounts and with such deductibles as U-Haul deems appropriate. U-Haul shall promptly provide Owner with such certificates of insurance as Owner may reasonably request in writing, evidencing such insurance coverage. (m) TAXES. During the term of this Agreement, U-Haul shall pay from Owner's funds, prior to delinquency, all real estate taxes, personal property taxes, and all other taxes assessed to, or levied upon, the Property. If required by the holder of any note secured by the Property, U-Haul will set aside, from Owner's funds, a reserve from each month's rent and other income collected, in an amount required by said holder for purposes of payment of real property taxes. (n) RESTRICTIONS. Notwithstanding anything to the contrary set forth in this Section 2, U-Haul shall not be required to do, or cause to be done, anything for the account of Owner (i) which may make U-Haul liable to third parties; (ii) which may not be commenced, undertaken or completed because of insufficient funds of Owner; or, (iii) which may not be commenced, undertaken or completed because of acts of God, strikes, governmental regulations of laws, acts of war or other types of events beyond the control of U-Haul, whether similar or dissimilar to the foregoing. (o) LIMITATIONS ON U-HAUL AUTHORITY. Notwithstanding anything to the contrary set forth in this Section 2, U-Haul shall not, without obtaining the prior written consent of Owner, (i) rent storage space in the Property by written lease or agreement for a stated term in excess of one year, (ii) alter the building or other structures of the Property in any material manner; (iii) make any other agreements which exceed a term of one year and are not terminable on thirty day's notice at the will of Owner, without penalty, payment or surcharge; (iv) act in violation of any law; or (v) act in violation of any duty or responsibility of Owner under any mortgage loan secured by the Property. (p) SHARED EXPENSES. Owner acknowledges that certain economies may be achieved with respect to certain expenses to be incurred by U-Haul on behalf of Owner hereunder if materials, supplies, insurance or services are purchased by U-Haul in quantity for use not only in connection with the Property but in connection with other properties owned or managed by U-Haul or its affiliates. U-Haul shall have the right to purchase such materials, supplies, insurance and/or services in its own name and charge Owner a pro rata allocable share of the cost of the foregoing; provided, however, that the pro rata cost of such purchase to Owner shall not result in expenses greater than would otherwise be incurred at competitive prices and terms available in the area where the Property is located; and provided further, U-Haul shall give Owner access to records so Owner may review any such expenses incurred. (q) DEPOSIT OF GROSS REVENUES. All Gross Revenues (as hereinafter defined) shall be deposited into a "lock box account" maintained by U-Haul International, Inc., parent company of U-Haul, in accordance with the terms of a certain Cash Management Agreement dated as of the date hereof among Owner, Wells Fargo Bank, National Association (as lender and agent) and U-Haul (the "CMA"). Borrower and U-Haul each hereby covenant and agree that they shall comply with the terms and provisions of the CMA. 3. Duties of Owner. --------------- Owner hereby agrees to cooperate with U-Haul in the performance of U-Haul's duties under this Agreement and to that end, upon the request of U-Haul, to provide, at such rental charges, if any, as are deemed appropriate, reasonable office space for U-Haul employees on the premises of the Property and to give U-Haul access to all files, books and records of Owner relevant to the Property. Owner shall not unreasonably withhold or delay any consent or authorization to U-Haul required or appropriate under this Agreement. 4. Compensation of U-Haul. ---------------------- (a) MANAGEMENT FEE. Owner shall pay to U-Haul as the full amount due for the services herein provided a fee (the "Management Fee") equal to six percent (6%) of the "Gross Revenue" derived from or connected with the Property so managed by U-Haul hereunder. The term "Gross Revenue" shall mean all receipts (excluding security deposits unless and until Owner recognizes the same as income) of Owner (whether or not received by U-Haul on behalf or for the account of Owner) arising from the operation of the Property, including without limitation, rental payments of lessees of space in the Property, vending machine or concessionaire revenues, maintenance charges, if any, paid by the tenants of the Property in addition to basic rent, parking fees, if any, and all monies whether or not otherwise described herein paid for the use of the Property. "Gross Revenue" shall be determined on a cash basis. The Management Fee shall be paid promptly at the end of each calendar quarter and shall be calculated on the basis of the "Gross Revenue" of such preceding quarter. The Management Fee shall be paid to each U-Haul property manager herein identified based on the Gross Revenue of each respective Property for which such property manager is responsible as set forth on Exhibit A --------- hereto. Each property manager agrees that its monthly Management Fee shall be subordinate to that month's principal balance and interest payment on any first lien position mortgage loan on the Property. It is understood and agreed that the Management Fee will not be reduced by the cost to Owner of those employees and independent contractors engaged by or for Owner, including but not limited to the categories of personnel specifically referred to in Section 2(d). Except as provided in this Section 4, it is further understood and agreed that U-Haul shall not be entitled to additional compensation of any kind in connection with the performance by it of its duties under this Agreement. (b) REIMBURSEMENT OF CERTAIN EXPENSES. In addition to the Management Fee described above, U-Haul shall be entitled to reimbursement from Owner, on a quarterly basis, for all out-of-pocket expenses incurred by U-Haul hereunder in connection with the management and operation of the Property, including, without limitation, taxes, insurance, operational expenses, overhead, litigation and dispute resolution related expenses, capital improvement expenses, and costs of sales. 5. Use of Trademarks, Service Marks and Related Items. -------------------------------------------------- Owner acknowledges the significant value of the "U-Haul" name in the operations of Owner's property and it is therefore understood and agreed that the name, trademark and service mark, "U-Haul", and related marks, slogans, caricatures, designs and other trade or service items shall be utilized for the non-exclusive benefit of Owner in the rental and operation of the Property, and in comparable operations elsewhere. It is further understood and agreed that this name and all such marks, slogans, caricatures, designs and other trade or service items shall remain and be at all times the property of U-Haul and its affiliates, and that, except during the term hereof and as expressly provided herein, Owner shall have no right whatsoever therein. Owner agrees that during the term of this agreement the sign faces at the property will have the name "U-Haul." The U-Haul sign faces will be paid for by Owner. Upon termination of this agreement at any time for any reason, all such use by and for the benefit of Owner of any such name, mark, slogan, caricature, design or other trade or service item in connection with the Property shall, in any event, be terminated and any signs bearing any of the foregoing shall be removed from view and no longer used by Owner. In addition, upon termination of this Agreement at any time for any reason, Owner shall not enter into any new leases of Property using the U-Haul lease form or use other forms prepared by U-Haul. It is understood and agreed that U-Haul will use and shall be unrestricted in its use of such name, mark, slogan, caricature, design or other trade or service item in the management and operation of other storage facilities both during and after the expiration or termination of the term of this Agreement. 6. Termination. ----------- Owner or U-Haul may terminate this Agreement with or without cause by giving not less than sixty days' written notice to the other party pursuant to Section 11 hereof. In addition, if Owner fails to pay U-Haul any amounts owed under this Agreement when due, U-Haul may terminate this Agreement by giving Owner not less than ten days written notice pursuant to Section 11 hereof. Notwithstanding the foregoing, however, U-Haul shall not resign as property manager of the Property until a nationally recognized and reputable successor property manager is available and prepared to assume property management responsibilities with respect to the Property in question Upon termination of this Agreement, U-Haul shall promptly return to Owner all monies, books, records and other materials held by U-Haul for or on behalf of Owner. In addition, if U-Haul has contracted to advertise the Property in the Yellow Pages, Owner shall, at the option of U-Haul, continue to be responsible for the cost of such advertisement and shall either (i) pay U-Haul the remaining amount due under such contract in a lump sum; or (ii) pay U-Haul monthly for the amount due under such contract. 7. Indemnification. --------------- Owner hereby agrees to indemnify and hold each of U-Haul, all persons and companies affiliated with U-Haul, and all officers, shareholders, directors, employees and agents of U-Haul and of any affiliated companies or persons (collectively, the "Indemnified Persons") harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages, and claims in connection with the management of the Property (including the loss of use thereof following any damage, injury or destruction), arising from any cause except for the willful misconduct or gross negligence on the part of the Indemnified Persons. In addition, no Indemnified Person shall be liable for any error of judgment or for any mistake of fact or law, or for anything which it may do or refrain from doing hereafter, except in cases of willful misconduct or gross negligence. U-Haul hereby agrees to indemnify and hold Owner harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages and claims in connection with the management of the Property arising from the willful misconduct of, gross negligence of, or breach of this Agreement by the Indemnified Persons. In addition, U-Haul shall not be liable to Owner for the acts or omissions of U-Haul's officers, shareholders, directors, employees, and agents except for U-Haul's own gross negligence or willful misconduct. 8. Assignment. ---------- This Agreement may be assigned by Owner in connection with any mortgage loan on the Property, whether pursuant to a conditional or unconditional, absolute assignment. U-Haul shall have the right to assign this Agreement to an affiliate or a wholly or majority owned subsidiary; provided, however, any such assignee must assume all obligations of U-Haul hereunder, Owner's rights hereunder will be enforceable against any such assignee and U-Haul shall not be released from its liabilities hereunder unless Owner shall expressly agree thereto in writing. 9. Headings. -------- The headings contained herein are for convenience of reference only and are not intended to define, limit or describe the scope or intent of any provision of this Agreement. 10. Governing Law. ------------- The validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties shall be governed by the internal laws of the State of Arizona. 11. Notices. ------- Any notice required or permitted herein shall be in writing and shall be personally delivered or mailed first class postage prepaid or delivered by an overnight delivery service to the respective addresses of the parties set forth below their signatures on the signature page thereof, or to such other address as any party may give to the other in writing. Any notice required by this Agreement will be deemed to have been given when personally served or one day after delivery to an overnight delivery service or five days after deposit in the first class mail. 12. Severability. ------------ Should any term or provision hereof be deemed invalid, void or unenforceable either in its entirety or in a particular application, the remainder of this Agreement shall nonetheless remain in full force and effect and, if the subject term or provision is deemed to be invalid, void or unenforceable only with respect to a particular application, such term or provision shall remain in full force and effect with respect to all other applications. 13. Successors. ---------- This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their permitted assigns and successors in interest. 14. Attorneys' Fees. --------------- If it shall become necessary for any party hereto to engage attorneys to institute legal action for the purpose of enforcing their respective rights hereunder or for the purpose of defending legal action brought by the other party hereto, the party or parties prevailing in such litigation shall be entitled to receive all costs, expenses and fees (including reasonable attorneys' fees) incurred by it in such litigation (including appeals). 15. Counterparts. ------------ This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16. Scope of Property Manager Responsibility. ---------------------------------------- The duties, obligations and liability of each property manager identified herein shall extend only so far as to relate to the Property for which such property manager is managing located in the domicile state of such property manager, as more specifically described on Exhibit A hereto, and no individual property manager hereunder shall be liable for the acts or omissions of any other property manager hereunder. Each property manager shall use its best efforts to assist Owner in fulfilling Owner's obligations arising under any loan to Owner that is secured by the Property, including but not limited to preparing and providing financial and accounting reports, and maintaining the Property. Each property manager agrees that it will perform its obligations hereunder according to reasonable industry standards, in good faith, and in a commercially reasonable manner. U-Haul agrees that, in discharging its duties hereunder, it will not have any relationship with any of its affiliates that would be less favorable to Owner than would reasonably be available in a transaction with an unaffiliated party. [Rest of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date first above written. "Owner" Eleven SAC Self-Storage Corporation, a Nevada corporation By: ------------------------ Its: ----------------------- "U-Haul" U-Haul Co. of Virginia, Inc., a Virginia corporation By: /S/ GARY V. KLINEFELTER ------------------------ Its: Secretary ----------------------- U-Haul Co. of Arizona, Inc., an Arizona corporation By: /S/ GARY V. KLINEFELTER ------------------------ Its: Secretary ----------------------- U-Haul Co. of North Carolina, Inc., a North Carolina corporation By: /S/ GARY V. KLINEFELTER ------------------------ Its: Secretary ----------------------- U-Haul Co. of Pennsylvania, Inc., a Pennsylvania corporation By: /S/ GARY V. KLINEFELTER ------------------------ Its: Secretary ----------------------- U-Haul Co. of Louisiana, Inc., a Louisiana corporation By: /S/ GARY V. KLINEFELTER ------------------------ Its: Secretary ----------------------- U-Haul Co. of South Carolina, Inc., a South Carolina corporation By: /S/ GARY V. KLINEFELTER ------------------------ Its: Secretary ----------------------- U-Haul Co. of New Jersey, Inc., a New Jersey corporation By: /S/ GARY V. KLINEFELTER ------------------------ Its: Secretary ----------------------- U-Haul Co. of Georgia, Inc., a Georgia corporation By: /S/ GARY V. KLINEFELTER ------------------------ Its: Secretary ----------------------- U-Haul Co. of Arkansas, Inc., an Arkansas corporation By: /S/ GARY V. KLINEFELTER ------------------------ Its: Secretary ----------------------- U-Haul Co. of Maryland, Inc., a Maryland corporation By: /S/ GARY V. KLINEFELTER ------------------------ Its: Secretary ----------------------- U-Haul Co. of New York, Inc., a New York corporation By: ------------------------ Its: ----------------------- U-Haul Co. of California, Inc., a California corporation By: ------------------------ Its: ----------------------- FOUR SAC SELF-STORAGE CORPORATION, a Nevada corporation, fee owner of each Property (other than the Maryland Property), hereby consents to this Agreement and the transactions contemplated hereby. DATED: August 10 , 1999 -------------------- Four SAC Self-Storage Corporation, a Nevada corporation By: /S/ BRUCE G. BROCKHAGEN ------------------------ Its: Secretary -----------------------
EXHIBIT A --------- UHI No. Address: Name of Property Manager: 882052 U-HAUL STORAGE BELT BLVD. 351 EAST BELT BLVD RICHMOND VA - U-Haul Co. of Virginia, Inc. 882056 U-HAUL STORAGE CACTUS & 51ST 12280 NORTH 51ST AVENUE GLENDALE AZ - U-Haul Co. of Arizona, Inc. 882060 U-HAUL STORAGE BOONE HIGHWAY 105 BYPASS BOONE NC - U-Haul Co. of North Carolina, Inc. 882069 U-HAUL STORAGE HIGHLAND AVE. 1600 HIGHLAND AVE CHESTER PA - U-Haul Co. of Pennsylvania, Inc. 882070 U-HAUL STORAGE MARIETTA STREET 2828 MARIETTA STREET KENNER LA - U-Haul Co. of Louisiana, Inc. 882073 U-HAUL STORAGE DECKER PARK RD 125 DECKER PARK RD COLUMBIA SC - U-Haul Co. of South Carolina, Inc. 882074 U-HAUL STORAGE JAMIL ROAD 156 JAMIL ROAD COLUMBIA SC - U-Haul Co. of South Carolina, Inc. 882077 U-HAUL STORAGE HOLLAND ROAD 1325 HOLLAND ROAD SUFFOLK VA - U-Haul Co. of Virginia, Inc. 882078 U-HAUL STORAGE ELM DRIVE 971 ELM DRIVE MECHANICSVILLE VA - U-Haul Co. of Virginia, Inc. 882084 U-HAUL STORAGE WASHINGTON ROAD 4540 WASHINGTON ROAD COLLEGE PARK GA - U-Haul Co. of Georgia, Inc. 882087 U-HAUL STORAGE ASHER AVENUE 6224 ASHER AVENUE LITTLE ROCK AR - U-Haul Co. of Arkansas, Inc. 882090 U-HAUL STORAGE MYRTLE BEACH 5604 S. KINGS HIGHWAY MYRTLE BEACH SC - U-Haul Co. of South Carolina, Inc. 882091 U-HAUL STORAGE NORTH BLVD. 2930 NORTH BLVD RICHMOND VA, U-Haul Co. of Virginia, Inc. 882092 U-HAUL STORAGE ODENTON 1480 ANNAPOLIS ROAD ODENTON MD - U-Haul Co. of Maryland, Inc. 882094 U-HAUL STORAGE STERLING 45715 OLD OX ROAD STERLING VA - U-Haul Co. of Virginia, Inc. 883003 U-HAUL STORAGE WESTWOOD 5919 FINANCIAL PLAZA SHREVEPORT LA - U-Haul Co. of Louisiana, Inc. 883005 U-HAUL STORAGE MARRERO 7201 WEST BANK EXPRESSWAY MARRERO LA - U-Haul Co. of Louisiana, Inc. 884016 U-HAUL STORAGE CARLSBAD 6175 PASEO DEL NORTE CARLSBAD CA - U-Haul Co. of California, Inc. 884035 U-HAUL STORAGE RIALTO 2775 W. FOOTHILL BLVD RIALTO CA - U-Haul Co. of California, Inc.
EX-12 8 0008.txt RATIOS AMERCO and Consolidated Subsidiaries Exhibit 12. Statement Re: Computation of Ratios Year end ------------------------------------- 2000 1999 1998 1997 1996 ------------------------------------- Pretax earnings from operations $ 102.7 97.6 76.3 83.5 96.2 Plus: Interest expense 81.5 73.7 79.4 76.0 67.6 Preferred stock dividends 13.6 17.4 20.8 16.9 13.0 Amortization of debt expense and discounts 0.5 0.3 0.3 0.1 - A portion of rental expense (1/3) 45.3 39.6 30.0 28.6 23.0 ------------------------------------- Subtotal (A) 243.6 228.6 206.8 205.1 199.8 ------------------------------------- Divided by: Fixed charges: Interest expense 81.5 73.7 79.4 76.0 67.6 Preferred stock dividends 13.6 17.4 20.8 16.9 13.0 A portion of rental expense (1/3) 45.3 39.6 30.0 28.6 23.0 Interest capitalized during the period 1.4 0.9 2.2 3.4 1.8 Amortization of debt expense and discounts 0.5 0.3 0.3 0.1 - ------------------------------------- Subtotal (B) $ 142.3 131.9 132.7 125.0 105.4 ------------------------------------- Ratio of earnings to fixed charges (A)/(B) 1.71 1.73 1.56 1.64 1.90 ===================================== AMERCO believes that one-third of AMERCO's annual rental expense is a reasonable approximation of the interest factor of such rentals. EX-21 9 0009.txt SUBSIDIARIES AMERCO (Nevada) FIRST LEVEL SUBSIDIARY JURISDICTION - ---------------------- ------------ EJOS, Inc. AZ Japal, Inc. NV M.V.S., Inc. NV Pafran, Inc. NV Sophmar, Inc. NV Picacho Peak Investments Co. NV Republic Western Insurance Company AZ SECOND LEVEL SUBSIDIARIES ------------------------- Republic Claims Service Co. AZ Republic Western Syndicate, Inc. NY North American Fire & Casualty Insurance Co. LA RWIC Investment, Inc. AZ THIRD LEVEL SUBSIDIARIES ------------------------ Republic Western Specialty Underwriters, Inc. AZ Republic Western Insurance Services AZ FIRST LEVEL SUBSIDIARY - ---------------------- Oxford Life Insurance Company AZ SECOND LEVEL SUBSIDIARIES ------------------------- Encore Financial, Inc. WI THIRD LEVEL SUBSIDIARIES ------------------------ Encore Agency, Inc. LA North American Insurance Company WI FOURTH LEVEL SUBSIDIARIES ------------------------- Community Health, Inc. (80% owned) WI Communiy Health Partners, Inc. (20% owned) IL FIRST LEVEL SUBSIDIARY - ---------------------- Amerco Real Estate Company NV SECOND LEVEL SUBSIDIARIES ------------------------- Amerco Real Estate Company of Alabama, Inc AL Amerco Real Estate Company of Texas, Inc. TX One PAC Company NV Two PAC Company NV Three PAC Company NV Four PAC Company NV Five PAC Company NV Six PAC Company NV Seven PAC Company NV Eight PAC Company NV Nine PAC Company NV Ten PAC Company NV Elevan PAC Company NV Twelve PAC Company NV Thirteen PAC Company NV Fourteen PAC Company NV Fifteen PAC Company NV Nationwide Commercial Co. AZ THIRD LEVEL SUBSIDIARIES JURISDICTION ------------------------ ------------ Yonkers Property Corporation NY FIRST LEVEL SUBSIDIARY - ---------------------- U-Haul International, Inc. NV SECOND LEVEL SUBSIDIARIES ------------------------- INW Company WA A & M Associates, Inc. AZ U-Haul Business Consultants, Inc. AZ U-Haul Leasing & Sales Co. NV U-Haul Self-Storage Corporation NV U-Haul Co. (Canada) LTD. ON U-Haul Co. of Alaska AK U-Haul Co. of Alabama, Inc. AL U-Haul Co. of Arkansas AR U-Haul Co. of Arizona AZ U-Haul Co. of California CA U-Haul Co. of Colorado CO U-Haul Co. of Connecticut CT U-Haul Co. of District of Columbia, Inc. DC U-Haul Co. of Florida FL U-Haul Co. of Georgia GA U-Haul of Hawaii, Inc. HI U-Haul Co. of Iowa, Inc. IA U-Haul Co. of Idaho, Inc. ID U-Haul Co. of Illinois, Inc. IL U-Haul Co. of Indiana, Inc IN U-Haul Co. of Kansas, Inc. KS U-Haul Co. of Kentucky KY U-Haul Co. of Louisiana LA U-Haul Co. of Massachusetts, Inc. MA U-Haul Co. of Maryland, Inc. MD U-Haul Co. of Maine, Inc. ME U-Haul Co. of Michigan MI U-Haul Co. of Minnesota MN U-Haul Company of Missouri MO U-Haul Co. of Mississippi MS U-Haul Co. of Montana, Inc. MT U-Haul Co. of North Carolina NC U-Haul Co. of North Dakota ND U-Haul Co. of Nebraska NE U-Haul Co. of New Hampshire, Inc. NH U-Haul Co. of New Jersey, Inc. NJ U-Haul Co. of New Mexico, Inc. NM U-Haul Co. of Nevada, Inc. NV U-Haul Co. of New York, Inc. NY U-Haul Co. of Ohio OH U-Haul Co. of Oklahoma, Inc. OK U-Haul Co. of Oregon OR U-Haul Co. of Pennsylvania PA U-Haul Co. of Rhode Island RI U-Haul Co. of South Carolina, Inc SC U-Haul Co. of South Dakota, Inc. SD U-Haul Co. of Tennessee TN U-Haul Co. of Utah, Inc. UT U-Haul Co. of Virginia VA U-Haul Co. of Vermont, Inc. VT U-Haul Co. of Washington WA U-Haul Co. of Wisconsin, Inc. WI U-Haul Co. of West Virginia WV U-Haul Co. of Wyoming Inc. WY U-Haul Co. of Texas TX THIRD LEVEL SUBSIDIARIES ------------------------ Mover's Club, Inc. TX EX-23 10 0010.txt CONSENT OF INDEP ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (Nos. 333-10119, 333-73357 and 33-57917) and Form S-2 (No. 33-56571) of AMERCO and its subsidiaries of our report dated June 26, 2000 relating to the consolidated financial statements and financial statement schedules, which appears in this Form 10-K. PRICEWATERHOUSECOOPERS LLP Phoenix, Arizona June 29, 2000 EX-27 11 0011.txt FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS MAR-31-2000 MAR-31-2000 48,435 0 402,386 0 84,614 0 2,561,110 1,178,448 3,125,225 0 1,137,840 0 0 10,563 574,731 3,125,225 188,816 1,683,370 111,975 1,499,091 0 4,601 81,532 102,747 36,922 65,825 0 334 0 65,491 2.37 2.36 THE VALUE FOR RECEIVABLES REPRESENTS THEIR AMOUNT NET OF THEIR ALLOWANCES. AN UNCLASSIFIED BALANCE SHEET EXISTS IN THE REGISTRANT'S FINANCIAL STATEMENTS.
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