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PENTAIR, INC. RETIREMENT SAVINGS AND STOCK INCENTIVE PLAN

Employee Benefits Plan Agreement

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Pentair, Inc

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Title: PENTAIR, INC. RETIREMENT SAVINGS AND STOCK INCENTIVE PLAN
Governing Law: Minnesota     Date: 7/19/2005

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Exhibit 10.1

PENTAIR, INC.
RETIREMENT SAVINGS AND STOCK INCENTIVE PLAN
As Amended and Restated Effective January 1, 2001
(and compiled to include subsequent amendments)

ARTICLE I

HISTORY AND BACKGROUND

        Effective January 1, 1984, Pentair, Inc. (“Pentair”) adopted a tax-qualified discretionary contribution plan with a cash or deferred arrangement (i.e., a 401(k) feature) for the benefit of its eligible employees. Such plan was amended in July, 1984 to accept rollover contributions. Pentair received a determination letter from the Internal Revenue Service, dated January 17, 1985, to the effect that such plan and its related trust, as adopted, qualified under sections 401(a) and 501(a), respectively, of the Internal Revenue Code of 1954, as amended through the Tax Equity and Fiscal Responsibility Act of 1982.

        Pentair amended such plan on December 31, 1984 to reflect applicable requirements of the Internal Revenue Code of 1954, as amended through the Retirement Equity Act of 1984. Said amendments were generally made effective as of January 1, 1985. Pentair again amended such plan effective April 5, 1985, January 1, 1987 and August 1, 1988 to modify its eligibility requirements and to clarify the entitlement to participate and eligibility for contributions with respect to subsidiary employees affected by various corporate transactions.

        Such plan was amended and restated, effective as of March 1, 1990, to add an employee stock ownership plan, of the stock bonus type, which was intended to qualify under ERISA section 407(d)(6) and Code section 4975(e)(7) and which held the Pentair, Inc. 8% Callable Cumulative Voting Convertible Preferred Stock, Series 1990 (the “1990 Preferred Stock”). Pentair received a determination letter from the Internal Revenue Service, dated March 3, 1992, to the effect that such plan, as amended and restated effective March 1, 1990, remained tax-qualified. Because the Internal Revenue Service was not at that time issuing determination letters with respect to applicable provisions of the Tax Reform Act of 1986, however, said determination letter was limited to the law as in effect prior to enactment of the Tax Reform Act of 1986.

        Pentair amended and restated such plan, effective January 1, 1994, to in general reflect such requirements of federal tax and pension law as had become applicable to it subsequent to the date of its last restatement and to consolidate in one document all amendments of ongoing effect adopted after such restatement. Pentair received a determination letter from the Internal Revenue Service dated May 28, 1996, to the effect that such plan and the three (3) trusts under which its assets were held, as so amended and restated, qualified under sections 401(a) and 501(a), respectively, of the Internal Revenue Code of 1986, as amended. This letter was conditioned on the adoption of amendments proposed to the Internal Revenue Service during its review of the application for said letter, which amendments were timely adopted.

        Effective January 1, 1998, Pentair established a new Retirement Savings and Incentive Trust Agreement, into which was combined the then existing Retirement Savings and Incentive Trust and the Pooled Stable Investment Trust, and appointed Fidelity Management Trust Company (“Fidelity”) as Trustee. Effective March 9, 1998, the Employee Stock Ownership Plan Trust was combined into the above described trust, which was renamed the Retirement Savings and Stock Incentive Trust, and Fidelity continued to serve as Trustee.

        Thereafter, the Exempt Loan by means of which the Trust acquired the 1990 Preferred Stock was repaid, and effective January 13, 1999, Pentair called the 1990 Preferred Stock pursuant to the terms applicable to such stock. The relevant fiduciary responded to such call by directing the Trustee to convert the 1990 Preferred Stock into shares of Pentair common stock. All such stock received pursuant to this conversion was allocated to the accounts of participants or their beneficiaries, as applicable.

        Pentair is amending and restating such plan, effective January 1, 2001, to (i) reflect such requirements of federal tax and pension law as have become applicable to it since its last restatement, (ii) adopt, effective as of January 1, 2002, model or other amendments to reflect such provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 as are applicable to it and (iii) consolidate in one document all amendments of ongoing affect adopted since the last plan restatement, including special rules or provisions applicable to specific groups of participants.

ARTICLE II

DEFINITIONS AND CONSTRUCTION

         Section 2.1      Definitions.    Unless the context clearly or necessarily indicates the contrary, when capitalized the following words and phrases shall have the following meanings when used in this Article or other parts of the Plan.




        (1)     “Accounts” are the accounts under the Plan to be maintained for each Participant as provided in Section 6.2.

        (2)     “After-tax Deposits” are voluntary employee after-tax contributions made by or at the direction of a Participant pursuant to Section 3.3(a).

        (3)     “Before-tax Deposits” are Deposits made at the direction of a Participant pursuant to Section 3.2(a) and which are made pursuant to a cash or deferred arrangement described in Code section 401(k).

        (4)     “Before-tax Matched Deposits” are Before-tax Deposits made at the direction of a Participant and which are described in Section 3.2(b).

        (5)     “Before-tax Unmatched Deposits” are all Before-tax Deposits made at the direction of a Participant pursuant to Section 3.2(a) and which are not described in Section 3.2(b).

        (6)     “Beneficiary” is the person designated on Timely Notice by a Participant to receive benefits accumulated hereunder in the event of the Participant’s death. Except as otherwise provided by a QDRO, if a Participant is married at the time of death, the Beneficiary shall be the Participant’s Spouse at such time, unless (i) such Spouse has consented in writing to the designation of a different Beneficiary, (ii) such consent is witnessed by an authorized Plan representative or a notary public, and (iii) the Participant is survived by a Beneficiary designated as such in the manner described above. If the Participant is not survived by either a Spouse or a designated Beneficiary, the Participant’s estate shall be the Beneficiary.

        (7)     “Board” is the Board of Directors of Pentair, Inc.

        (8)     “Code” is the Internal Revenue Code of 1986, as amended.

        (9)     “Common Stock” is the Common Stock, par value $0.16-2/3 per share, of the Company.

        (10)     “Company” is Pentair, Inc., a Minnesota corporation.

        (11)     “Company Stock” is the Common Stock of the Company, or such other stock of the Company or its affiliates as meets the requirements of Code section 409( l ).

        (12)     “Compensation” is all remuneration items paid to or on behalf of a Participant, for services rendered to a Participating Employer as an Employee, listed or described in the left-hand column of Schedule 1, and not including any such items listed or described in the right-hand column of Schedule 1. If a remuneration item is not listed or described in Schedule 1, the Plan Administrator shall determine whether such item is included or excluded from Compensation by taking into account the nature of the item and its similarity to an item which is so listed; provided, however, the Plan Administrator shall exercise such discretion with respect to similarly situated Participants in a uniform and non-discriminatory manner, and in no event shall such discretion be exercised in a manner which discriminates in favor of Participants as a group who are HCEs as compared to other Participants as a group.

        (13)     “Current Market Value” is, as to any asset of the Trust, the value on any day determined by the Plan Administrator which such value shall be

(i)  

if the asset is Common Stock or any other class of capital stock of the Company or any other Trust assets which are publicly traded or quoted, either (a) the price then prevailing on a national securities exchange which is registered under section 6 of the Securities Exchange Act of 1934, or (b) if such asset is not traded or quoted on such a national securities exchange, a price not less favorable to the Plan than the offering price for such asset as established by the current bid and asked prices quoted by persons independent of the Company and of any party in interest;


(ii)  

except as provided in (i) above, and as provided under Code section 401(a)(28)(C) with respect to Company Stock which is not publicly traded, established by an independent appraiser in accordance with generally accepted valuation principles on a consistent basis acceptable to the Plan Administrator.


        (14)     “Defined Benefit Plan” is a tax-qualified (or which is intended to be so qualified) retirement plan described in Code section 414(j).

        (15)     “Defined Contribution Plan” is a tax-qualified (or which is intended to be so qualified) retirement plan described in Code section 414(i).

        (16)     “Deposits” are amounts contributed under the Plan by or at the direction of Participants pursuant to Sections 3.2(a) or 3.3(a), or both, but not including Employer Contributions made pursuant to Article IV.


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        (17)     “Employee” is any individual who is in the employ of an Employer during such periods as the following conditions are met:

(i)  

the individual is employed by a Participating Employer and such Employer pays Social Security taxes with respect to such individual;


(ii)  

if the individual is in a unit of employees covered by a collective bargaining agreement, such collective bargaining agreement provides for the application of the Plan to the employees in such unit; and


(iii)  

the individual’s employment is not in a group which has been excluded from participation in the Plan, which individuals or groups of individuals as of the Plan’s effective date are listed or otherwise described on Schedule 2; provided, however, the failure to list or otherwise describe an individual or group of individuals on such Schedule shall not mean an individual described in this paragraph (iii) is an Employee for this purpose.


This term shall not include individuals who are not treated as Employees by a Participating Employer for purposes of the Plan, even though they may be so treated or considered under applicable law, including Code section 414(n), the Federal Insurance Contribution Act or the Fair Labor Standards Act (e.g., individuals whom the Participating Employer treats as employees of a third party or as self-employed). In addition, individuals employed by an Employer which becomes an Employer subsequent to the Plan’s effective date (e.g., by the acquisition of a previously unrelated company) shall not be Employees until such time as they are so designated.

        (18)     “Employee Common Stock Fund” is an unsegregated fund, other than the ESOP Fund, to be invested in Common Stock, which pending such investment, may be invested in short-term securities. Until further action of the Board after satisfaction of all applicable legal requirements, including registration requirements, an Employee Common Stock Fund shall not be available for investment.

        (19)     “Employer” is the Company and each other corporation or unincorporated business which is a member of a controlled group of corporations, a group of trades or businesses under common control or an affiliated service group (within the meaning of Code section 414(b), (c) or (m)) which includes the Company.

        (20)     “Employer Contributions” are amounts contributed by Participating Employers as provided in Sections 3.2(e)(2) and 3.3(d)(2) and Article IV.

        (21)     “Employer Discretionary Contributions” are amounts contributed by Participating Employers pursuant to Section 4.2.

        (22)     “Employer Matching Contributions” are amounts contributed by Participating Employers pursuant to Section 4.1.

        (23)     “ERISA” is the Employee Retirement Income Security Act of 1974, as amended.

        (24)     “ESOP Fund” is a fund to be invested in Company Stock, acquired with the proceeds of an Exempt Loan or otherwise, and earnings thereon which is intended to qualify as an employee stock ownership plan under Code section 4975(e)(7) and ERISA section 407(d)(6) of the stock bonus type. The ESOP Fund shall be primarily invested in Company Stock.

        (25)     “Exempt Loan” is a loan or other extension of credit described in Code section 4975(d)(3) which meets the requirements of Treasury Regulation §54.4975-7(b)(1)(iii).

        (26)     “Fiscal Year” is the Company’s annual accounting period (currently the period January 1 - December 31).

        (27)     “Highly Compensated Employee” or “HCE” is

(i)  

any Employee or former Employee who was at any time during the Plan Year being tested or the immediately preceding Plan Year a five percent (5%) owner (as defined in Addendum II), or


(ii)  

any Employee who, during the Plan Year immediately preceding the Plan Year for which the 401(k) and 401(m) discrimination tests (described in Article III) are being applied, received compensation from an Employer in excess of $85,000 (using the definition of Limitation Compensation contained in Addendum I).


The compensation level stated in the above subparagraph (ii) shall be adjusted from time to time as provided for in Code section 414(q)(1).


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        (28)     “Investment Fund” is an unsegregated fund under the Trust established at the direction of the Named Fiduciary pursuant to Section 5.4 hereof and invested in securities, insurance contracts or other property of such type and general characteristics as the Named Fiduciary shall determine. The term shall include the Employee Common Stock Fund if and once established, but not the ESOP Fund.

        (29)     “Investment Manager” is any person, insurance company or corporation appointed by the Named Fiduciary to direct the investment and reinvestment of all or any portion of the assets held by the Trustee under the Trust.

        (30)     “Leased Employee” is an individual who, pursuant to an agreement between a Participating Employer and a leasing organization, has performed services under the primary direction or control of a Participating Employer on a substantially full time basis for a period of at least one (1) year. An individual shall not be considered as described in the immediately preceding sentence if (i) while rendering such service he or she is covered by a money purchase pension plan which provides (x) a nonintegrated employer contribution rate of a least ten percent (10%) of compensation, as that term is defined in Code section 415(c)(3), but including amounts contributed pursuant to a salary reduction agreement which are excludable from the individual’s gross income under Code sections 125, 132(f)(4), 402(e)(3), 402(h)(i)(B) or 403(b), (y) immediate participation, and (z) full and immediate vesting; and (ii) such individual and all other individuals described in the first sentence of this paragraph do not constitute more than twenty percent (20%) of the combined nonhighly compensated work force of all Employers combined.

        (31)     “Maximum Deferred Amount” is the maximum amount or rate which may be designated by a Participant as Before-tax or After-tax Deposits pursuant to Sections 3.2(c) and (d) and 3.3(b), respectively.

        (32)     “Named Fiduciary” is the Company with respect to its authority as Plan Administrator and with respect to its authority to establish and maintain a funding policy for the Plan and appoint persons to hold, manage or control the funds held under the Trust; and any committee provided for in the Plan to which the Company has delegated such authority (but only to the extent of such delegation).

        (33)     “Participant” is an Employee who has validly elected to participate and who has made Deposits or Rollovers under the Plan, or has received or is entitled to receive an allocation with respect to an Employer Discretionary Contribution or has received an allocation of a Qualified Discretionary Contribution. An individual who has become a Participant shall continue as a Participant until all of his or her Accounts have been distributed from the Plan.

        (34)     “Participating Employer” is any Employer designated as such by the Board which adopts the Plan by appropriate corporate action.

        (35)     “Performance to Goal” is the level of attainment by a Participating Employer for a Fiscal Year of such operational goals or targets as are established for such Participating Employer for purposes of determining the Employer Matching Contribution applicable with respect to such Participating Employer.

        (36)     “Plan” is the Defined Contribution Plan continued hereby, but (except as necessary or appropriate depending on the context, e.g., definition of plan for purposes of Code section 414( l )) as described in this plan document effective January 1, 2001 and as it may be thereafter amended.

        (37)     “Plan Administrator” is the Company, through its designated officers and agents, or through any committee as may be appointed by the Company, to the extent one or more of the duties and powers related to Plan administration have been delegated to such a committee. The Plan Administrator shall be empowered to direct other persons as to Plan administration and such directions shall be followed to the extent they are consistent with powers and duties delegated to the Plan Administrator and not otherwise contrary to the provisions of the Plan or ERISA.

        (38)     “Plan Year” is the calendar year.

        (39)     “Prior Plan” is the Defined Contribution Plan, and component parts thereof, continued hereby, but as described in the plan documents in effect prior to January 1, 2001. When this term is modified by a date or by context refers or applies to a period before January 1, 2001, it shall refer to the plan document as then in effect.

        (40)     “Qualified Domestic Relations Order” or “QDRO” is a “domestic relations order, within the meaning of ERISA section 206(d)(3)(B)(ii), which the Plan Administrator has determined to be a “qualified domestic relations order,” within the meaning of ERISA section 206(d)(3)(B)(i).

        (41)     “Qualified Discretionary Contributions” are amounts contributed by Participating Employers pursuant to Sections 3.2(e)(2) or 3.3(d)(2).

        (42)     “Retirement” is an individual’s termination of employment from an Employer (other than by reason of death or Total and Permanent Disability) at a time which then entitles such individual to immediate commencement of early, normal or


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late retirement benefits under a Defined Benefit Plan maintained by the Company or another Employer (or, for an individual who does not participate under such a Defined Benefit Plan, such a termination of employment for which, if he were a participant under the Pentair, Inc. Pension Plan, he would be eligible for such benefits thereunder).

        (43)     “Rollovers” are amounts contributed under the Plan by or at the direction of an Employee pursuant to Section 3.8.

        (44)     “Spouse” is an individual, of a sex opposite to that of a Participant, whose marriage to a Participant is recognized under the laws of the United States (or one of the United States) or any other generally recognized jurisdiction. This term shall also include a former Spouse to the extent required under a QDRO.

        (45)     “Suspense Account” is a separate account under the ESOP Fund maintained by the Trustee to hold Company Stock acquired with the proceeds of an Exempt Loan prior to its release pursuant to Section 4.6.

        (46)     “Timely Notice” is a notice in such form as prescribed by the Plan Administrator and filed or made at such places or through such medium and at such reasonable times as the Plan Administrator shall prescribe. For purposes of Section 3.1, Timely Notice shall not exceed thirty (30) days.

        (47)     “Total and Permanent Disability” is a bodily injury or disease which wholly disables a Participant and will permanently, continuously and wholly prevent such Participant for life from engaging in his or her occupation or employment for wage or profit with an Employer.

        (48)     “Trust” is the Retirement Savings and Stock Incentive Plan Trust as adopted effective January 1, 1998, and as thereafter amended.

        (49)     “Trustee” is the person or entity appointed as such under the Trust.

        (50)     “Valuation Date” is any date on which the Current Market Value of the Trust, or any fund thereof, is determined.

         Section 2.2      Provisions Relating to Service.    (a)   General .  Sections 2.2 through 2.4 prescribe the rules used to determine an Employee’s service taken into account under the Plan. In general, service is used in determining when an Employee begins to participate in the Plan for purposes of being eligible to share in Employer Contributions, and whether the Employee remains so eligible in future Plan Years.

        (b)     Definitions .   Unless the context clearly or necessarily indicates the contrary, when capitalized the following words and phrases shall have the following meanings when used in this Article or other parts of the Plan.

        (1)     “Date of Employment” is the date an individual first completes an Hour of Service.

        (2)     “Employment Year” is the twelve (12) consecutive month period beginning on the Date of Employment.

        (3)     “Hour of Service” is each hour for which an individual is either paid or entitled to payment from the Employer:

(i)  

for the performance of duties as an employee;


(ii)  

for reasons related to such employment but other than for the performance of duties, such as vacation, illness, jury duty, military duty or leave of absence other than (a) payments made or due under a plan maintained solely for the purpose of complying with worker’s compensation, unemployment compensation, or disability insurance laws, or (b) payments made solely for reimbursement of medical or medically related expenses; provided, however, no more than 501 Hours of Service shall be credited under this subparagraph for any single continuous period during which an employee or former employee performs no duties; or


(iii)  

for which back pay, irrespective of mitigation of damages, has been awarded to the employee or former employee, or has been agreed to by the Employer.


        (4)     “Year of Credited Service” is a Plan Year during which an individual completes at least 1,000 Hours of Service as an Employee.

        (5)     “Year of Eligibility Service” is an Employment Year during which an individual completes 1,000 Hours of Service. If an individual does not complete 1,000 Hours of Service in his or her Employment Year, the measuring period in


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which 1,000 Hours of Service must be performed shall shift to the Plan Year, beginning with the first Plan Year that begins before or with the first anniversary of the individual’s Employment Year.

         Section 2.3      Determining Hours of Service.    (a)   Employment Records and Hour Equivalency .  An individual shall be credited with the Hours of Service as can be determined from the records of hours worked and for which payment is due. For this purpose, the provisions at 29 C.F.R. section 2530.200b-2(b) and (c) are hereby incorporated by reference. To the extent such records are not kept or available, however, an individual shall be credited with ten (10) Hours of Service for each day the individual must be credited with at least one (1) Hour of Service pursuant to 29 C.F.R. section 2530.200b-2.

        (b)     No Duplication of Credit .   An individual shall not be entitled to more than one (1) Hour of Service credit for any hour described in more than one subparagraph of Section 2.2(b)(3).

         Section 2.4      Miscellaneous.    (a)   Limitation .  An Employee shall not be credited with more than one (1) Year of Eligibility or Credited Service for any one computation period, regardless of the number of Hours of Service completed (or other service credits given) during such period.

        (b)     Employment Status .   An Employee’s entitlement to credit for a Year of Eligibility or Credited Service shall be determined without regard to whether he or she is employed by an Employer on any particular day of a computation period (e.g., last day of the Plan Year). An Employee shall not actually receive credit for a Year of Eligibility Service, however, until the anniversary of the first day of the computation period which constitutes a Year of Eligibility Service.

        (c)     Military Service Act and Other Federal Laws .   Notwithstanding the other provisions of this Article, an Employee shall receive service credit for periods relating to service in the Armed Forces of the United States to the extent and in the manner prescribed under the Military Selective Service Act and the Uniformed Services Employment and Reemployment Rights Act of 1993, and shall receive credit for other periods of absences as required by federal law (e.g., the Family Leave Act). Any service credits provided to an Employee under such laws shall be in lieu of any service credits that would otherwise be provided under the other parts of this Article.

        (d)     Status of Transferred and Leased Employees .   A Leased Employee shall not be eligible to participate in the Plan. In the event such a person becomes eligible to participate herein, whether by a change in status or by express written action of a Participating Employer, credit shall be given for the person’s service as a Leased Employee with any Employer toward completion of the Plan’s eligibility requirements as required under the Code for the period such Leased Employee was not eligible to participate. When determining such service credit for a Leased Employee, the provisions of Section 2.1(30) shall be applied without regard to the phrase “on a substantially full time basis for a period of at least one (1) year.” Likewise, employees of an Employer who do not meet the definition of Employee in Section 2.1(17), but who subsequently become Employees, shall be given credit for their service as such an employee toward completion of the Plan’s eligibility requirements.

         Section 2.5      Construction.    (a)   General .  Wherever any words are used herein in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and wherever any words are used herein in the singular or the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. The words “hereof,”“herein,” “hereunder,” and other similar compounds of the word “here” shall mean and refer to this entire document and not to any particular Article or Section. Titles of Articles and Sections are for general information only, and the Plan is not to be construed by reference thereto.

        (b)     Applicable Law .   The Plan is intended to qualify under Code section 401(a) and to include a cash or deferred arrangement qualifying under Code section 401(k). The ESOP Fund is intended to constitute an employee stock ownership plan qualifying under Code section 4975(e)(7) and ERISA section 407(d)(6) of the stock bonus type. The Plan shall be interpreted so as to comply with the applicable requirements thereof, where such requirements are not clearly contrary to the express terms hereof. In all other respects, the Plan shall be construed and its validity determined according to the substantive laws of the State of Minnesota, to the extent such laws are not preempted by ERISA or other federal law.

ARTICLE III

PARTICIPANT’S DEPOSITS AND ROLLOVERS

         Section 3.1      Election to Participate.    An Employee who has attained age eighteen (18) may elect upon Timely Notice to participate in the Plan for purposes of directing that Deposits be made on such Employee’s behalf. Such election shall be effective as of the beginning of the payroll period next following the date the Employee’s election is received by the Plan Administrator.

         Section 3.2      Amount of Participant’s Before-tax Deposits.    (a)   Before-tax Deposits .  Subject to the provisions of Section 3.2(c) and (d), each Participant may designate a rate of Before-tax Deposits at the time of election to participate in the


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Plan, which rate may be from one percent (1%) to fifteen percent (15%) of his or her Compensation, expressed in whole percentages, or in such combination of whole and fractional percentages and subject to such rounding conventions as the Plan Administrator prescribes. Such rate may be changed upon Timely Notice in accordance with uniform and non-discriminatory rules prescribed by the Plan Administrator. Before-tax Deposits shall be made for the Participant through payroll deductions from his or her Compensation.

        (b)     Before-tax Matched Deposits .   Once a Participant for whom Before-tax Deposits are being made is credited with a Year of Eligibility Service, the lesser of (i) the Before-tax Deposits thereafter made on his or her behalf for that Plan Year and (ii) Before-tax Deposits totaling four percent (4%) of his or her Compensation paid thereafter during that Plan Year shall be matched to the extent provided under Article IV. For each Plan Year thereafter, the lesser of (i) the Before-tax Deposits made on the Participant’s behalf for that Plan Year and (ii) Before-tax Deposits totaling four percent (4%) of the Participant’s Compensation during that Plan Year shall be matched to the extent provided under Article IV.

        (c)     Limits on Before-tax Deposits .   Before-tax Deposits for any Participant for any Plan Year shall not exceed the lesser of:

(i)  

ten thousand five hundred dollars ($10,500), as adjusted for cost of living increases pursuant to Code section 402(g)(5); and


(ii)  

the Maximum Deferred Amount.


        (d)     Maximum Deferred Amount .   (1)   Establishing Amount .  The Plan Administrator shall, from time to time, establish a Maximum Deferred Amount (which may be described as a percentage or rate of Compensation) respecting Before-tax Deposits. Such Maximum Deferred Amount may vary during each payroll period and for each Participant. If a Participant shall designate any amount or rate of Before-tax Deposits in excess of the applicable Maximum Deferred Amount, such designation shall not be invalid, but shall be effective to designate a rate of Before-tax Deposits equal to the applicable Maximum Deferred Amount. Without limiting the generality of the foregoing, the Plan Administrator may establish a maximum rate or rates of Before-tax Deposits for Participants who are HCEs to ensure that, or to minimize the extent to which, the average rate (expressed as a percentage of “compensation” as defined in Code section 414(s)) of such Deposits by HCEs for a Plan Year does not exceed the rate which will permit the Plan to meet one of the 401(k) discrimination tests.

        (2)    401(k) Discrimination Tests .   As soon as practicable after the end of a Plan Year, the Plan Administrator shall determine whether the average rate of Before-tax Deposits authorized by HCEs for such Plan Year satisfies one of the following tests:

(i)  

a rate equal to 1.25 times the average rate of Before-tax Deposits by all other eligible Employees for such Plan Year; or


(ii)  

a rate equal to the lesser of (A) the average rate of Before-tax Deposits for all other eligible Employees for such Plan Year multiplied by 2.0, (B) the average rate of Before-tax Deposits for all other eligible Employees plus two (2) percentage points, or (C) such other limit as may be prescribed by the Secretary of the Treasury to prevent the multiple use of this alternative limitation.


In applying such tests, Before-tax Deposits of all other eligible Employees for a Plan Year shall be determined after the reduction, if any, described in Section 3.2(f).

        It is the intent and purpose of this Section 3.2(d) that the Plan Administrator shall have and exercise complete discretion in establishing the Maximum Deferred Amount for any Participant for any Plan Year, to assure compliance with Code sections 401(a)(30), 401(k) and 415, and any other applicable provisions of the Code. To the extent required under Treasury Regulations, the 401(k) discrimination tests shall be separately applied to groups of Participants for which such tests are applied as if such Participants were covered under a separate plan.

        For purposes of calculating the 401(k) discrimination tests, the maximum rate of Before-tax Deposits for a Participant who is an HCE shall be determined by considering all cash or deferred arrangements maintained by an Employer in which such HCE is eligible to participate as a single arrangement, to the extent such arrangements must be so aggregated pursuant to applicable Treasury Regulations.


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        (e)     Treatment of Excess Before-Tax Deposits to Satisfy Code section 401(k) Tests .   (1)   General .  In the event that, despite the limitations imposed by Section 3.2(c) and (d), the Before-tax Deposits for a Participant in any Plan Year exceed the limit on Before-tax Deposits for such Participant necessary to satisfy the 401(k) discrimination tests for such year, then, except as described in Section 3.2(e)(2), the Plan Administrator, in its sole discretion, shall direct the Trustee to correct any such excess by applying one or more of the methods listed below, and shall have the discretion to apply different procedures to different individuals and to apply different procedures to the same individual.

        (2)     Redetermination of 401(k) Tests .   If neither of the 401(k) tests is satisfied, then, at the election of the Plan Administrator, the average rate of Before-tax Deposits for eligible Employees, other than HCEs, shall be determined by taking into account (as though they were Before-tax Deposits) all or some of the Qualified Discretionary Contributions or Qualified Matching Contributions allocated to such Employees for the Plan Year for which the 401(k) tests are being applied.

(i)  

Qualified Matching Contributions .   “Qualified Matching Contributions” are Employer Matching Contributions treated as Before-tax Deposits for purposes of applying the 401(k) tests described in Section 3.2(d)(2) and not taken into account for purposes of applying the 401(m) tests described in Section 3.3(b)(2). To so count Qualified Matching Contributions as Before-tax Deposits, the Employer Matching Contributions must be allocated to Accounts for the Plan Year being tested and must be paid over to the Trust within twelve (12) months after the end of such Plan Year. No Qualified Matching Contributions may be counted as Before-tax Deposits unless one of the 401(m) tests, described in Section 3.3(b)(2), for that Plan Year is satisfied by first taking Employer Matching Contributions into account for purposes of the applicable 401(m) test. If one of the 401(m) tests is so satisfied, then the amount of Employer Matching Contributions taken into account as Qualified Matching Contributions shall be no more than the maximum amount by which Employer Matching Contributions for Eligible Employees, other than HCEs, can be reduced while still satisfying one of the 401(m) tests, and by not taking Qualified Matching Contributions into account in determining Aggregate Contributions.


(ii)

Qualified Discretionary Contribution .   Within twelve (12) months after the end of the Plan Year for which neither of the 401(k) discrimination tests has been met, the Board may authorize a Qualified Discretionary Contribution on behalf of eligible Participants and each Participating Employer (with respect to its Employees who are eligible Participants) shall pay such contribution to the Trustee. If such a contribution is made, the 401(k) discrimination tests shall be recomputed by taking such contributions into account (as though Before-tax Deposits) in determining the average rates described in Section 3.2(d). The Participants eligible for a Qualified Discretionary Contribution shall be those Employees (i) who were eligible to elect Before-tax Deposits by the end of the Plan Year for which neither of the 401(k) discrimination tests were met and (ii) who were not HCEs for such Plan Year. Any such contribution shall be allocated on behalf of eligible Participants in the same proportion that each such Participant’s Compensation for the Plan Year for which the Qualified Discretionary Contribution is being made bears to the total Compensation of all such eligible Participants. Such contribution shall be credited to an eligible Participant’s Qualified Discretionary Account.


        (3)     Recharacterization .   Within two and one-half (2-1/2) months after the end of the Plan Year for which neither of the 401(k) discrimination tests are met, the excess Before-tax Deposits of the HCEs for the Plan Year being tested may be recharacterized as After-tax Deposits. The Before-tax Deposits, to the extent recharacterized, shall be treated as After-tax Deposits for purposes of meeting the discrimination tests applied to After-tax Deposits described in Section 3.3(b).

        Excess Before-tax Deposits may be recharacterized for an HCE only to the extent such recharacterized amounts, together with the After-tax Deposits authorized by such HCE, do not exceed the limits on After-tax Deposits contained in Section 3.3. Any such recharacterization shall be deemed to have occurred no earlier than the date all affected HCEs have been informed in writing of the amount to be recharacterized and the fact that any amounts recharacterized shall be taxable to the affected Participant for the year in which such amounts would otherwise have been received as income, but for the fact such amounts were treated as Before-tax Deposits when contributed to the Plan. Any excess Before-tax Deposits recharacterized as After-tax Deposits shall remain subject to such distribution provisions as are generally applicable to Before-tax Deposits.

        (4)     Distribution .   After the end of the Plan Year for which neither of the 401(k) discrimination tests is satisfied and before the end of the following Plan Year, the excess Before-tax Deposits of the HCEs for the Plan Year being tested (and income or loss allocable thereto) may be distributed. Such excess shall be the amount by which an HCE’s Before-tax Deposits for the Plan Year exceed the amount of Before-tax Deposits which could have been made for such Participant and still satisfy one of the 401(k) discrimination tests. Such excess shall be determined on a per Participant basis, starting with the Participant or Participants with the highest dollar amount of Before-tax Deposits. Such distributions shall be made, to the extent possible,


8



within two and one-half (2-1/2) months after the end of the Plan Year, but in any event, not later than the last day of the subsequent Plan Year. Such distributions may be made notwithstanding any Plan provision to the contrary.

        (5)     Determining Excess Before-tax Deposits .   The amount of excess Before-tax Deposits to be distributed or recharacterized pursuant to the provisions of this Section 3.2(e) for a Plan Year shall be first reduced by any excess Before-tax Deposits previously distributed to the affected Participant for his or her taxable year ending with or within the Plan Year for which such correction is being made.

        (f)     Treatment of 402(g)(1) Excess .   If and to the extent for a calendar year a Participant’s Before-tax Deposits plus elective contributions (as defined in Code section 401(k)) made under other Defined Contribution Plans maintained by an Employer exceeds the Code section 402(g)(1) limit for such year, then such excess shall be distributed to the individual concerned from the Plan (to the extent of Before-tax Deposits for such year) within the periods allowed under Treasury Regulation §1.402(g)-1(e)(2) or (3) and such Participant shall be deemed to have notified the Plan Administrator of such excess and directed the Plan Administrator to take such action. Except as permitted under such regulation, such distribution shall include any income or loss (for the Plan Year for which such excess was contributed) allocable to such excess. Such distributions may be made notwithstanding any Plan provision to the contrary.

         Section 3.3      Amount of Participant’s After-tax Deposits.    (a)   After-tax Deposits .  Subject to the provisions of Section 3.3(b), each Participant may designate a rate of After-tax Deposits at the time of election to participate in the Plan, which rate may be from one percent (1%) to ten percent (10%) of his or her Compensation, expressed in whole percentages or in such combination of whole and fractional percentages and subject to such rounding conventions as the Plan Administrator prescribes. Such rate may be changed upon Timely Notice in accordance with uniform and non-discriminatory rules prescribed by the Plan Administrator. Such After-tax Deposits shall be made for the Participant through payroll deductions from his or her Compensation.

        (b)     Maximum Deferred Amount .   (1)   Establishing Amount .  The Plan Administrator shall, from time to time, establish a Maximum Deferred Amount (which may be described as a percentage or rate of Compensation) respecting After-tax Deposits. Such Maximum Deferred Amount may vary during each payroll period and for each Participant. If a Participant shall designate any amount or rate of After-tax Deposits in excess of the applicable Maximum Deferred Amount, such designation shall not be invalid, but shall be effective to designate a rate of After-tax Deposits equal to the applicable Maximum Deferred Amount. Without limiting the generality of the foregoing, the Plan Administrator may establish a maximum rate or rates of After-tax Deposits for a Participant who is an HCE to ensure that, or to minimize the extent to which, the average rate (expressed as a percentage of “compensation” as defined in Code section 414(s)) of such After-tax Deposits by HCEs for a Plan Year does not exceed the rate which will permit the Plan to meet one of the 401(m) discrimination tests.

        (2)     401(m) Discrimination Tests .   As soon as practicable after the end of a Plan Year, the Plan Administrator shall determine whether the average rate of After-tax Deposits authorized by HCEs for such Plan Year, when combined with Employer Matching Contributions made on behalf of HCEs for such Plan Year (the “Aggregate Contributions”) satisfies one of the following tests:

(i)  

a rate equal to 1.25 times the average rate of Aggregate Contributions by all other eligible Employees for such Plan Year: or


(ii)  

a rate equal to the lesser of (A) the average rate of Aggregate Contributions for all other eligible Employees for such Plan Year multiplied by 2.0, (B) the average rate of Aggregate Contributions for all other eligible Employees plus two (2) percentage points, or (C) such other limit as may be prescribed by the Secretary of the Treasury to prevent the multiple use of this alternative limitation.


        It is the intent and purpose of this Section 3.3(b) that the Plan Administrator shall have and exercise complete discretion in establishing the Maximum Deferred Amount for any Participant for any Plan Year, to assure compliance with Code sections 401(m) and 415, and any other applicable provisions of the Code. To the extent required under Treasury Regulations, the 401(m) tests shall be separately applied to groups of Participants for which such tests are applied as if such Participants were covered under a separate plan.

        For purposes of calculating the 401(m) discrimination tests, the maximum rate of Aggregate Contributions for a Participant who is an HCE shall be determined by considering all plans subject to Code section 401(m) maintained by an


9



Employer in which such HCE is eligible to participate as a single plan, to the extent such arrangements must be so aggregated pursuant to applicable Treasury Regulations.

        (c)     Redetermination of Aggregate Contributions .   (1)   General .  If neither of the 401(m) discrimination tests are satisfied, the Plan Administrator shall determine whether either of such tests could be met if some or all of the Before-tax Deposits allocated to HCEs or non-HCEs, or both (for the Plan Year for which such tests are being applied) are taken into account as though such Before-tax Deposits were After-tax Deposits, and then determining the extent to which excess Aggregate Contributions may have been made for the Plan Year being tested.

        (2)     Counting Before-tax Deposits .   To so count Before-tax Deposits for purposes of Section 3.3(c)(1), such Before-tax Deposits must be allocated to Accounts for the Plan Year being tested and must be paid over to the Trust within twelve (12) months after the end of such Plan Year. Further, no Before-tax Deposits may be so taken into account unless one of the 401(k) discrimination tests has been met with respect to such Deposits. If one of the 401(k) discrimination tests is satisfied, then to the extent required under Treasury Regulation §1.401(m)-1(b)(5) the amount of Before-tax Deposits taken into account hereunder shall be no more than the maximum amount of reduction that could be made to the deferral rates for non-HCEs while still satisfying one of such tests after the adjustment is made.

        (d)     Treatment of Excess .   (1)   General .  In the event that, despite the limitations imposed by Section 3.3(b) and the recharacterization described in Section 3.3(c), the Aggregate Contributions for a Participant in a Plan Year exceed the limit on Aggregate Contributions for such Participant necessary to satisfy the 401(m) discrimination tests for such year, then, except as described in Section 3.3(d)(2), the Plan Administrator shall direct the Trustee to correct any such excess by applying one or more of the methods listed below, and shall have the discretion to apply different procedures to correct excess Aggregate Contributions and shall have the discretion to apply different procedures to different individuals and to apply different procedures to the same individual.

        (2)     Qualified Discretionary Contribution .   Within twelve (12) months after the end of the Plan Year for which neither of the 401(m) discrimination tests has been met, the Board may authorize a Qualified Discretionary Contribution on behalf of eligible Participants and each Participating Employer (with respect to its Employees who are eligible Participants) shall pay such contribution to the Trustee. If such a contribution is made, less any portion of such contribution applied as described in Section 3.2(e)(2), the 401(m) discrimination tests shall be recomputed by taking such contributions into account (as though Aggregate Contributions) in determining the average rates described in Section 3.3(b). The Participants eligible for this Qualified Discretionary Contribution shall be those Employees (i) who were eligible to elect After-tax Deposits or to receive an allocation of Employer Matching Contributions by the end of the Plan Year for which neither of the 401(m) discrimination tests were met and (ii) who were not HCEs for such Plan Year. Any such contribution shall be allocated on behalf of eligible Participants in the same proportion that each such Participant’s Compensation for the Plan Year for which the Qualified Discretionary Contribution is being made bears to the total Compensation of all eligible Participants. Such contribution shall be credited to an eligible Participant’s Qualified Discretionary Account.

        (3)     Distribution .   After the end of the Plan Year for which neither of the 401(m) discrimination tests are satisfied and before the end of the following Plan Year, the excess Aggregate Contributions of the HCEs for the Plan Year being tested (and income or loss allocable thereto) may be distributed. Such excess shall be equal to the amount by which an HCE’s Aggregate Contributions for the Plan Year exceed the amount of Aggregate Contributions which could have been made for such Participant and still satisfy one of the 401(m) discrimination tests. Such excess shall be determined on a per Participant basis, starting with the Participant or Participants with the highest dollar amount of Aggregate Contributions. Such distributions shall be made, to the extent possible, within two and one-half (2-1/2) months after the end of the Plan Year, but in any event, not later than the last day of the subsequent Plan Year. Such distribution may be made notwithstanding any Plan provision to the contrary.

         Section 3.4      General Testing Provisions.    (a)   Rules Applicable to HCEs .  The Plan Administrator, in its sole discretion, may determine who is an HCE and how the 401(k) and 401(m) discrimination tests shall be satisfied by using any special rules or procedures that may be allowed under applicable Treasury Regulations or other guidance as may be issued by the Internal Revenue Service.

        (b)     Multiple Use Test .   If there is a multiple use of the alternative limitation, then the average rate of Aggregate Contributions of the HCEs included for testing purposes shall be reduced and the excess Aggregate Contributions, together with any income allocable thereto, shall be distributed as provided in Section 3.3(d)(3), and any reductions shall be limited to the amount necessary to satisfy the alternative limitation test. If both of the 401(k) and 401(m) discrimination tests are satisfied for a


10



Plan Year, then none of the Before-tax and Aggregate Contributions (and income allocable thereto) for such year shall be distributed to an HCE, but only if (i) both such tests were satisfied using the tests shown in Section 3.2(d)(2)(i) and 3.3(b)(2)(i), (ii) no HCE is included in the groups being tested for both the 401(k) and 401(m) discrimination tests, or (iii) the alternative limitation test of Treasury Regulation §1.401(m)-2 is satisfied.

         Section 3.5      Allocation and Reallocation of Participants Deposits.    (a)   Allocation .  On Timely Notice a Participant shall elect to allocate all of the Deposits to be made during a Plan Year to one or more of the Investment Funds, in accordance with rules of uniform application prescribed by the Plan Administrator, provided, however, that no Deposits shall be allocated to the ESOP Fund. An election under this Section 3.5(a) shall remain in effect for a Plan Year and successive Plan Years unless changed on Timely Notice. On Timely Notice a Participant may elect to change the mix of his or her Deposits.

        In the event a Participant fails to direct the investment of Deposits or fails to replace any directions which may have been suspended or revoked, the Participant shall be deemed to have elected to have one hundred percent (100%) of such Deposits allocated to an Investment Fund designated by the Plan Administrator for such purpose.

        (b)     Reallocation .   In accordance with rules of uniform application prescribed by the Plan Administrator, a Participant may on Timely Notice elect to reallocate, as of any business day, that portion of his or her Accounts attributable to Deposits, including the net increase or decrease in value attributable thereto; provided, however, that no Deposits may be reallocated to the ESOP Fund.

        (c)     Plan Administrator Discretion .   Notwithstanding the foregoing, if it determines that any reallocation of funds held in the Employee Common Stock Fund might violate applicable securities laws or is for any other reason impracticable or contrary to the provisions of ERISA section 404(c), the Plan Administrator may, in its sole discretion, decline to implement a Participant’s investment directions.

         Section 3.6      Suspension of a Participant’s Deposits.    (a)   Automatic Suspension .  A Participant’s Deposits shall be suspended commencing with and continuing throughout any period during which such Participant fails to qualify as an Employee, and as provided in Section 8.2(d) in the case of certain restricted withdrawals. Participants will not be permitted to make up suspended Deposits. Employer Contributions shall be made with respect to any Before-tax Deposits made by a Participant prior to a suspension of Deposits, so long as the Participant is otherwise entitled to share in such contributions for the Plan Year. A Participant on an authorized leave of absence without pay fails to qualify as an Employee for purposes of this Section.

        (b)     Resumption .   A Participant may resume making Deposits on Timely Notice as of the beginning of any pay period coincident with or next following resumption of Employee status, or in the case of a suspension provided for in Section 8.2(d), any pay period beginning twelve (12) months after the suspension.

         Section 3.7      Payment of Deposits to Trustee.    Each Participating Employer shall remit to the Trustee as soon as practicable the amounts withheld from the Compensation of its Employees as Deposits under the Plan and in no event shall such withholding be so remitted later than the fifteenth (15th) business day of the calendar month immediately following the calendar month in which it was withheld.

         Section 3.8      Rollovers.    (a)   General .  An Employee shall be entitled to rollover or transfer directly to the Trust a qualifying distribution from another tax-qualified Defined Contribution Plan or Defined Benefit Plan. No such Rollover shall be accepted unless it is paid over in cash or check to the Trustee and, for Rollovers other than direct transfers, within sixty (60) days after it is received by the individual. No amount shall be accepted for Rollover unless the individual certifies in writing to the Plan Administrator that, to the best knowledge of that individual, (i) the plan from which the monies were received was a tax-qualified retirement plan at the time of the distribution, and (ii) the amount constitutes an eligible rollover distribution from such other plan within the meaning of Code section 402(f)(2)(A). Such amounts shall be subject to allocation and reallocation using the same or a similar process as Deposits are so allocated or reallocated as described in Section 3.5.

        (b)     Transfers Due to Diversification .   The RSIP Trust shall accept as a transfer from the trustee of the Federal-Hoffman, Inc. Employee Stock Ownership Plan (the “F-H ESOP”) cash resulting from the election by a qualified participant to diversify the investment of his or her stock account under applicable provisions of the F-H ESOP. Such amounts shall be credited to a Participant’s rollover Account and shall be allocated or reallocated among the available Investment Funds consistent with the provisions of Section 3.4. The investment results related thereto shall be allocated to each Participant’s rollover Account


11



pursuant to the provisions of Sections 6.1 and 6.2. All amounts transferred to a Participant’s Account under this Section 3.7(b) shall be distributed to the Participant at the time and in the manner described in Section 7.2. Such amounts shall be available for purposes of granting restricted withdrawals under Section 8.2 and Participant loans under Section 8.4.

         Section 3.9      ESOP Diversification Election.    Each Participant who has attained age fifty-five (55) and who is considered to have completed at least ten (10) years of participation under the ESOP Fund shall be permitted to direct the Trustee as to the investment of twenty-five percent (25%) of the value of the Participant’s ESOP Account (to the extent not previously diversified in accordance with this Section). This diversification election shall continue for six (6) Plan Years, beginning with the Plan Year in which the Participant has attained age fifty-five (55) or completed ten (10) years of participation under the Plan, whichever shall last occur (the “qualified election period”). A Participant’s election shall (i) be memorialized, (ii) be made within ninety (90) days after the last day of each Plan Year during the Participant’s qualified election period and (iii) be effective no later than one hundred eighty (180) days after the close of the Plan Year to which the direction applies. Within ninety (90) days after the close of the last Plan Year in the Participant’s qualified election period, a qualified Participant shall be permitted to direct the investment of an amount not to exceed fifty percent (50%) of the value of such ESOP Account balance (to the extent not previously diversified in accordance with this Section). The Plan shall distribute that portion of the Participant’s ESOP Account subject to the election within ninety (90) days after the last day of the period during which the election can be made or, in lieu of such a distribution, the Plan Administrator may adopt a procedure that is uniformly applicable to all qualified Participants and under which each qualified Participant may direct the Plan to transfer that portion of the Participant’s ESOP Account subject to the election to Investment Funds available under the Plan or another tax-qualified retirement plan maintained by the Company which accepts such transfers and permits Participants to direct investments among at least three (3) investment funds (exclusive of any Company Stock funds). Any such intra-plan or plan-to-plan transfer shall be made no later than ninety (90) days after the last day of the period during which the Participant’s election can be made. The portion of a Participant’s ESOP Account that is subject to such elections shall be determined in accordance with Treasury Regulations and other guidance under Code section 401(a)(28).

         Section 3.10      Compensation Cap.    For purposes of Article III and Article IV, as well as any other Plan provision for which Compensation is required to be limited by reason of Code section 401(a)(17), the annual Compensation of each Employee taken into account under the Plan shall not exceed $170,000, as adjusted for increases in the cost of living in accordance with Code section 401(a)(17)(B). The cost of living adjustment in effect for a calendar year applies to any period, not exceeding twelve (12) months, over which Compensation is determined (“determination period”) beginning in such calendar year. Except as otherwise provided in Treasury Regulations §1.401(a)(17)-1(b)(3)(iii)(B) with respect to Deposits or Employer Matching Contributions, if a determination period consists of fewer than twelve (12) months, the annual compensation limit shall be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is twelve (12).

        If Compensation for any prior determination period is taken into account in determining an Employee’s Deposits for the current Plan Year, the Compensation for that prior determination period is subject to the annual compensation limit in effect for that prior determination period.

ARTICLE IV

EMPLOYER CONTRIBUTIONS

         Section 4.1      Employer Matching Contributions.    (a)   Amount of Employer Matching Contributions .   (1)   General .  Subject to the provisions of Section 4.1(a)(2) and (3), a Participating Employer, with respect to its Employees described in Section 4.1(b), shall make a contribution for a Plan Year in cash equal to the percentage match shown in the following schedule. Such amount shall be paid to the Trustee as soon as practicable after the end of the Plan Year.









12



SCHEDULE OF MATCHING PERCENTAGES

Performance to Goal Criteria: If the operating income of a Participating Employer for the Fiscal Year which ends with or within the Plan Year is the following percentage of the operating income for the preceding Fiscal Year: The Participating Employer will contribute cash equal to the following percentage of an eligible Participant's Before-tax Matched Deposits made in such year:

130% or above   90.0%  
 
126% through 129.9%   84.0%  
 
122% through 125.9%   78.0%  
 
118% through 121.9%   72.0%  
 
114% through 117.9%   66.0%  
 
110% through 113.9%   60.0%  
 
106% through 109.9%   54.0%  
 
102% through 105.9%   48.0%  
 
98% through 101.9%   42.0%  
 
94% through 97.9%   36.0%  
 
less than 94%   30.0%  

In applying such schedule, the Performance to Goal criteria shall be separately applied to each Participating Employer.

        (2)     Special Cases .   Each Participating Employer may, with the consent of the Plan Administrator, establish a percentage or other match rate and the criterion therefor to be contributed on behalf of its Employees for a Plan Year, other than the percentage match determined by application of the immediately preceding Schedule of Matching Percentages, to take into account an extraordinary or unusual event specific to such Employer (e.g., becoming an Employer during a Plan Year due to an acquisition; ceasing to be an Employer during a Plan Year due to a divestiture).

        (3)     Transfers .   An eligible Participant’s matching percentage or rate shall be determined by reference to the Performance to Goal attainment, or other match criterion established pursuant to paragraph (2) immediately preceding, of the Participating Employer with which such individual is employed on the last day of the Plan Year or, if earlier, the date such individual terminated employment with such Employer or the Employer ceased to be a Participating Employer. With respect to a Participant who is employed with more than one (1) Participating Employer during a Plan Year, however, such individual’s matching percentage shall be determined by aggregating the total Compensation paid to such Participant and the total Before-tax Deposits authorized during the relevant Plan Year and prorating both between and among the Participating Employers by which the Participant was employed based on the number of days during the relevant Plan Year such individual was employed by each Participating Employer.

        (b)     Eligibility for Employer Matching Contributions .   The Participants eligible to share in Employer Matching Contributions for a Plan Year shall be all Participants who made Before-tax Matched Deposits during the year, except those who did not complete a Year of Credited Service during such year. Notwithstanding the foregoing, a Participant whose separation from service occurs during the Plan Year on account of Retirement, Total and Permanent Disability, or death, or on account of the elimination of the Participant’s job (in connection with the sale or the permanent closing of the plant or facility or similar event) as determined by the Plan Administrator (pursuant to uniform and nondiscriminatory standards), shall be eligible to share in Employer Matching Contributions for such year without regard to the requirement that such Participant complete a Year of Credited Service in that year.

        (c)     Contribution Limitations .   Notwithstanding Section 4.1(a), the average rate (expressed as a percentage of “compensation” as defined in Code section 414(s)) of Employer Matching Contributions, plus the average rate of After-tax Deposits for a Plan Year, of Employees who are HCEs for such Plan Year shall not exceed the rate necessary to satisfy the 401(m) discrimination tests described in Section 3.3(b), subject to such other methods as described in Section 3.3 which can be used to satisfy such tests.

        The Plan Administrator shall have and exercise complete discretion in establishing the maximum rate of Employer Matching Contributions for any Participant for any Plan Year, to assure compliance with the limitations imposed by Code


13



sections 401(m) and 415 and other applicable provisions of the Code. Accordingly, no Employer Matching Contribution shall be made or allocated to the Account of any Participant if such contribution would cause such limitations to be exceeded.

         Section 4.2      Employer Discretionary Contributions.    (a)   General .  Employer Discretionary Contributions equal to the amount specified in Section 4.2(b) shall be made by the Participating Employers, on behalf of their eligible Participants, in cash or in Company Stock with an equivalent Current Market Value as of the date contributed.

        (b)     Amount of Contributions .   Each Participating Employer shall contribute such amount as the Board may establish. Until further action of the Board, the amount shall be equal to one and one-half percent (1.5%) of each eligible Participant’s Compensation paid by the Participating Employer for a Plan Year. Such amount shall be paid to the Trustee as soon as practicable after the end of the Plan Year.

        (c)     Participants Eligible for Contributions .   Participants eligible for Employer Discretionary Contributions shall be those who (x) have completed a Year of Eligibility Service by the last day of the Plan Year and (y) (i) have completed a Year of Credited Service during such Plan Year or (ii) whose separation from service occurred during such Plan Year due to Retirement, death, Total and Permanent Disability or on account of elimination of the Participant’s job in connection with the sale or permanent closing of a plant or facility or similar event, as determined by the Plan Administrator pursuant to uniform and non-discriminatory standards.

         Section 4.3      Allocation and Reallocation of Employer Contributions.    Subject to Section 5, any Employer Contributions for the Plan Year shall be allocated as follows:

        (a)     Employer Matching Contributions .   Employer Matching Contributions shall be allocated to a Participant’s Employer Matching Account subject to allocation and reallocation using the same or similar process as Deposits are so allocated or reallocated and as described in Section 3.5.

        (b)     Employer Discretionary Contributions .   As of the last day of the Plan Year and except as otherwise provided in the immediately succeeding paragraph, Employer Discretionary Contributions shall be allocated to and among the ESOP Fund Accounts of eligible Participants in the ratio of the value of Employer Discretionary Contributions made for each such Participant to the value of the total Employer Discretionary Contributions made to all Participants eligible to share in the allocation for the Plan Year.

        As of the last day of the Plan Year, and except as otherwise described in the immediately preceding paragraph, the Company’s Vice President of Human Resources may, but is not required to, direct in writing that some or all of the Employer Discretionary Contribution for such year be allocated to a Participant’s Employer Discretionary Accounts in lieu of the ESOP Fund Accounts, if such action (in the discretion of such Vice President) is deemed appropriate due to compliance with the annual discrimination testing of RSIP required by the Code or otherwise appropriate. To the extent all or any portion of an Employer Discretionary Contribution is allocated to Employer Discretionary Accounts outside of the ESOP Fund Accounts, such amounts shall be subject to allocation and reallocation using the same or similar process as Deposits are so allocated or reallocated and as described in Section 3.5. All amounts allocated to such Employer Discretionary Accounts shall be subject to the same withdrawal and distribution rules as apply to amounts allocated to Employer Matching Accounts.

        (c)     Qualified Discretionary Contributions .   Qualified Discretionary Contributions shall be allocated as provided in Sections 3.2(e)(2) or 3.3(d)(2), as applicable, and shall be subject to allocation and reallocation using the same or similar process as Deposits are so allocated or reallocated and as described in Section 3.5.

        (d)     Qualified Matching Contributions .   Qualified Matching Contributions shall be subject to allocation and reallocation using the same or similar process as Deposits are so allocated or reallocated and as described in Section 3.5.

         Section 4.4      Funding Policy.    To the extent the funding policy of the Plan is not expressly set forth herein, the Named Fiduciary shall establish such funding policy, which may include the establishment of goals and objectives for the Trustee and Investment Managers in their management of assets of the Trust, and shall communicate such policy to the parties responsible for its implementation.

         Section 4.5      Maximum Annual Additions.    Notwithstanding anything in the Plan to the contrary, a Participant’s Deposits and Employer Contributions for a Plan Year shall be limited to the extent required under Code section 415 and as more fully described in Addendum I to the Plan.

         Section 4.6      Exempt Loan and Suspense Account.    (a)   General .  To the extent the Plan has acquired shares of Company Stock with the proceeds of an Exempt Loan and the Exempt Loan remains outstanding, such shares shall be held in a Suspense Account pending their release and allocation to the ESOP Fund for the Accounts of Participants, as principal and interest payments are made under the Exempt Loan.


14



        (b)     Repayment of Principal and Interest .   Repayment of principal and payment of interest under any such Exempt Loan may be made from one or more of the following sources, or such other sources as the Board may determine:

(i)  

cash dividends on Company Stock acquired with the proceeds of an Exempt Loan and allocated to Participants’ Accounts, plus earnings on such dividends;


(ii)  

cash dividends on Company Stock in the Suspense Account and earnings thereon; and


(iii)  

Employer Discretionary Contributions and earnings thereon.


        (c)     Number of Shares Released .   The number of shares of Company Stock to be released from the Suspense Account for each Plan Year for the duration of an Exempt Loan shall be determined in accordance with Treasury Regulations §54.4975-7(b)(8).

        (d)     Allocation of Shares Released .   Shares of Company Stock that are released from the Suspense Account for each year shall be allocated, as of the last day of the Plan Year, to the ESOP Fund for the Participants’ Accounts as follows:

(i)  

shares released by cash dividends paid in that Plan Year and earnings thereon shall be allocated to the Accounts of Participants who would have received an allocation of such dividend, pro rata to the amount of the Company Stock in each such Participant’s Account on which such dividend was paid, and each such allocation to a Participant’s Account shall consist of shares having a Current Market Value (as of the date of payment of the cash dividend) equal to the amount of the dividend the Participant would have received; provided that if shares of Company Stock released from the Suspense Account for a Plan Year do not have a Current Market Value sufficient to satisfy the foregoing requirements, amounts identified in Section 4.6(b)(ii) and (iii) shall be applied to satisfy such requirements;


(ii)  

shares released by cash dividends as described in Section 4.6(b)(ii) and earnings thereon shall be allocated in accordance with the provisions of Section 4.6(d)(i) and then in accordance with the provisions of Section 4.3(b);


(iii)  

shares released by Employer Discretionary Contributions described in Section 4.6(b)(iii) and earnings thereon shall be allocated in accordance with the provisions of Section 4.6(d)(i) above and then as Employer Discretionary Contributions under Section 4.3(b).


        (e)     Special Circumstances .   In the event of a sale or other disposition of Company Stock allocated to the Suspense Account, the Trustee shall apply the proceeds of such sale or disposition to the repayment of the Exempt Loan and the excess proceeds shall be allocated to Participants’ Accounts under the ESOP Fund pro rata in relation to the balance in each Participant’s Account under the ESOP Fund. The foregoing shall not apply to a sale or disposition of Company Stock exchanged for other stock in a transaction described in Code section 402(j), provided there is a successor employer which, with the consent of the Company, agrees to adopt and continue this Plan.

ARTICLE V

TRUSTEE AND TRUST AGREEMENT

         Section 5.1      Appointment.    (a)   General .  The Company shall establish and continue a Trust agreement with the persons or corporations selected by the Board to act as Trustee. The Trustee shall hold, manage, administer and invest the assets of the Trust, reinvest any income, and make distributions in accordance with the provisions of the Trust agreement. The Trust agreement shall be in such form and contain such provisions as may be necessary and appropriate to effectuate the purposes of the Plan and to qualify the Plan and Trust under the Code.

        (b)     Removal and Resignation .   Pursuant to the notice requirements and other procedures contained in the Trust agreement, and in accordance with the Trust agreement, the Board may, at any time and from time to time, remove a Trustee or any successor Trustee and any such Trustee or any successor Trustee may resign. The Board shall, upon removal or resignation of a Trustee, appoint a successor Trustee. In any such case, the Board shall give due consideration to the reports and recommendations of the Named Fiduciary.

         Section 5.2      Fees and Expenses.    The Trustee’s fee, and other fees and expenses, shall be paid by the Trustee out of the Trust, unless the Company elects to pay them. Brokerage fees and other direct investment costs, if paid out of the Trust, shall be charged to the fund of the Trust to which such fees and costs are attributable.

         Section 5.3      Exclusive Benefit.    All Deposits, Rollovers and Employer Contributions made with respect to Participants under the Plan and all property and funds of the Trust allocable to the Plan, including income from investments and from all other sources, shall be managed solely in the interest of Participants and their Beneficiaries and for the exclusive purpose of providing benefits to Participants and Beneficiaries, and defraying the reasonable expenses of administering the Plan.


15



        Notwithstanding the foregoing, a Participating Employer shall not be required to make or authorize any Employer Contributions for a year that are not deductible under Code section 404 by a Participating Employer for such year, and all Employer Contributions under the Plan are conditioned on such deductibility. If a Participating Employer makes contributions for which such deduction is disallowed, then to the extent of such disallowance, such contributions may be returned to such Participating Employer within one (1) year after the date such contributions were finally determined not to be so deductible; and further provided that any Employer Contributions made by a Participating Employer may be returned to such Participating Employer such contribution was made by mistake of fact and such contribution is returned within one (1) year after it was made.

         Section 5.4      Responsibility and Authority for Fund Management.    The Named Fiduciary shall establish and maintain a funding policy, and may delegate to the other fiduciaries the following duties and authority:

        (i)    authority to direct the establishment of Investment Funds and determine the investment characteristics and general investment guidelines for such Investment Funds, and to add to or change the number and nature of the Investment Funds from time to time;

        (ii)    in its discretion to appoint one or more Investment Managers to direct the investment and reinvestment of all or any portion of the assets held by the Trustee under the Trust, and/or to direct that the assets of any Investment Fund be invested in one or more insurance contracts, mutual funds or similar collective investment medium; and

        (iii)    to periodically review the performance of the Trustee and any Investment Manager in the investment and reinvestment of the assets accumulated under the Plan, and report to the Board with respect to such performance at least annually.

ARTICLE VI

INVESTMENT; PARTICIPANT’S ACCOUNTSVOTING OF STOCK

         Section 6.1      Investment of Deposits and Employer Contributions.    A Participant’s Deposits and Rollovers and allocations of Employer Matching Contributions, Qualified Matching Contributions and Qualified Discretionary Contributions for a Plan Year shall be invested in the Investment Funds in accordance with the Participant’s allocations and reallocations. Except as otherwise provided in Section 4.3(b), Employer Discretionary Contributions, other than Qualified Discretionary Contributions, shall be invested in the ESOP Fund. All such investments and income related thereto shall be allocated to each Participant’s Accounts pursuant to the provisions of Section 6.2. At least quarterly, the Plan Administrator shall prepare or cause to be prepared a report indicating the increase or decrease in the valuation of each of the funds established under the Plan, which report shall be made available for review by Participants.

        Except as otherwise provided herein, income earned on assets of any Investment Fund shall be invested by the Trustee in like assets. Notwithstanding the foregoing, if an Exempt Loan is not outstanding, the Named Fiduciary may direct the Trustee to retain Employer Discretionary Contributions made in cash and to invest such amounts in one or more available funds other than Company Stock, subject to the requirement that the ESOP Fund shall be always primarily invested in Company Stock.

         Section 6.2      Participant’s Accounts.    (a)   Establishment of Accounts .  Separate Accounts shall be established and maintained for each Participant which, depending upon the investment funds selected, shall consist of the following Accounts:

        (i)    A separate Account for the portion the Participant’s Deposits, Rollovers, Employer Matching Contributions, Employer Discretionary Contributions and Qualified Discretionary Contributions allocated to each of the Investment Funds other than the Employee Common Stock Fund or the ESOP Fund, and all adjustments thereto;

        (ii)    An Employee Common Stock Account, which shall consist of the Participant’s Deposits, Rollovers, Employer Matching Contributions, Qualified Matching Contributions and Qualified Discretionary Contributions allocated to the Employee Common Stock Fund and all adjustments thereto.

        (iii)    An ESOP Account, which shall consist of a Participant’s interest in the ESOP Fund attributable to either cash or shares of Company Stock derived from Employer Discretionary Contributions under Section 4.2, and all adjustments thereto.

        To the extent necessary or appropriate to provide for the proper administration of the Plan, the Accounts of Participants shall include separate balances or subaccounts for interests derived from Before-tax Matched, Before-tax Unmatched, and After-tax Deposits, Rollovers, Employer Matching Contributions, Qualified Discretionary Contributions, Employer Discretionary Contributions and such other separate balances as the Plan Administrator shall determine.

        During any Plan Year in which an Exempt Loan is outstanding, the Plan Administrator may establish such other Accounts or subaccounts in the ESOP Fund as may be required to reflect the release of Company Stock from the Suspense


16



Account, and to reflect the nature or source of the Employer Contribution used for purposes of releasing such Company Stock from the Suspense Account. In addition, the Plan Administrator shall continue to maintain such Accounts and subaccounts as were established (or are otherwise reasonably necessary) to reflect the provisions of the Prior Plans, including, but not limited to, ESOP Fund Accounts and subaccounts to reflect the Exempt Loan (and repayment thereof) used to acquire the 1990 Preferred Stock and to reflect the conversion of such preferred stock into Common Stock.

        As soon as practicable following the end of each Plan Year, the Company shall prepare for each Participant an annual statement which shall reflect the status of the Participant’s Accounts in such form as may be prescribed by the Plan Administrator.

        (b)     Crediting of Accounts .   The appropriate Accounts of each Participant shall be credited with the amounts of his or her Deposits, Rollovers, Employer Matching Contributions, Employer Discretionary Contributions, Qualified Matching Contributions and Qualified Discretionary Contributions as such amounts are received by the Trustee. The reallocation of a Participant’s Accounts shall be appropriately credited as of a Valuation Date coincident with or next following the effective date of the reallocation. A Participant’s ESOP Accounts shall be credited as soon as possible after the end of each Plan Year with the amount of cash or Company Stock allocated to his or her ESOP Account for such Plan Year.

        (c)     Valuation of Accounts .   Each Participant’s Accounts shall be valued and adjusted on the Valuation Date to preserve his or her proportionate interest in the related funds. As of each Valuation Date each of the Accounts of each Participant shall be adjusted to reflect the effect of income, collected and accrued, realized and unrealized gains and losses, expenses and all other transactions since the last Valuation Date with respect to the related fund in such manner as the Trustee shall deem appropriate.

         Section 6.3      Acquisition of Stock by Trustee.    Shares of Company Stock shall be acquired by the Trustee either (i) on the open market, (ii) from private sources, which may include employees or former employees of an Employer, (iii) as part of the Employer’s Discretionary Contribution pursuant to Article IV, (iv) by the exercise of rights as hereinafter provided, or (v) in such other manner as the Trustee may from time to time determine, including an acquisition from an Employer with the proceeds of an Exempt Loan. The proceeds of an Exempt Loan must be used within a reasonable time after receipt by the Trustee only for any or all of the following purposes: (i) to acquire qualifying employer securities (within the meaning of Code section 409(1) and ERISA section 407(d)(5)); (ii) to repay such loan; or (iii) at the direction of the Named Fiduciary to repay a prior Exempt Loan. A new Exempt Loan, the proceeds of which are so used, must satisfy the foregoing provisions. Except as permitted by applicable law, no security acquired with the proceeds of an Exempt Loan may be subject to a put, call or other option, or buy-sell or similar arrangement while held by and when distributed from the Plan, whether or not a portion of the Plan is then an employee stock ownership plan. The Trustee shall also hold for allocation to Participant’s ESOP Fund Accounts, as provided in the Plan or Trust, shares of Company Stock acquired because of cash withdrawals or distributions from the ESOP Fund.

         Section 6.4      Stock Rights, Stock Splits and Stock Dividends.    A Participant shall have no right of request, direction or demand upon the Named Fiduciary or the Trustee to exercise rights to purchase shares of Company Stock or other securities of the Company. The Trustee may exercise or sell any rights to purchase shares of Company Stock appertaining to shares of such stock held by the Trustee, and the Accounts of Participants shall be appropriately credited. Shares of Company Stock received by the Trustee by reason of a stock split or a stock dividend shall be allocated to the appropriate Accounts of the Participants.

         Section 6.5      Voting Rights and Tender Offers with Respect to Company Stock.    Voting rights with respect to Company Stock held by the Trustee and tender offers with respect to Company Stock shall be handled in accordance with the provisions of the Trust.

ARTICLE VII

VESTING AND DISTRIBUTION OF ACCOUNTS UPON
TERMINATION OF EMPLOYMENT

         Section 7.1      Vesting.    The entire balance in all of a Participant’s Accounts shall be fully vested and nonforfeitable at all times and shall be paid to such Participant or his or her Beneficiary at the time and in the manner described in Section 7.2.

         Section 7.2      Settlement Date and Time of Distribution.    (a)   Settlement Date .  Subject to the other provisions of this Article VII, each Participant’s “Settlement Date” shall be the Valuation Date immediately following the date employment with the Employer terminates for any reason, including Total and Permanent Disability. Notwithstanding the foregoing, a Participant’s Settlement Date with respect to any amounts credited to his or her Accounts after the regular Settlement Date determined under the preceding sentence shall be the Valuation Date next following the date on which such amounts are credited to his or her Accounts.


17



        (b)     Code Section 401(a)(9) .   (1)   Required Distributions .  If a Participant continues in Employment past the end of the calendar year in which he or she attains age seventy and one-half (70-1/2), the Participant is a five percent (5%) owner, as defined in Code section 401(a)(9)(C), of an Employer, and payment of such Participant’s Plan retirement benefits has not otherwise commenced, then payment of such benefits shall commence as of April 1 of the calendar year which begins immediately after the calendar year in which he or she attains such age or, if later, January 1 of the calendar year which begins immediately after the Plan Year in which he or she first has an Account balance under the Plan. The benefit so payable shall be determined as of the last day of the immediately preceding Plan Year, and for such first year (to the extent required under Code section 401(a)(9) or Treasury Regulations thereunder) shall include a distribution for both the calendar year in which such Participant attained age seventy and one-half (70-1/2) and the succeeding calendar year. If such Participant continues in Employment after the date benefits commence hereunder and earns additional benefits under the Plan, then payment of any additional benefits earned in a Plan Year shall commence as soon as reasonably possible in the next Plan Year.

        (2)     Compliance with Code .   Subject to such security arrangements as the Plan Administrator deems appropriate, the Plan Administrator shall be entitled to direct the payment of retirement benefits payable hereunder regardless of whether the Participant has consented to such commencement or has perfected his or her entitlement to such benefit, if and to the extent such action is deemed necessary or appropriate to comply with Code section 401(a)(9).

        (c)     Form of Distribution .   Any distribution due shall, except as provided in paragraph (d) or Addendum III, be paid in a lump sum distribution consisting of:

(i)  

the cash equivalent of the Current Market Value as of the Settlement Date of the Participant’s Accounts other than a Common Stock Account or any Account in the ESOP Fund;


(ii)  

full shares of Common Stock attributable as of the Settlement Date to the Participant’s Employee Common Stock Account, or the cash equivalent thereof, together with the cash equivalent of the Current Market Value as of the Settlement Date of fractional shares of Common Stock attributable to such Account;


(iii)  

full shares of Common Stock with respect to the Participant’s Account in the ESOP Fund as of the Settlement Date, or the cash equivalent thereof, together with the cash equivalent of the Current Market Value of any fractional shares attributable to such Account.


        (d)     Installments .   Notwithstanding the foregoing, any Participant who had an Account balance as of December 31, 1988 under a Prior Plan or who had an account balance under the Federal-Hoffman Savings and Investment Plan immediately before such Plan was merged into the 1984 Prior Plan, may request distribution from his or her Accounts, other than the Accounts referred to in Section 7.2(c)(ii) and (iii), by payment in a series of substantially equal installments, paid not less frequently than annually, over a term certain equal to the Participant’s life expectancy determined in accordance with the unisex annuity table found in Treasury Regulation §1.72-9. Payments for each year are calculated as follows:

(i)  

For the first year in which installments are paid, the installment payment amount shall be determined as follows:


Total Account Balance as of Settlement Date
Life Expectancy from table

(ii)  

For each subsequent year, the applicable installment payment amount shall be determined as follows:


Total Remaining Account Balance
        (adjusted for earnings or losses)........        
Life Expectancy from table reduced by one
year for each year of installments paid

A Participant who has elected an installment distribution may elect to accelerate payment by requesting a lump sum payment of any remaining Account balance in accordance with procedures established by the Plan Administrator. If a Participant dies before all installments are paid, remaining payments shall be made to such Participant’s Beneficiary by using the same payment method, provided that on Timely Notice such Beneficiary may elect a lump sum payment of the deceased Participant’s remaining Account balance.

        (e)     Right to Defer .   Notwithstanding subsection (a) of this Section 7.2, but subject to the provisions of subsection (b) of this Section 7.2, if the value of the Participant’s vested interests as of the Settlement Date exceeds $5,000, distribution shall be made at the time and in the manner prescribed above only if the Participant consents thereto. If the Participant fails to consent, distribution shall be made, as of any subsequent Valuation Date elected by the Participant upon Timely Notice (but not later than sixty (60) days after the end of the Plan Year in which the Participant attains age seventy and one-half (70½) or actually


18



retires, whichever is late


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