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HBI » Topics » Deferral Accounts

This excerpt taken from the HBI 8-K filed Sep 5, 2006.

Deferral Accounts

4.1 Deferral Accounts. All amounts deferred pursuant to a Participant’s Deferral Elections under the Plan shall be allocated to the Participant’s Deferral Account and the Committee shall maintain a separate subaccount under a Participant’s Deferral Account for each Deferral. Deferrals shall be credited to the Deferral Account as of the Deferral Crediting Date coinciding with or next following the date on which, in the absence of a Deferral Election, the Participant would otherwise have received the Deferral.

4.2 Investment Alternatives. A Participant must make an investment election at the time of each Deferral Election. The investment election must be made pursuant to such rules as the Committee may prescribe, subject to Section 4.3, and shall designate the portion of the Deferral which is to be treated as invested in each investment alternative. Subject to the Committee’s right to change the investment alternatives in the future, the investment alternatives are as follows:

 

  (a) Stock Equivalent Account.

 

  (i) Under the Stock Equivalent Account, the value of the Participant’s Deferral shall be determined as if the Deferral were invested in common stock equivalents as of the Deferral Crediting Date. Subject to the special transition rules set forth in subparagraph (ii) below, until the Company ceases to be a member of Sara Lee Corporation’s controlled group of corporations (as defined in Section 414 of the Code and the regulations thereunder) (referred to herein as the “Spin-Off Date”), Sara Lee Corporation common stock equivalents shall be used, and after the Spin-Off Date, Company common stock equivalents shall be used.

  (ii) In connection with Sara Lee Corporation’s intent to distribute to its shareholders all of Sara Lee Corporation’s interest in the Company, each Participant deemed to be invested in the Stock Equivalent Account will automatically be deemed to have part of his or her Stock Equivalent Account based on Company common stock equivalents in the same ratio as all other shareholders of Sara Lee Corporation common shares. With respect to the remaining portion of the Participant’s interest in the Stock Equivalent Account that is determined based on Sara Lee Corporation common stock equivalents, each Participant invested in the Stock Equivalent Account shall be permitted to elect to have his or her interest in the Stock Equivalent Account: (A) determined as if such amounts were invested in Company common stock, or (B) transferred to the Interest Account. The Participant election described in the immediately preceding sentence shall be made at such times and in accordance with such rules as shall be established by the Committee; provided, however, that no such election shall be permitted after the end of the quarter containing the one-year anniversary of the Spin-Off Date. If a Participant with a balance in the Stock Equivalent Account that is determined based on Sara Lee Corporation common stock equivalents does not make such an election pursuant to this subparagraph, amounts in the Participant’s Stock Equivalent Account shall continue to be determined as if the amounts were invested in Sara Lee Corporation common stock; provided, however, that at the end of the quarter containing the one-year anniversary of the Spin-Off Date, any amounts which are still determined as if the amounts were invested in Sara Lee Corporation common

stock shall thereafter be transferred to the Interest Account. The foregoing transition rules only apply to Stock Equivalent Account amounts deemed invested in the Sara Lee Corporation common stock equivalents or prior to December 31, 2006; after that date, investments in the Stock Equivalent Account shall be determined as if the amounts were invested in Company common stock.

 

  (iii) The conversion of Sara Lee Corporation’s common stock equivalents to Company stock equivalents shall be determined by the Committee in its complete discretion based on the Market Value for Sara Lee Corporation and for Company common stock from time to time.

 

  (iv) The number of common stock equivalents to be credited to the Participant’s Deferral Account and appropriate subaccounts on each Deferral Crediting Date shall be determined by dividing the Deferral to be “invested” on that date by the Market Value of the Sara Lee Corporation or Company common stock, as applicable. Fractional stock equivalents will be computed to two decimal places.

 

  (v) An amount equal to the number of common stock equivalents multiplied by the dividend paid on applicable common stock on each dividend payment date shall be credited to the Participant’s Deferral Account and appropriate subaccount as of the Deferral Crediting Date coincident with or next following the dividend payment date and “invested” in additional common stock equivalents as though such dividend credits were a Deferral.

  (vi) In the event of any stock dividend, stock split, combination or exchange of securities, merger, consolidation, recapitalization, spin-off or other distribution (other than normal cash dividends) of any or all of the assets of Sara Lee Corporation or of the Company to stockholders, or any other similar change or event, such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change or event shall be made with respect to the number of common stock equivalents credited to a Participant’s Deferral Account.

 

  (vii) The number of shares of applicable common stock to be paid to a Participant on a Distribution Date shall be equal to the number of common stock equivalents accumulated in the Stock Equivalent Account on the Distribution Date divided by the total of the payments to be made. All payments from the Stock Equivalent Account shall be made in whole shares of common stock with fractional shares credited to federal income taxes withheld.

 

  (b) Interest Account. Under the Interest Account, interest will be credited to the Participant’s Deferral Account on a monthly basis and on the date the final payment of a Deferral is to be made based on the balance in the Participant’s Deferral Account deemed invested in the Interest Account on the Valuation Date or such final payment date. The rate of interest to be credited will be set based on a current external rate determined by the Committee from time to time; provided, however, that the rate of interest from the Effective Date through the end of the Company’s 2006 fiscal year shall be 4.775%. If installment payments are elected, the amount to be paid to the Participant on a Distribution Date shall be determined as follows: the amount of each installment shall be

determined by dividing the Participant’s Deferral Account balance by the number of remaining installment payments. All payments from the Interest Account shall be made in cash.

4.3 Investment Elections and Changes. A Participant’s investment elections shall be subject to the following rules:

 

  (a) Except as provided in subsection (b) below with respect to Incentive Payments that would have been paid in the form of common stock, if the Participant fails to make an investment election with respect to a Deferral, the Deferral shall be deemed to be invested in the Interest Account.

 

  (b) Any Deferral attributable to an Incentive Payment in the form of common stock, restricted or otherwise, shall automatically be deemed to be invested in the Stock Equivalent Account.

 

  (c) All investments in the Stock Equivalent Account shall be irrevocable.

 

  (d) A Participant may elect to transfer amounts invested in the Interest Account to the Stock Equivalent Account as of any Valuation Date by filing an investment change election with the Committee prior to the Valuation Date the change is to become effective. The amount elected to be transferred to the Stock Equivalent Account shall be treated as invested in common stock equivalents as of the Valuation Date and the number of common stock equivalents to be credited to the Participant’s Deferral Account and appropriate subaccounts as of the Valuation Date shall be determined by dividing the amount to be transferred by the Market Value of the applicable company stock on such Valuation Date.

  (e) Until invested as of the Deferral Crediting Date in either the Interest Account or Stock Equivalent Account, a Participant’s Deferral shall be credited with interest in such amount as the Committee may determine.

4.4 Vesting. A Participant shall be fully vested at all times in the balance of his Deferral Account.

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