NONQUALIFIED DEFERRED COMPENSATION PROVISIONS OF THE AMERICAN JOBS CREATION ACT OF 2004 James R. Griffin Jackson Walker L.L.P Karen L. Pyatt Jackson Walker L.L.P

NONQUALIFIED DEFERRED COMPENSATION PROVISIONS OF THE AMERICAN JOBS CREATION ACT OF 2004 James R. Griffin Jackson Walker L.L.P Karen L. Pyatt Jackson Walker L.L.P

STRUCTURE OF NEW SECTION 409A Rules to Determine Whether and When Constructive Receipt is Applicable Rules with Specific Limitations for Deferred Compensation Plans

SWEEPING IMPACT Every Deferred Compensation Plan in the U.S. Formal and Informal Elective and Nonelective Single Employee and Groups of Employees Consultants and Independent Contractors Outside Directors

COVERAGE – ALL PLANS EXCEPT: Qualified Retirement Plans Vacation Leave Sick Leave Compensatory Time Disability Pay Death Benefit

AFFECTED PLANS SERPs Elective Deferred Compensation Individual Deferred Compensation Arrangements Bonus Deferral Plans Outside Director Plans Severance Agreements

AFFECTED PLANS Discounted Stock Options Restricted Stock Units Restricted Stock 401(k) “Wrap” Plans

SCOPE OF NEW SECTION 409A Elections Acceleration Distributions All Existing Constructive Receipt Rules Assignment of Income Economic Benefit

ELECTIONS Initial Changes Time Form

ELECTIONS – INITIAL Election Must Be Made Not Later Than Close of Preceding Tax Year 30 Days Following Initial Eligibility Performance – Based Compensation

ELECTIONS – PERFORMANCE BASED COMPENSATION 12 Month or More Service Period Election Must Be Made 6 Months Before End of Service Period 162(m) Rules

ELECTIONS – PERFORMANCE BASED COMPENSATION Period Not Shorter Than 12 Months Amount is Variable and Contingent Performance Criteria Established in Writing Within 90 Days After the Start of the Performance Period

DISTRIBUTION RULES Separation From Service Disability, as defined in the new law Death

DISTRIBUTION RULES Specific Time (Date, Not Event) Determined at Deferral Date Change In Control (to be defined by IRS) Unforeseeable Emergency

DISTRIBUTION RULES Public Company Key Employee Compensation Over $130,000 5% Owners 1% Owners with Compensation over $150,000 6 Month Extension to Separation From Service Rule

UNFORESEEABLE EMERGENCY Severe Financial Hardship Resulting From Injury or Accident Loss of Property Due To Casualty

UNFORESEEABLE EMERGENCY Other Extraordinary, Unforeseeable Circumstances Resulting From Events Beyond Participant’s Control Amount Limited To Satisfy Need and Pay Taxes Other Resources

DISTRIBUTIONS – CHANGES Time and Form of Distributions New Election May Not Be Effective For 12 Months 5 Years if Distribution is Due to: Separation From Service Specified Time Change In Control

DISTRIBUTIONS – CHANGES Time and Form of Distribution If Due To Specified Time, Election Must Be Made at Least 12 Months Before Payment Time

ACCELERATION OF DISTRIBUTIONS No Acceleration of Time or Schedule of Any Payment Except as Allowed by IRS No Haircuts

ACCELERATION, PERMISSIBLE CHOICES – SUBJECT TO REGULATIONS Lump Sum and Annuity Cash and Taxable Property Compliance With Divorce Decrees Tax Liens

ACCELERATION, PERMISSIBLE CHOICES – SUBJECT TO REGULATIONS Withholding of Employment Taxes Income Tax Distributions Due To Section 457(f) Vesting De Minimis Amounts

FUNDING RULES Offshore Rabbi Trusts Financial Difficulty Triggers

PENALTIES All Compensation For Current Year and All Prior Years is Included in Current Year Gross Income Interest at IRS Underpayment Rate Plus 1% 20% Additional Tax Participant Level; Not Plan Level

PROBLEMS Below Market Stock Options Bonuses Paid After 2 ½ Months Following Tax Year End SARs Phantom Stock

REPORTING Withholding Is Required For Income Taxes Due To New 409A Deferred Compensation Must Be Reported To IRS On W-2 or 1099 For the Year of Deferral

EFFECTIVE DATES Amounts Deferred After Earnings On Grandfathered Amounts Are Grandfathered Grandfather is Lost if Plan is Materially Modified After 10/3/04

EFFECTIVE DATES Material Modification is any Addition (Not Reduction) of any Benefit, Right or Feature

IRS GUIDANCE Days Application of Effective Date Rules Grace Period For Amendments to Existing Plans Rescission Rules For Employees

STRATEGIES Freeze Existing Plans Adopt New Plans For Future Deferrals Communicate With Affected Employees Obtain Consent Wait and See

PLAN AMENDMENTS Caution IRS Guidance 3 to 6 Month Grace Period IRS Model Amendment