Quarterly Report — Form 10-Q
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-Q 10-Q Dated June 30, 1997 17 91K
2: EX-3.2 Bylaws, as Amended 17 73K
3: EX-10.1 Closing Agreement With Irs 8 33K
4: EX-27.1 Financial Data Schedule 1 6K
EX-10.1 — Closing Agreement With Irs
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EXHIBIT 10.1
CLOSING AGREEMENT ON FINAL
DETERMINATION COVERING SPECIFIC MATTERS
Under section 7121 of the Internal Revenue Code (the "Code"), the J.
C. Nichols Company (the "Employer"), 310 Ward Parkway, Kansas City, MO 64112,
EIN 44-0371610, acting in its own capacity, in its capacity as settlor of the
trust (the "Trust") established pursuant to the J. C. Nichols Company Employee
Stock Ownership Plan (the "Plan"), and in its capacity as sponsor of the Plan;
and the Commissioner of Internal Revenue (the "Service") make the following
closing agreement:
WHEREAS, the Plan and related Trust were adopted on or about November
12, 1987 effective as of January 1, 1987; and
WHEREAS, the Service has issued a favorable determination letter with
respect to the Plan and Trust dated September 26, 1995, and the Employer
represents that the Plan and Trust have been drafted and operated with the
intent to comply with the requirements of section 401(a) of the Code; and
WHEREAS, a lawsuit was filed in early 1995 (the "Lawsuit") on behalf
of a class of plaintiffs consisting of participants in the Plan (the "Class
Members") alleging that the chief executive officer of the Employer, the
Employer and its board of directors, and the trustees of the Plan violated
certain fiduciary duties and responsibilities under Part 4, Subtitle B of Title
I of the Employee Retirement Income Security Act of 1974 ("ERISA") and caused
the Plan to enter into a number of prohibited transactions with disqualified
persons in violation of section 4975 of the Code; and
WHEREAS, the Employer and the class of plaintiffs entered into a
Settlement Agreement and Mutual Releases dated as of June 30, 1995 (the
"Settlement Agreement"), which Settlement Agreement was approved by an Order
dated October 4, 1995 issued by United States District Judge Dean Whipple, as
modified by an Order Nunc Pro Tunc dated October 12,1995; and
WHEREAS, pursuant to the terms of the Settlement Agreement, the
Employer will, following the execution of this agreement, transfer a specified
number of shares of the Employer's common stock and cash as set forth herein;
and
WHEREAS, the Employer requested a private letter ruling from the
National Office of the Service on October 31, 1995 with respect to the specific
matters outlined therein ("PLR Request"); and
WHEREAS, the Service has declined to issue a private letter ruling,
but is willing to resolve the matters by entering into this Agreement; and
WHEREAS, the Employer has determined that this Agreement is in the
best interests of the Employer, the Trust and the Plan; and
WHEREAS, the Service, through its authorized representative, has
determined that said Agreement is also in its best interests; and
WHEREAS, this Agreement shall become effective on the date executed by
the Internal Revenue Service (the "Effective Date").
NOW IT IS HEREBY DETERMINED AND AGREED for federal income and excise
tax purposes that the above representations are material to this Agreement and
that:
1. The Employer shall pay a settlement of $585,042.50 to the
Service in consideration of the Service's agreement to be bound by the terms of
this agreement. Such settlement amount shall be paid concurrently with the
execution of this Agreement and is a condition to this Agreement becoming
effective. Payment shall be by certified check payable to the "Internal
Revenue Service". Such settlement amount shall not be deductible for federal
tax purposes.
2. With respect to any "Transaction" described in paragraph 4
below, the Service shall not assert that the qualified status of the Plan under
Sections 401(a) and 4975(e)(7) of the Code, and of the Trust under Section
501(a) of the Code is, or has been adversely affected.
3. The Service shall not assert that any excise taxes or
additions to tax which may be imposed on any party under Section 4975 of the
Code are owed as a result of any "Transaction" described in paragraph 4 below.
4. For purposes of this Agreement, "Transaction" shall mean the
transactions relating to the following:
(a) The 1988 borrowing by the Plan and Trust of about $50
million and the related purchase by the Plan and
Trust of shares of common stock of the Employer. The
refinancing of such loan to convert such loan into a
loan from the Employer. The 1988 borrowings by the
Plan and Trust of about $48 million from the Employer
and the related purchases by the Plan and Trust of
additional shares of common stock of the Employer.
The 1989 borrowing by the Plan and Trust from the
Employer and the related purchase by the Plan and
Trust of additional shares of common stock of the
Employer. Any guarantee of the foregoing loans by
the Employer.
(b) The failure by the Employer to contribute to the Plan
and Trust more than about $4 million for repayment of
the Plan's and Trust's indebtedness. The receipt and
use of dividends by the Plan and Trust to repay its
debt.
(c) The Plan and Trust defaulting on its debt. The
Employer's repayment of the Employer's debt to third
party lenders. The accrual of interest on the Plan's
and Trust's debt, including any accrual of interest
on unpaid interest.
(d) Transactions and agreements between or among the
Plan, the Trust, fiduciaries of the Plan and/or
Trust, the Employer and the Bowser Limited
Partnership ("Bowser"), a limited partnership
controlled by Lynn McCarthy, the Employer's former
President, Chairman of the Board, and Chief Executive
Officer, and the events related thereto, which
transactions, agreements and events occurred on or
before October 12, 1995.
(e) Any actions or failures to act relating to the
allegations in the Lawsuit that there was a failure
to, or a failure to attempt to: (i) refinance or
reschedule the Plan's and Trust's loan repayments;
(ii) write down the Plan's and Trust's indebtedness;
(iii) obtain purchasers for the Plan's and Trust's
shares of Employer stock, other than Bowser; (iv)
transfer the Plan's and Trust's unallocated shares to
the Employer in whole, in part or incrementally in
repayment of the Plan's and Trust's debt; (v) release
from encumbrance the Plan's and Trust's unallocated
stock due to the Employer's payment of the Employer's
debt to third party lender(s) and/or (vi) require the
Employer to make additional contributions to the Plan
and Trust.
(f) Execution of the Settlement Agreement and the
occurrence of the transactions and activities
provided for therein.
5. None of the Settlement Proceeds transferred to the Trust
pursuant to the Settlement Agreement will be allocated to the Participation
Accounts of any 1042 Participants because all of the Settlement Proceeds shall
be subject to the nonallocation restrictions under section 409(n) of the Code
("the 1042 Restrictions"). For purposes of applying section 409(n) of the Code
and this paragraph, the Settlement Proceeds shall be treated as accruing on the
date of this Agreement, so that this nonallocation restriction shall apply with
respect to the Participation Accounts of individuals who are 1042 Participants
as of the date of this Agreement, event if the following dates occur after the
"nonallocation period": (I) the date on which the judicial proceeding
referenced in clause (a)(ii) below is resolved; or (II) the date, if ever, that
the 1042 Settlement Proceeds are actually transferred to the Trust or allocated
pursuant to the Plan.
For purposes of this Agreement, "Settlement Proceeds" shall
mean the cash and Employer Stock (as defined in the Plan) to be transferred by
the Employer to the Trust pursuant to the Settlement Agreement.
(a) The Settlement Proceeds shall be divided between the "1042
Settlement Proceeds" and the "Non-1042 Settlement Proceeds". The "1042
Settlement Proceeds" shall be the portion of the Settlement Proceeds that would
be allocated to the 1042 Participants pursuant to sub-paragraphs (b), (c) and
(d) of this paragraph 5, if all Settlement Proceeds were paid and transferred
to the Trust, if the 1042 Restrictions were not applicable to the allocation of
the Settlement Proceeds, and if the 1042 Participants were not excluded from
being Eligible Members (as defined in sub-paragraph (f) of this paragraph 5).
The "Non-1042 Settlement Proceeds" shall be the portion of the Settlement
Proceeds that would be allocated pursuant to sub-paragraphs (b), (c) and (d) of
this paragraph 5 to persons who are not 1042 Participants, if all Settlement
Proceeds were paid and transferred to the Trust, if the 1042 Restrictions were
not applicable to the allocation of the Settlement Proceeds, and if the 1042
Participants were not excluded from being Eligible Members.
(i) The Non-1042 Settlement Proceeds shall be paid and
transferred to the Trust by the Employer within 91 days following the
Effective Date of this Agreement and shall be allocated and credited
to the Participation Accounts of Eligible Members in the manner set
forth in this paragraph 5. For purposes of this Agreement,
"Participation Account" shall mean the separate account maintained for
each Participant pursuant to Plan Section 6.1 for the purpose of
recording the Participant's proportionate interest in the Trust Fund.
(ii) The 1042 Settlement Proceeds shall, within 91 days
following the Effective Date of this Agreement, be tendered to the
3
United States District Court in connection with an
interpleader/declaratory judgment action to determine whether such
amount shall be paid and transferred to the Trust or be paid directly
to the 1042 Participants without being paid to the Trust. In the
event that the 1042 Settlement Proceeds are paid to the Trust: (I)
the cash shall be allocated and credited to the Other Investments
Accounts of Eligible Members in the manner set forth in sub-paragraphs
(b) and (d) of this paragraph 5; and (II) the stock shall be allocated
and credited to the Company Stock Accounts of Eligible Members
pursuant to sub-paragraph (c) of this paragraph 5 in an amount that is
the difference between -- (A) the number of shares that would have
been allocated pursuant to sub-paragraph (a)(i) above, if all
Settlement Proceeds had been allocated, and (B) the number of shares
from the Non-1042 Settlement Proceeds that were allocated pursuant to
sub-paragraph (a)(i) above. For purposes of this Agreement, "Company
Stock Account" shall mean the account established pursuant to the
terms of the Plan which reflects an individual's interest in Employer
stock held under the Trust; and "Other Investments Account" shall mean
the account established pursuant to the terms of the Plan which
reflects an individual's interest in certain assets other than
Employer stock held under the Trust.
(iii) Any Settlement Proceeds allocated to any Participant's
Participation Account shall not be considered an Employer contribution
for purposes of the Plan (including, but not limited to Article IV of
the Plan).
(b) The cash portion of the Settlement Proceeds paid to the Trust
pursuant to sub-paragraph (a) above and Paragraph 81(b) of the Settlement
Agreement and pursuant to the portion of Paragraph 82(b) of the Settlement
Agreement that relates to Paragraph 81(b), shall be allocated to the Other
Investments Account of each Eligible Member as of the Plan's Valuation Date
next following the date each payment is received by the Trust in the same
proportion that the sum of such Eligible Member's balance in his Participation
Account as of December 31, 1992, and the portion of his Special Allocation that
is made pursuant to sub-paragraph (e) below, bears to the sum of the total
balance of all Eligible Members' Participation Accounts as of December 31,
1992, and the portion of all Special Allocations that is made pursuant to
sub-paragraph (e). For purposes of this Agreement, "Special Allocation" means
any allocation of 1042 Settlement Proceeds or Non-1042 Settlement Proceeds
pursuant to this Agreement; and "Valuation Date" means December 31st of each
Plan Year as specified in the Plan, or such other date set by an amendment to
the Plan that complies with Code Section 401(a).
(c) With respect to the Employer Stock portion of the Settlement
Proceeds transferred to the Trust pursuant to sub-paragraph (a) and Paragraphs
81(a) and 81(g) of the Settlement Agreement, as adjusted pursuant to Paragraph
82(b)(ii)(C) of the Settlement Agreement, the amount allocated to the Company
Stock Account of each Eligible Member as of the Plan's Valuation Date next
following the date each transfer is received by the Trust shall be determined
as follows:
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The Employer Stock portion of the Settlement Proceeds shall be
added to the amount of Employer Stock previously allocated
under the Plan for Plan Years 1988 through 1995 attributable to
Employer contributions made under Plan Section 4.1. The portion of
this amount allocable to each of the Plan Years 1988 through 1995
based upon the total Allocation Compensation (as defined in
sub-paragraph (f) of this paragraph 5) of all Eligible Members for
each such year as a percentage of such compensation for all such years
shall be reduced by the amount of Employer Stock previously allocated
for each such year that was attributable to Employer contributions
under Plan Section 4.1; provided that if the net amount for any year
would be less than zero, such net amount for such year shall be zero
and the negative amount shall reduce the net amounts for the other
years in proportion to the net amounts for such other years prior to
such reduction. The results shall then be divided based upon the pro
rata Allocation Compensation of each Eligible Member for each of the
Plan Years 1988 through 1995, and the total of such amounts for each
Eligible Member shall be allocated to his Company Stock Account. For
purposes of this Agreement, "Plan Year" refers to the twelve
consecutive month fiscal period beginning January 1st and ending the
following December 31st.
(d) The cash to be paid pursuant to the portion of Paragraph
82(b) of the Settlement Agreement that relates to Paragraph 81(a) and
81(g) shall be allocated to the Other Investments Account of each
Eligible Member as of the Plan's Valuation Date next following the
date such payment is received by the Trust in the same proportion that
Employer Stock was allocated to such Eligible Member's Company Stock
Account pursuant to sub-paragraph (c) above.
(e) The Employer shall pay cash to the Trust in an amount
necessary to provide the credit to Participants' accounts
referenced in the second sentence of Paragraph 81(f) of the Settlement
Agreement, and such amount shall be allocated to the Other Investments
Account of each Eligible Member as of the Plan's Valuation Date next
following the date such payment is received by the Trust in an amount
equal to:
(i) The portion of the dividend on Employer Stock paid to
shareholders of record as of January 6, 1992 (the "1992
dividend") and received by the Plan, which would have been
allocable to such Eligible Member's Participation Account based
on the proportion that such Eligible Member's balance in his
Participation Account as of January 2, 1992, bears to the total
balance of all Eligible Members' Participation Accounts as of
January 2, 1992, reduced by.
(ii) The portion of the 1992 dividend allocated to such
Eligible Member pursuant to Plan Section 6.5(c), if any.
In no event shall the amount allocated to an Eligible Member pursuant
to this sub-paragraph (e) be less than zero.
(f) Definitions.
"1042 Participant" refers to: (w) during the "nonallocation
period": (w1) any taxpayer who makes an election under Code
Section 1042(a) with respect to Company Stock (the "Section 1042
Seller"); and (w2) any individual who is related to the Section 1042
Seller (within
5
the meaning of Code Section 267(b)); and (x) any other person who owns
(after application of Code Section 318(a)) more than twenty-five
percent (25%) of: (x1) any class of outstanding stock of the Employer
which issued such Company Stock; or (x2) the total value of any class
of outstanding stock of the Employer. Clause (w2) above shall not
apply to lineal descendants of the Section 1042 Seller if the
aggregate amount allocated to such descendants during the
nonallocation period does not exceed more than five percent (5%) of
the Company Stock (or amounts allocated in lieu thereof) held by the
Trust which is attributable to a sale to the Trust by any person
related to such descendants (within the meaning of Code
Section 267(c)(4)) in a transaction to which Code Section 1042
applied. A person shall be treated as failing to meet the stock
ownership limitation under clause (x) above if such person fails such
limitation: (y1) at any time during the one (1) year period ending on
the date of sale of Company Stock to the Trust; or (y2) on the date as
of which Company Stock is allocated to Participants in the Plan.
"Allocation Compensation" refers to the Compensation (as such
term is defined in the Plan) of each Eligible Member used for
Plan purposes for each of the Plan Years 1988 through 1995
during which such Eligible Member was an Active Participant
(as such term is defined in the Plan).
"Eligible Member" refers to each member of the plaintiff class
as defined in the Settlement Agreement, to wit: (i) any person who
participates in or has participated in the Plan between the Effective
Date and July 31, 1995; (ii) any person who has been determined by the
plan administrator of the Plan to be an "alternate payee" under a
qualified domestic relations order within the meaning of Code Section
414(p) prior to July 31, 1995; and (iii) any person who is or has been
a beneficiary of a deceased Participant under the Plan prior to July
31, 1995. Notwithstanding the foregoing, an "Eligible Member" shall
not include any non-Vested Former Participant (as such term is defined
in the Plan) who terminated employment with the Employer prior to
January 1, 1990, and who has incurred at least five consecutive One
Year Breaks-in-Service (as such term is defined in the Plan), and
shall not include 1042 Participants. For purposes of this Agreement,
"Vested" shall mean that portion of a Participant's Participation
Account that is nonforfeitable.
"Nonallocation period" means the ten (10) year period
beginning on the date of sale of the Company Stock and ending on the
later of: (i) the date which is ten (10) years after the date of
sale; or (ii) the date of the Plan allocation attributable to the
final payment of acquisition indebtedness incurred in connection with
such sale.
6. The cash and the value of the stock transferred by the
Employer to the Trust pursuant to the Settlement Agreement (all of which
amounts of cash and stock shall be the "Settlement Amount") will be deductible
by the Employer in full under section 404(a) of the Code for the Employer's
taxable year during which the Settlement Amount is paid to the Trust, without
regard to whether any limitations of section 404(a) of the Code would otherwise
limit the amount of such deduction.
7. The transfer of the Settlement Amount to the Trust pursuant to
the Settlement Agreement and this Agreement will not constitute an annual
addition for purposes of section 415 of the Code.
8. The transfer of the Settlement Proceeds to the Trust pursuant
to the Settlement Agreement and this Agreement will not result in taxable
income to any Plan participants or their
6
beneficiaries until such amounts are received by participants and beneficiaries
from the Trust.
9. The transfer of the Settlement Amount to the Trust pursuant to
the Settlement Agreement and this Agreement will not result in the imposition
of any excise taxes under Section 4972(a) of the Code.
10. Each Special Allocation pursuant to the Settlement Agreement
shall be allocated among participants as of the Valuation Date next following
the receipt by the Trust of such Special Allocation, and the Employer may amend
the Plan to declare a special Valuation Date, but shall not be required to do
so by the Service. The transfer of the Settlement Proceeds to the Trust
pursuant to the Settlement Agreement and this Agreement, the method of
allocating the Settlement Proceeds among the accounts of the Plan participants
pursuant to the terms of the Settlement Agreement and this Agreement, and
distributions and diversifications made in accordance with the Plan following
allocation of each Special Allocation as of the Valuation Date next following
the receipt by the Trust of each Special Allocation will not adversely affect
the qualification of the Plan under sections 401(a) and 4975(e)(7) of the Code
or the tax-exempt status of its related Trust under section 501(a) of the Code.
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11. This Agreement constitutes a resolution under the Code solely
of the specific matters discussed herein. No inference shall be made as to the
application of the Code under any facts and circumstances outside this
Agreement. No inference shall be made with respect to whether this resolution
satisfies other Federal law, including Title I of ERISA.
12. This Agreement is final and conclusive except:
(a) the matters it relates to may be reopened in the
event of fraud, malfeasance, or misrepresentation of
material fact;
(b) it is subject to the sections of the Code that
expressly provide that effect be given to their
provisions (including any stated exception for
section 7122 of the Code) notwithstanding any other
law or rule of law; and
(c) if it relates to a tax period ending after the date
of this Agreement, it is subject to any law, enacted
after the Agreement date, that applies to that tax
period. By signing, the above parties certify that
they have read and agreed to the terms of this
document.
J. C. NICHOLS COMPANY
By: /s/ Barrett Brady
----------------------------------
Title: President
----------------------------------
Date Signed: 7-21-97
-------
COMMISSIONER OF INTERNAL REVENUE
By: /s/ Carol P. Gold
----------------------------------
Title: Acting Assistant Commissioner EPEO
----------------------------------
Date Signed: 8-1-97
------
8
Dates Referenced Herein
| Referenced-On Page |
|---|
| This ‘10-Q’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 8/19/97 | | | | | | | None on these Dates |
| Filed on: | | 8/14/97 |
| For Period End: | | 6/30/97 |
| | 10/31/95 | | 1 |
| | 10/12/95 | | 2 |
| | 10/4/95 | | 1 |
| | 9/26/95 | | 1 |
| | 7/31/95 | | 6 |
| | 6/30/95 | | 1 |
| | 12/31/92 | | 4 |
| | 1/6/92 | | 5 |
| | 1/2/92 | | 5 |
| List all Filings |
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