UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
--------------------
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the quarterly period ended December 31, 2000
OR
- ----- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 000-28276
SAWTEK INC.
(Exact name of registrant as specified in its charter)
Florida 59-1864440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1818 South Highway 441
Apopka, Florida 32703
(Address of principal executive offices)
Telephone Number (407) 886-8860
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
----- -----
As of January 29, 2001, there were 42,610,430 shares of the Registrant's
Common stock outstanding, par value $.0005.
Sawtek Inc.
TABLE OF CONTENTS
Part I. Financial Information Page Number
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of December 31, 2000
and September 30, 2000 ................................. 3
Consolidated Statements of Income for the three months
ended December 31, 2000 and 1999 ....................... 4
Consolidated Statements of Cash Flows for the three
months ended December 31, 2000 and 1999 ................ 5
Notes to Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..........10
Item 3. Quantitative and Qualitative Disclosure of Market Risk..27
Part II. Other Information
Item 1. Legal Proceedings ................................... 28
Item 2. Changes in Securities ............................... 28
Item 3. Defaults Upon Senior Securities ..................... 28
Item 4. Submission of Matters to a Vote of Security Holders . 28
Item 5. Other Information ................................... 28
Item 6. Exhibits and Reports on Form 8-K .................... 28
Signatures............................................................. 29
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SAWTEK INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, September 30,
2000 2000
------------ -------------
(unaudited)
Assets
Current assets:
Cash, cash equivalents and short-term investments $ 164,541 $ 144,343
Accounts receivable, net 32,201 30,661
Inventories, net 17,052 18,588
Deferred income taxes 1,320 1,320
Other current assets 1,754 2,208
--------- ---------
Total current assets 216,868 197,120
Property, plant and equipment, net 62,902 62,368
--------- ---------
Total assets $ 279,770 $ 259,488
========= =========
Liabilities and shareholders' equity Current liabilities:
Accounts payable $ 3,289 $ 3,656
Accrued liabilities 3,818 6,003
Income taxes payable 3,950 -
--------- ---------
Total current liabilities 11,057 9,659
Deferred income taxes 6,924 6,393
Shareholders' equity:
Common stock; $.0005 par value; 120,000,000 authorized
shares; 42,668,194 issued shares; 42,610,430 and
42,632,776 outstanding shares at December 31, 2000 and
September 30, 2000, respectively 21 21
Capital surplus 77,588 78,531
Unearned ESOP compensation (586) (586)
Retained earnings 186,693 166,612
Less common stock held in treasury at cost; 57,764 shares
at December 31, 2000 and 35,418 at September 30, 1999 (1,927) (1,142)
--------- ---------
Total shareholders' equity 261,789 243,436
--------- ---------
Total liabilities and shareholders' equity $ 279,770 $ 259,488
========= =========
See accompanying notes to consolidated financial statements.
3
SAWTEK INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
December 31,
------------------
2000 1999
---- ----
(in thousands, except
per share data)
Net sales $ 47,750 $ 31,798
Cost of sales 19,448 13,494
-------- --------
Gross profit 28,302 18,304
Operating expenses:
Selling expenses 2,056 1,239
General & administrative expenses 1,636 1,237
Research & development expenses 2,175 1,678
-------- --------
Total operating expenses 5,867 4,154
-------- --------
Operating income 22,435 14,150
Other income, net 2,403 1,456
-------- --------
Income before taxes 24,838 15,606
Income taxes 4,757 5,423
-------- --------
Net income $ 20,081 $ 10,183
======== ========
Net income per share:
Basic $ 0.47 $ 0.24
Diluted $ 0.46 $ 0.23
Shares used in per share calculation:
Basic 42,602 42,325
Diluted 43,658 43,657
See accompanying notes to consolidated financial statements.
4
SAWTEK INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
-------------------
2000 1999
---- ----
(in thousands)
Operating activities:
Net income $ 20,081 $ 10,183
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,930 1,893
Deferred income taxes 532 2,127
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (1,540) (463)
Inventories 1,536 (889)
Other current assets 454 (191)
Increase (decrease) in liabilities:
Accounts payable (367) (774)
Accrued liabilities (2,185) (1,909)
Income taxes payable 4,291 2,942
-------- --------
Net cash provided by operating activities 25,732 12,919
Investing activities:
Purchase of property, plant and equipment, net (3,464) (9,157)
-------- --------
Net cash used in investing activities (3,464) (9,157)
Financing activities:
Principal payments on long-term debt - (117)
Issuance of common stock 577 343
Purchase of common stock for treasury (2,647) -
-------- --------
Net cash used in financing activities (2,070) 226
-------- --------
Increase in cash and cash equivalents 20,198 3,988
Cash and cash equivalents at beginning of period 69,536 50,640
Short-term investments 74,807 64,634
-------- --------
Cash, cash equivalents and short-term investments $164,541 $119,262
======== ========
Supplemental disclosures:
Interest paid $ - $ -
Income taxes paid $ - $ -
See accompanying notes to consolidated financial statements.
5
SAWTEK INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended December 31, 2000 and 1999
NOTE 1 BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited, consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information in response to the requirements
of Article 10 of Regulation S-X. Accordingly, they do not contain all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, the accompanying unaudited, consolidated financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of the Company's financial position
as of December 31, 2000, and the results of its operations and its cash flows
for the three-months ended December 31, 2000 and 1999. These financial
statements should be read in conjunction with our audited financial statements
as of September 30, 2000, including the notes thereto, and the other information
set forth therein included in our most recent annual report on Form 10-K for the
year ended September 30, 2000 (File No. 000-28276), which was filed with the
Securities and Exchange Commission, or SEC, on November 13, 2000. The following
discussion may contain forward looking statements which are subject to the risk
factors set forth in "Risks and Uncertainties" as stated in Item 2 of this Form
10-Q.
We maintain our records on a fiscal year ending on September 30 of each
year and all references to a year refer to the year ending on that date. Our
first, second and third quarters normally end on the Sunday closest to the last
day of the last month of such quarter, which was December 31, 2000, for the
first quarter of fiscal 2001.
Operating results for the three months ended December 31, 2000 are not
necessarily indicative of the operating results that may be expected for the
year ending September 30, 2001. Certain historical accounts have been restated
to conform to the current year presentation.
Certain references made in this Form 10-Q to "Sawtek", "we", "our", and
"us" refer to Sawtek Inc., a Florida corporation.
6
NOTE 2 EARNINGS PER SHARE
- ---------------------------
The following table sets forth the computation of basic and diluted
earnings per share in accordance with the Statement of Financial Accounting
Standard Number 128:
Three Months Ended
December 31,
---------------------
2000 1999
---- ----
(in thousands, except per share data)
Net income $ 20,081 $ 10,183
========= =========
Weighted-average common stock
outstanding for basic earnings per share 42,602 42,325
Dilutive effect of employee stock options 1,056 1,332
--------- ---------
Weighted-average common stock
outstanding for diluted earnings per share 43,658 43,657
========= =========
Earnings per share:
Basic $ 0.47 $ 0.24
========= =========
Diluted $ 0.46 $ 0.23
========= =========
Options to purchase approximately 2,125,000 and 2,138,000 shares of common
stock were outstanding during the three-month periods ended December 31, 2000
and 1999, respectively. During the three-month period ended December 31, 2000,
54,500 shares of common stock were excluded from the computation of diluted
earnings per share because the exercise price of the options was greater than
the average market price of the common shares and, therefore, the effect would
have been anti-dilutive. No common stock shares were excluded from the
computation of diluted earnings per share during the quarter ended December 31,
1999. The weighted-average common stock outstanding includes all ESOP shares
outstanding.
NOTE 3 INVENTORIES
- --------------------
Net inventories consist of the following:
December 31, 2000 September 30, 2000
----------------- ------------------
(in thousands)
Raw material $ 11,586 $ 11,750
Work in process 2,559 3,662
Finished goods 2,907 3,176
-------- --------
Total $ 17,052 $ 18,588
======== ========
7
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
Property, plant and equipment consist of the following:
December 31, 2000 September 30, 2000
----------------- ------------------
(in thousands)
Land and Improvements $ 830 $ 830
Buildings 20,993 16,541
Production and Test Equipment 67,339 62,680
Computer Equipment 4,223 4,036
Furniture and Fixtures 3,011 2,943
Construction in Progress 4,027 9,929
-------- --------
100,423 96,959
Less accumulated depreciation 37,521 34,591
-------- --------
Total $ 62,902 $ 62,368
======== ========
NOTE 5 SHAREHOLDERS' EQUITY
- -----------------------------
The consolidated changes in shareholders' equity for the three months ended
December 31, 2000 are as follows:
Unearned
Common Stock Treasury Stock Capital ESOP Retained
Shares Amount Shares Amount Surplus Compensation Earnings Total
------ ------ ------ ------ ------- ------------ -------- -----
(in thousands)
Balance at September 30, 2000 42,668 $21 35 $(1,142) $78,531 $(586) $166,612 $243,436
Net proceeds from exercise of
stock options (57) 1,862 (1,285) 577
Compensatory stock option tax
benefit 342 342
Purchase of treasury stock 80 (2,647) (2,647)
Net income for the three months
ended December 31, 2000 20,081 20,081
------ --- -- ------- ------- ----- -------- --------
Balance at December 31, 2000 42,668 $21 58 $(1,927) $77,588 $(586) $186,693 $261,789
====== === == ======= ======= ===== ======== ========
8
NOTE 6 RECENTLY ISSUED ACCOUNTING STANDARDS
- ---------------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, and its
amendments Statements 137 and 138, in June 1999 and June 2000, respectively. The
Statement requires the Company to recognize all derivatives on the balance sheet
at fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives are either offset against the
change in fair value of assets, liabilities, or firm commitments through
earnings, or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. The Company's principal
hedging activities relate to hedges of firm commitments. This type of hedging
generally relates to purchases of equipment or materials, denominated in foreign
currencies. The Company evaluates whether to hedge or not based on the currency,
time, amount and other factors. In this type of hedging, both the hedging
instrument and the change in the fair value of the firm commitment to the extent
of the hedge instrument are recognized on the balance sheet as part of the fair
value hedge relationship. The Company adopted FAS No. 133 on October 1, 2000. At
December 31, 2000, the Company had no hedges on firm commitments outstanding.
NOTE 7 RECLASSIFICATIONS
- --------------------------
Certain amounts in prior years have been reclassified to conform to current
year presentation.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our Consolidated Financial Statements and Notes thereto included elsewhere in
this Form 10-Q. Except for the historical information contained herein, the
discussion in this Form 10-Q contains certain forward looking statements such as
statements of our plans, objectives, expectations and intentions that involve
risks and uncertainties. The cautionary statements made herein should be read as
being applicable to all related forward looking statements wherever they appear.
Our actual results could differ materially from those discussed here. Factors
that could cause or contribute to such differences include those discussed in
"Risks and Uncertainties," as well as those discussed elsewhere herein.
Overview
- --------
Sawtek designs, develops, manufactures and markets a broad range of
electronic signal processing components based on surface acoustic wave, or SAW,
technology primarily for use in the wireless communications industry. Our
primary products are custom-designed, high performance bandpass filters,
resonators, oscillators and SAW-based subsystems. These products are used in a
variety of microwave and RF systems, such as CDMA, GSM and 3G digital wireless
communications systems, digital microwave radios, wireless local area networks,
cable television equipment, Internet infrastructure, various defense and
satellite systems, and sensors.
We have a wide range of customers, but a significant percentage of our
revenue is derived from a limited number of customers. Our top three customers
during the three months ended December 31, 2000 and 1999, accounted for
approximately 45% and 42%, respectively, of total net sales. It is not uncommon
for our top three customers to change from quarter to quarter. We have
experienced significant growth in international markets over the last five
years, with international sales accounting for approximately 69% of net sales
during the first three months of fiscal 2001.
10
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, information
derived from our statements of operations for those periods expressed as a
percentage of net sales, and the percentage change in such items from the
comparable prior year period. Any trends illustrated in the following table are
not necessarily indicative of our future results.
Percent Increase (Decrease)
Over the Prior Period
Three Months Ended Three Months Ended
December 31, December 31,
2000 1999 2000 vs. 1999
---- ---- -------------------------
Net sales 100.0% 100.0% 50.2%
Cost of sales 40.7 42.4 44.1%
----- -----
Gross profit 59.3 57.6 54.6%
Operating expenses:
Selling expenses 4.3 3.9 65.9%
General & administrative expenses 3.4 3.9 32.3%
Research & development expenses 4.6 5.3 29.6%
----- -----
Total operating expenses 12.3 13.1 41.2%
----- -----
Operating income 47.0 44.5 58.6%
Other income - net 5.0 4.6 65.0%
----- -----
Income before taxes 52.0 49.1 59.2%
Income taxes 9.9 17.1 (12.3%)
----- -----
Net income 42.1% 32.0% 97.2%
===== ====
Revenue by markets:
Communication:
Base stations 32.6% 33.4% 46.5%
Handsets 35.5 40.7 31.2%
Broadband access 7.0 3.1 231.8%
Data communications 7.6 6.1 88.0%
All other communications 1.6 1.7 36.2%
----- -----
Sub-total communication 84.3 85.0 48.8%
Military and space 4.8 4.4 64.2%
All other 10.9 10.6 55.2%
----- -----
Total 100.0% 100.0%
===== =====
11
Percent Increase (Decrease)
Over the Prior Period
Three Months Ended Three Months Ended
December 31, December 31,
2000 1999 2000 vs. 1999
---- ---- ---------------------------
Revenue by architecture:
GSM 27.0% 13.2% 206.2%
CDMA 38.7 53.3 9.0%
All other 34.3 33.5 53.9%
----- -----
Total 100.0% 100.0%
===== =====
Revenue by product line:
Handset
CDMA IF filters 19.2% 32.4% (11.0%)
RF and GSM IF filters 16.4 8.3 196.6%
----- -----
Sub-total Handset 35.6 40.7
Base Station
CDMA 20.0 21.0 43.0%
GSM 12.6 12.4 52.3%
----- -----
Sub-total Base Station 32.6 33.4
All other 31.8 25.9 84.6%
----- -----
Total 100.0% 100.0%
===== =====
Revenue by geographic region:
North America 41.5% 46.0% 34.9%
Europe 20.8 14.2 119.3%
Pacific Rim (excluding S. Korea) 18.6 2.9 874.0%
South Korea 14.7 32.2 (31.6%)
Other 4.4 4.7 36.6%
----- -----
Total 100.0% 100.0%
===== =====
Net Sales. Net sales increased 50.2% from $31.8 million in the quarter
ended December 31, 1999, to $47.8 million in the quarter ended December 31,
2000.
The increase in net sales is a result of a higher level of sales of
bandpass filters for global system for mobile communication, or GSM, base
stations and handsets, increased sales of bandpass filters for code division
multiple access, or CDMA, base stations and an increased level of sales for
filters for wireless local area networks, the broadband access market and other
standard products.
12
We currently believe that revenues for our second quarter ending March 31,
2001 will be similar to the prior year quarter ended March 31, 2000, but down
from the quarter ended December 31, 2000. Reasons for the sequential quarter
over quarter decline include a slowing economy resulting in a reduced demand for
cellular phones, inventory channel issues at a major customer relating to one of
our products, a slower adoption rate of 2.5G and 3G platforms and a more
competitive marketplace resulting in slightly lower average selling prices than
originally anticipated.
A significant percentage of our revenues continue to be generated from
international markets. Sales to international customers accounted for
approximately 69.2% and 58.6 % of total revenues during the quarters ended
December 31, 2000 and 1999, respectively. Sales to international customers
accounted for approximately 61.1% of total revenues for the fiscal year 2000. We
believe that financial turmoil or instability in international markets,
specifically, the Asian market, could reoccur and impact us in the future.
Revenues generated from Asian customers continue to vary significantly from
quarter to quarter and could decline substantially with little or no advance
notice. Revenues generated from Asian customers accounted for approximately
33.4% and 35.0% of total revenues during the quarters ended December 31, 2000
and 1999, respectively, and accounted for approximately 28.6% of total revenues
during the fiscal year 2000.
During the quarters ended December 31, 2000 and 1999, the percentage of our
Asian revenue generated from South Korea was approximately 44% and 92%,
respectively. The percentage of our Asian revenue generated from South Korea for
the fiscal year 2000 was 72%. The South Korean government recently reduced
subsidies for the purchase of cellular phones in the South Korean market. We
have recently seen delays in orders and some push out of orders to South Korean
customers as a result of this governmental action. At present, we are uncertain
what the near or mid-term impact of this action will be on our revenues from
these customers.
Our growth in revenue is highly dependent on the overall growth of the
wireless telecommunications market and on our ability to offer new and improved
products for this market. During the first quarter of fiscal 2000 we expanded
our product line of SAW filters for this market to include SAW RF filters for
handsets and intermediate frequency, or IF, filters for GSM handsets. There is
no assurance, however, that we will continue to be successful in introducing new
products for the wireless telecommunications market.
During fiscal 2000, we initiated an aggressive capital expenditure program
to address issues relating to manufacturing capacity constraints. This program
was substantially completed during the fourth quarter of fiscal 2000.
Additionally, in the past, we have experienced raw material shortages, which
could have resulted in a reduction of our revenues. We have taken an aggressive
position by increasing our raw material inventory to provide a higher level of
safety stock to mitigate the impact of potential shortages. However, there is no
assurance that shortages could not reoccur in the future. If this were to
happen, it could impact our ability to respond to customer requirements, which
could impact our ability to grow revenue.
Finally, we believe that prices for filters for CDMA base stations will
decline in the future due to the transition to smaller surface mount packages
which would reduce revenues and gross margins on these products. Sales of CDMA
base station filters accounted for approximately 19.6% and 20.9% of total
revenues during the quarters ended December 31, 2000 and 1999, respectively.
CDMA base station filter sales accounted for approximately 23.7% of total
revenues during fiscal year 2000.
13
Gross Margin. For the three months ended December 31, 2000 and 1999, gross
profit margins were 59.3% and 57.6%, respectively.
The gross margin increase was primarily due to higher than expected sales
of filters for base stations and yields on new products, improved productivity,
and lower costs, resulting from more product being produced in our facility in
Costa Rica. Our Costa Rican plant accounted for 60.3% and 52.2% of consolidated
sales during the three months ended December 31, 2000 and 1999, respectively.
We continue to believe that gross margins will decline in the future as we
shift more of our product mix to handset filters, which are lower priced, have
lower profit margins, and are subject to more competitive pricing pressure than
our other products. In addition, the prices of ceramic surface mount packages,
which have been in short supply, could increase in price, resulting in lower
gross margins.
During fiscal 2001, we plan to produce a significantly higher volume of RF
and GSM IF filters for wireless phones, both of which have lower average selling
prices and lower gross profit margins compared to our other products. As a
result, we believe that our gross profit margin percentage will decrease in 2001
compared to 2000.
Selling Expenses. Selling expenses increased 65.9% from approximately $1.2
million in the quarter ended December 31, 1999 to approximately $2.1 million in
the quarter ended December 31, 2000.
As a percentage of net sales, selling expenses increased from 3.9% during
the quarter ended December 31, 1999 to 4.3% in the quarter ended December 31,
2000. The increase in selling expenses as a percentage of revenues is primarily
related to higher expenses associated with sales to Asian customers, which
increased during the first quarter 2001 as compared to first quarter of 2000.
General and Administrative Expenses. General and administrative expenses
increased 32.4% from approximately $1.2 million in the quarter ended December
31, 1999 to approximately $1.6 million in the quarter ended December 31, 2000.
As a percentage of net sales, general and administrative expenses decreased
from 3.9% during the quarter ended December 31, 1999 to 3.4% in the quarter
ended December 31, 2000. The absolute dollar increase in general and
administrative expenses can be attributed to increased staffing and other
related items resulting from the capacity expansion currently under way.
Research and Development Expenses. Research and development expenses
increased 29.6% from approximately $1.7 million in the quarter ended December
31, 1999 to approximately $2.2 million in the quarter ended December 31, 2000.
As a percentage of net sales, research and development expenses decreased
from 5.3% during the quarter ended December 31, 1999 to 4.6% in the quarter
ended December 31, 2000. The increase in research and development expenses is
the result of a higher level of new product development.
14
Other Income. Other income increased 65.0% from approximately $1.5 million
in the quarter ended December 31, 1999 to approximately $2.4 million in the
quarter ended December 31, 2000. The increase is the result of higher interest
income being earned on increased levels of cash, cash equivalents and short-term
investments.
Income Tax Expense. The provision for income taxes as a percentage of
income before income taxes was 19.2% and 34.8% for the quarters ended December
31, 2000 and 1999, respectively.
This decrease was primarily due to adjusting our income taxes for our Costa
Rican subsidiary. In the fourth quarter of 2000, we completed a significant
expansion to our Costa Rican operation and adjusted the income taxes for this
subsidiary. The Costa Rican subsidiary operates in a free trade zone and is
currently exempt from taxes in Costa Rica. As a result, effective in the fourth
quarter of 2000, we no longer record income taxes for this subsidiary as it is
now considered to be a permanent investment. We believe that our effective tax
rate for 2001 will range from 19% to 24%. However, due to certain risks and
uncertainties detailed in the risk factor section of this Form 10-Q, no
assurances can be provided that our effective tax rate will not exceed this
range.
Net Income and Earnings per Share. While our net income and earnings per
shares are up significantly for the quarter ended December 31, 2000 compared to
the same quarter last year, we are currently projecting that our net income and
earnings per share for the quarter ending March 31, 2001 will decline from the
quarter ended December 31, 2000. We are projecting the decline in net income and
earnings per share due to the lower revenue and lower gross profit margins as
previously noted in this Form 10-Q.
Liquidity and Capital Resources
- -------------------------------
To date, we have financed our business through cash generated from
operations, bank borrowings, lease financing, the private sale of securities,
our May 1, 1996 initial public offering and the July 1, 1997 follow-on public
offering. We require capital principally for equipment, financing of accounts
receivable and inventory, investment in product development activities and new
technologies, expansion of our operations in Orlando and Costa Rica and
potential acquisitions of new technologies or compatible companies. For the
three months ended December 31, 2000, we generated net cash from operating
activities of approximately $25.7 million. Cash generated from operations
consisted primarily of net income of $20.1 million, $2.9 million of depreciation
and amortization, a decrease in inventory of approximately $1.5 million and an
increase of $4.8 million in deferred taxes and income taxes payable, partially
offset by decreases in accrued liabilities and accounts payable totaling $2.6
million and an increase in accounts receivable of approximately $1.5 million.
We have a revolving credit agreement totaling $30.0 million from SunTrust
Bank, Central Florida, N.A. available through March 31, 2001. There were no
borrowings against the line of credit as of December 31, 2000.
We spent approximately $3.5 million in the quarter ended December 31, 2000,
on new equipment and facilities. We intend to spend an additional $10 million to
$15 million during the remainder of fiscal year 2001 on capital equipment and
facilities to increase capacity. It is also our intention to order additional
equipment during the remainder of 2001, which will utilize next generation
manufacturing techniques.
15
In the fourth quarter of 1998, the Board of Directors authorized us to
repurchase up to 2,000,000 shares of common stock. To date, 1,263,452 shares
have been repurchased under this program. We expect to continue to repurchase
shares of common stock from time to time in the future. The repurchased shares
will be used to satisfy stock option exercises and issuance of shares under
other stock-related benefit programs.
We believe that our present cash position and funds expected to be
generated from operations will be sufficient to meet our projected working
capital and other cash requirements for 2001. Thereafter, we may require
additional equity or debt financing to address our working capital needs or to
provide funding for capital expenditures. There can be no assurance that events
in the future will not require us to seek additional capital sooner or, if so
required, that it will be available on acceptable terms, if at all.
Foreign Operations, Export Sales and Foreign Currency
- -----------------------------------------------------
We established a subsidiary in Costa Rica in 1996. As of December 31, 2000,
we had a net investment in fixed assets of approximately $31.5 million in this
operation and for the quarter ended December 31, 2000, we recorded net sales of
approximately $28.8 million with an operating profit of approximately $11.2
million. The functional currency for the Costa Rican subsidiary is the U.S.
dollar since sales and most material cost and equipment are U.S. dollar
denominated. The effects of currency fluctuations of the local Costa Rican
currency are not considered significant and are not hedged.
In 1996, we established a "foreign sales corporation" pursuant to the
applicable provisions of the Internal Revenue Code to take advantage of income
tax reductions on export sales. The cost to operate this subsidiary is nominal.
In 1999, we opened a sales and service office in Seoul, South Korea to
assist in our Asian sales efforts. The cost to operate this subsidiary is
minimal.
International sales are denominated in U.S. dollars and represented
approximately 69% and 59% of net sales for the three months ended December 31,
2000 and 1999, respectively. Sales to the European market accounted for
approximately 21% and 14% of net sales for these same periods, respectively, and
sales to the Asian and Pacific Rim markets, principally to South Korea were
approximately 33% and 35% of net sales, respectively, for these same periods.
Over the past several years, the value of many foreign currencies have
fluctuated relative to the U.S. dollar. The Korean won and Japanese yen, in
particular, have fluctuated in value due in part to the economic events
experienced by these countries over the past year. A stronger U.S. dollar makes
it more difficult for us to sell our products to customers in these countries
and makes it more difficult for us to compete against SAW producers based in
these countries. A weaker U.S. dollar may make it more expensive for us to buy
certain raw materials and equipment from Japanese suppliers.
The new common European currency, the euro, made its debut in January 1999.
During the first quarter ended December 31, 2000, approximately 21% of our sales
were to European customers. To date, none of our customers or suppliers has
requested us to transact business in the euro. At this time, the impact of this
new currency is not determinable.
16
Recently Issued Accounting Standards
- ------------------------------------
Please see Note 6 to the Consolidated Financial Statements included in this
report and Note 1 to the Consolidated Financial Statements included in our
report on Form 10-K for the year ended September 30, 2000, for a discussion of
new pronouncements.
Year 2000 Readiness Disclosure
- ------------------------------
We completed our plan to address Year 2000 (Y2K) computer issues in
calendar year 1999 and we did not experience any significant problems related to
computer hardware, software or other applications, nor do we expect to
experience any Y2K issues in the future.
Impact of Inflation
- -------------------
We believe that inflation has not had a material impact on operating costs
and earnings.
Risk Factors and Uncertainties
- ------------------------------
This Form 10-Q contains certain forward-looking statements, which are made
pursuant to the Safe Harbor provisions of the Private Securities Litigation Act
of 1995. Investors are cautioned that forward-looking statements such as
statements of the Company's plans, objectives, expectations and intentions
involve risks and uncertainties. The cautionary statements made in this report
should be read as being applicable to all related forward-looking statements
wherever they appear. Statements containing terms such as "believes," "does not
believe," "no reason to believe," "expects," "plans," "intends," "estimates" or
"anticipates" are considered to contain uncertainty and are forward-looking
statements. The Company's actual results could differ materially from those
discussed. Factors that could cause or contribute to such differences include
the following:
A decline either in the growth of wireless communications or in the continued
acceptance of CDMA technology would have an adverse impact on us.
During the first quarter of 2001, the percentage of total revenues
generated from the sale of SAW devices was 70% for applications in wireless
communications systems, specifically wireless phones and base stations.
Approximately 72%, 74% and 74% of our net sales for 2000, 1999 and 1998,
respectively, were derived from sales of SAW devices for applications in
wireless communications systems, specifically wireless phones and base stations.
The growth rate for the unit sales of wireless phones has been over 40% for the
past several years. Forecasts by both Nokia and Motorola, two leading
manufacturers of wireless phones, have placed the projected unit sales of
wireless phones for calendar year 2001 at somewhere between 525 million and 575
million phones, compared to approximately 405 million to 410 million phones for
calendar year 2000. Motorola recently stated that they believe the projection
for calendar year 2001 may be closer to 525 million phones, representing a
growth rate of approximately 30%. Any economic, technological or other
development resulting in a reduction in demand for wireless services and
products would have a material adverse effect on our business, financial
condition and results of operations.
17
Sales of our products for CDMA-based systems, including filters for base
stations and wireless phones, accounted for approximately 39% of our net sales
during the first quarter of fiscal 2001. During fiscal 2000 and 1999,
approximately 45% and 56%, respectively, of our net sales were generated from
sales for CDMA-based systems. CDMA technology is relatively new to the
marketplace and there can be no assurance that emerging markets will adopt this
technology. Our business and financial results would be adversely impacted if
CDMA technology does not continue to gain acceptance.
Because we depend on a few large customers, our operating results would be
adversely affected by the loss of any of these customers.
A few large customers have accounted for a significant portion of our net
sales. During the first quarter of fiscal 2001, sales to our top 5 and 10
customers accounted for approximately 57% and 79% or our total net sales,
respectively. Sales to our top 10 customers accounted for approximately 72%, 70%
and 76% of net sales in 2000, 1999 and 1998, respectively.
Motorola, our largest customer, accounted for approximately 31% of our
total net sales during the first quarter of fiscal 2001, and we believe it will
continue to account for a high percentage of net sales during the remainder of
fiscal 2001. Motorola accounted for 25% and 23% of net sales in 2000 and 1999,
respectively.
In a conference call with the investment community on January 11, 2001,
senior management from Motorola stated that they expect revenue and operating
income from their sales of wireless phones to decline in the quarter ending
March 31, 2001, and additionally, announced a projection for the global handset
market at approximately 525 million units, which is at the low end of most
analysts' projections. A decline in Motorola's handset revenues combined with a
reduction in the global forecast for handset sales in calendar year 2001, could
adversely affect our sales and revenue growth in the future.
We expect that sales of our products to a limited number of customers will
continue to account for a high percentage of our net sales in the foreseeable
future. Our future success depends largely upon the decisions of our current
customers to continue to purchase our products, as well as the decisions of
prospective customers to develop and market systems that incorporate our
products.
New competitive products and technologies have been announced which could reduce
demand for our products.
Our business is dependent upon the application of SAW-based technology.
Competing technologies, including digital filtering technology, direct
conversion or any other technology that could be developed, could replace or
reduce the use of SAW filters for certain applications. Direct conversion is a
process that converts an RF signal to baseband without the need for a SAW IF
filter. Qualcomm Inc. of San Diego, California, Analog Devices, Inc. of Norwood,
Massachusetts, Agilient Technologies, Inc. of Palo Alto, California and RF Micro
Devices of Greensboro, North Carolina, each produce integrated circuits for use
in wireless phones and have announced products or plans to produce products that
utilize direct conversion or other technologies that could reduce or eliminate
SAW filters in certain applications. Other companies, as well, may from time to
time, announce products, patents or other claims relating to direct conversion
or such other technologies that may reduce or eliminate certain SAW filters.
18
The product introduced by Analog Devices, Inc. may have some application in
certain GSM phones, which, if proven successful, could impact sales of our GSM
IF filters for wireless phones. Our sales of SAW filters for GSM wireless phones
accounted for approximately 14% of revenues for the quarter ended December 31,
2000 and approximately 8% of revenues for the year ended September 30, 2000. We
believe that revenues generated from handset filters for GSM phones could
account for up to 12% of our total revenues for all of fiscal 2001.
Qualcomm Inc., on December 18, 2000, announced a new product based on a
direct conversion concept that could eliminate a SAW IF filter in certain CDMA
phones. Qualcomm expects to sample this product in late calendar year 2001. Our
sales of IF filters for CDMA phones accounted for approximately 19% of revenues
for the quarter ended December 31, 2000 and approximately 22% of revenues for
the year ended September 30, 2000. We believe that revenues generated from IF
filters for CDMA phones could account for up to 20% of our total revenues for
all of fiscal 2001. If Qualcomm's product is successful in the market, it could
reduce or eliminate our revenues from IF filters for CDMA phones.
Agilent Technologies, Inc. recently announced an alternative solution to
SAW-based technology for potential use as a duplexer in certain PCS wireless
phone applications. To date, we have not sold any SAW-based duplexers, but we
have targeted this application for future revenue growth.
Lastly, RF Micro Devices, on January 22, 2001, announced a direct
conversion modulator for multi-mode wireless phones that could reduce the need
for certain transmit filters for GSM and potentially other architectures.
Production for this product is scheduled for the second half of calendar year
2001. Currently, most phone OEM's do not use SAW filters in the transmit path
for GSM phones and we do not derive any revenue from this application. At this
time we are unable to assess the impact, if any, of this announcement on our
future revenue and growth.
Any development of a cost-effective technology that replaces SAW filtering
technology or reduces the need for SAW filtering technology could have a
material adverse effect on our business, financial condition and results of
operations.
If we are unable to successfully develop and bring new products to market, our
operating results will be adversely affected.
During fiscal 2000, we announced our intent to offer an expanded line of
SAW filters for the wireless phone market, including RF and GSM IF filters.
Expanding our product line and sales of these filters is an important part of
our growth strategy. There is no assurance that we will be successful in our
efforts to introduce these and other new filters for the wireless
telecommunications market.
Sustained growth of our business is dependent on our ability to develop new
or improved SAW devices in a timely fashion. Our product development resources
are limited, requiring us to allocate resources among a limited number of
product development projects. Failure by us to properly allocate our product
development resources to products that meet market needs could have a material
adverse effect on our future growth. The success of new products also depends on
timely completion of new product designs, quality of new products and market
acceptance of these products.
19
If we are unable to successfully increase our production capacity, we will not
be able to grow our revenue as planned.
During the first quarter of fiscal 2001, we spent approximately $3.5
million on capital expenditures to increase our manufacturing capacity. We have
not completed our capacity expansion plans and intend to spend an additional $10
million to $15 million during the remainder of fiscal year 2001 on new
equipment. During fiscal 2000 we incurred approximately $27 million in capital
expenditures to increase our manufacturing output to enable us to grow our
revenue. Expansion plans for fiscal year 2001 include new wafer fabrication
capacity and capability in Orlando and new assembly capacity in Orlando and
Costa Rica. Any delay in increasing our capacity will have a material adverse
impact on our ability to meet the anticipated demand for our new products and on
our ability to grow revenue.
Because we rely on a limited number of suppliers, our operating results would be
adversely affected if a few suppliers were unable to meet our needs.
We have a limited number of suppliers for certain critical raw materials,
components, services and equipment. There are only a few ceramic package
manufacturers and wafer producers worldwide who have the expertise and capacity
necessary to satisfy our requirements. Most of these suppliers are based in
Japan. At times in the past, we have experienced difficulty in obtaining ceramic
surface mount packages used in the production of bandpass filters. A failure by
us to anticipate demand for materials, or of our suppliers to provide sufficient
quantities of material, could result in raw material shortages. There can be no
assurance that we will be able to secure adequate supplies of materials,
components, services or equipment. If we were unable to satisfy our requirements
for raw materials or to obtain and maintain appropriate equipment, our business,
financial condition and results of operations would be materially adversely
affected.
Risks associated with international sales could adversely affect our operating
results.
During the first quarter of fiscal 2001, net sales to our international
customers accounted for approximately 69% of total net sales. Our net sales to
international customers accounted for approximately 61%, 41% and 37% of total
net sales for 2000, 1999 and 1998, respectively. The sale of products in foreign
countries involves a number of risks that can arise from international trade
transactions, local business practices and cultural considerations, including:
o currency exchange rate fluctuations and restrictions;
o import-export regulations;
o customs requirements;
o ability to secure credit and funding;
o longer payment cycles;
o foreign collection problems;
o political and transportation risks; and
o economic turmoil.
20
Some of our major customers are relying on growth in international markets,
including Asia and Latin America, for sales of their products. The demand for
our products will be reduced if the economies in these regions decline or do not
meet anticipated growth expectations.
We have grown our net sales over the past several years partly from
shipments to South Korean customers. During the first quarter of fiscal 2001,
net sales to our South Korean customers accounted for approximately 15% of total
net sales. For fiscal 2000, our net sales to South Korean customers was
approximately $32.9 million or 20.6% of total net sales, and in 1999 it was
approximately $16.8 million, or 16.8% of net sales. However, net sales to South
Korean customers fluctuates greatly as experienced in the last quarter of 1998
when those net sales declined to $1.1 million, or approximately 5% of total net
sales, compared to $4.8 million, or approximately 18% of total net sales, in the
immediately preceding quarter. The South Korean economy and the economies of
many other countries in Asia and around the world have experienced economic
turmoil and recession during the past 24 months and may continue to face
economic problems which would adversely impact our sales in these regions. In
addition, the South Korean government recently reduced subsidies for the
purchase of wireless phones in the South Korean market, which could adversely
impact future sales of our products into this market.
Our manufacturing facilities are located in areas prone to natural disasters.
We have manufacturing and production facilities located in Orlando, Florida
and in San Jose, Costa Rica. Hurricanes, tropical storms, flooding, tornadoes,
and other natural disasters are common events for the southeastern part of the
United States and in Central America. Additionally, our Costa Rican facility
could also be affected by mud slides, earthquakes and volcanic eruptions. Any
disruptions from these or other events would have a material adverse impact on
our operations and financial results.
Though we have manufacturing and assembly capabilities in both Orlando and
San Jose, we are only capable of fabricating wafers in our Orlando facility. As
a result, any disruption to our Orlando facility would have a material adverse
impact on our operations and financial results.
A disruption in our Costa Rican operations would have an adverse impact on our
operating results.
As discussed in a previous risk factor, we have a production facility
located in Costa Rica, which is prone to natural disasters. In addition to the
potential risk of a natural disaster occurring, operating a facility in Costa
Rica presents additional risks of disruption such as government intervention,
currency fluctuations, labor disputes, limited supplies of labor, power
interruption and war. Any such disruptions could have a material adverse effect
on our business, results of operations and financial condition.
During the first quarter of fiscal 2001, net sales from our Costa Rican
operation accounted for approximately 60.3% of total net sales and 50.0% of our
operating income. During fiscal years 2000 and 1999, net sales from our Costa
Rican operation accounted for approximately 51% and 47% of our total net sales,
respectively, and approximately 37% and 40% of our operating income,
respectively. We expect our Costa Rican operations to continue to account for a
significant proportion of our overall operations in the future.
21
A change in our favorable tax status in Costa Rica would have an adverse impact
on our operating results.
Our subsidiary in Costa Rica operates in a free trade zone and will receive
a 100% exemption from Costa Rican income taxes through 2003 and a 50% exemption
through 2007. During the first quarter of fiscal 2001, this tax exemption
provided tax saving of approximately $4.1 million. During fiscal 2000, this tax
exemption provided tax savings of approximately $10.0 million, excluding the
one-time gain of $16.7 million related to prior year's deferred income taxes,
and increased our diluted earnings per share by approximately $0.23.
The Costa Rican government is reviewing its policy on granting tax
exemptions to certain companies. To date, no changes have been made and it is
uncertain if any changes will be made to the current tax structure. Any adverse
change in the tax structure for our Costa Rican subsidiary made by the local
government would have a negative impact on our net income.
A continued decline in selling prices for some of our key products could have an
adverse impact on our operating results.
Selling prices for our products have declined due to competitive pricing
pressures and to the use of newer surface mount package devices that are smaller
and less expensive than previous generation filters. We have experienced
declines in prices for filters for GSM base stations due to the use of surface
mount packages, and this has also begun to occur in filters for CDMA base
stations. In addition, we expect prices for wireless phone filters to continue
to decline as they become smaller and as competitive pricing pressure increases.
A continued decline in prices could have a material adverse impact on both our
revenues and margins.
If we experience a decline in our manufacturing yields, our operating results
will be adversely affected.
The manufacture of SAW devices involves complex processes that may result
in reduced yields from time to time, the causes of which are often difficult to
determine. A reduction in yields at any stage of the manufacturing process would
have a material adverse effect on our ability to meet our quoted delivery times
and on our cost of production, which would have an adverse impact on our
operations and profitability.
If one or more customers cancel or terminate purchase orders or delay deliveries
with short notice, our operating results would be adversely affected.
Our customers' orders are typically subject to cancellation or modification
with very short notice. In addition, purchase orders for our products may be
large and intended to satisfy customers' long-term needs. Accordingly, our
backlog is not necessarily indicative of future product sales, and a delay or
cancellation of a small number of purchase orders may adversely impact our
operations. In addition, our expense levels are based, in part, on our
expectations of future product sales and therefore are relatively fixed in the
short term. If we were unable to reduce our expense levels correspondingly with
a reduction in sales levels, our results of operations would be further harmed.
22
We expect competition to increase, which could result in lower selling prices
and have an adverse effect on our operating results.
Competition in the markets for our products is intense. We compete against
large international companies that have substantially greater financial,
technical, sales, marketing, distribution and other resources than us. In
addition, we may face competition from companies that currently manufacture SAW
devices for their own internal requirements, as well as from a number of our
customers that have the potential to develop an internal supply capability for
SAW devices. We expect competition to increase from both established and
emerging competitors, as well as from internal capabilities developed by certain
customers. Our ability to compete effectively in our target markets depends on a
variety of factors both within and outside of our control, including timing and
success of new product introductions, availability of manufacturing capacity,
the rate at which customers incorporate our components into their products, our
ability to respond to competitive pricing pressures, availability of technical
personnel, sufficient supplies of raw materials, the quality, reliability and
price of products and general economic conditions. There can be no assurance
that we will be able to compete successfully in the future.
If we are not able to protect our intellectual property or if we infringe on the
intellectual property of others, our business and operating results could be
adversely affected.
We rely on a combination of patents, copyrights and trade secrets to
establish and protect our intellectual property rights. There can be no
assurance that patents will issue from any of our pending applications or that
any claims allowed from existing or pending patents will be sufficiently broad
to protect our technology. In addition, there can be no assurance that any
patents issued to us will not be challenged, invalidated or circumvented, or
that the rights granted will provide proprietary protection. Litigation may be
necessary to enforce our patents, trade secrets and other intellectual property
rights, to determine the validity and scope of the proprietary rights of others
or to defend against claims of infringement. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on our business, results of operations and financial condition regardless
of the final outcome of the litigation. We are not currently engaged in any
patent infringement suits, nor have we been threatened with any such suits. In
January 2000, we received a letter from a large Canadian telephone equipment
manufacturer claiming that it believes we are infringing on a patent it owns
that issued in 1987 and offering a license on preferred terms. It is our
position that this patent is unenforceable because we sold devices commercially
utilizing the invention claimed in the patent at least two years before the
application for this patent was filed and because the patent owner did not
attempt to exercise its rights to enforce this patent for over 12 years. If we
are incorrect in our position in this matter and this patent is found to be
enforceable, we could be required to pay a license fee or to pay damages related
to sales of devices utilizing this invention sold over the past seven years and
we could be enjoined from further infringement, either of which could have a
material adverse effect on our operating results. Despite our efforts to
maintain and safeguard our proprietary rights, there can be no assurances that
we will be successful in doing so or that our competitors will not independently
develop or patent technologies that are substantially equivalent to or superior
to our technologies. If any of the holders of these patents assert claims that
we are infringing such patents, we could be forced to incur substantial
litigation expenses. In addition, if we were found to infringe, we would be
required to pay substantial damages, pay royalties in the future or be enjoined
from infringing on such patents in the future.
23
A failure to attract and retain qualified individuals for critical positions
could have an adverse impact on our business, financial condition and results of
operations.
Our success depends, in part, on the performance of a number of key
management and technical personnel. The loss of a key employee could have a
material adverse effect on our business. Our success also depends, in part, on
our ability to attract and retain qualified professional, technical, production,
managerial and marketing personnel, both domestically and internationally.
Competition for such personnel in our industry is very intense. While we have
not yet experienced significant problems in recruiting or retaining qualified
personnel, we cannot be certain that such problems will not arise in the future.
Our operating results could be adversely affected by fluctuations in the value
of foreign currencies.
Our international sales are generally denominated in U.S. dollars. However,
we may be required in the future to denominate sales in the foreign currencies
of certain countries or in the euro for some of our European customers. As a
result, fluctuations in currency exchange rates may have a significant effect on
our sales, even in the absence of an increase or decrease in unit sales to
foreign customers. A strong U.S. dollar could make our products more expensive
for foreign customers, which could have a material adverse effect on our ability
to compete internationally. We also purchase most of our key raw materials and
equipment from foreign countries, primarily Japan. A weak U.S. dollar could make
our purchases more expensive.
Over the past two years, the valuations of many foreign currencies have
fluctuated significantly relative to the U.S. dollar. The Korean won and
Japanese yen, in particular, have fluctuated in value due in part to the
economic problems experienced by these countries.
To date, we have engaged in limited hedging transactions for our foreign
exchange risks. If any of our future international sales or purchases are
denominated in foreign currencies, we may find it necessary to engage in
substantial rate hedging activities with respect to exchange rate risks. There
can be no assurance that such exchange rate hedging will successfully protect us
against such exchange rate risk.
We could be subject to fines, suspension of production or cessation of
operations if we fail to comply with the many laws and government regulations
applicable to our business.
We are subject to a variety of federal, state and local laws, rules and
regulations relating to the discharge and disposal of toxic, volatile and other
hazardous chemicals used in our manufacturing processes and to export controls.
A failure by us to comply with present or future regulations could result in the
imposition of fines, suspension of production or a cessation of operations. Such
regulations could require us to acquire significant equipment or to incur
substantial expense in order to comply with such regulations. Any past or future
failure to control the use of or the discharge of toxic or hazardous substances
or to comply with export regulations could subject us to future liabilities and
could have a material adverse effect on our business, results of operations and
financial condition.
24
A number of factors affecting our customers may result in the cancellation of
orders or delays in deliveries of our products to these customers.
The increasing demand for wireless communications has exerted pressure on
regulatory bodies worldwide to adopt new standards for wireless communications
products and services. The delays inherent in this governmental approval process
have in the past, and may in the future, cause the cancellation, postponement or
rescheduling of the installation of communications systems by our customers. Any
such delays may have a material adverse effect on the sale of our products to
these customers. In addition, our customers may have difficulty in obtaining
parts from other suppliers, such as flash memory for wireless phones, causing
these customers to cancel or delay orders for our products.
Our stock price has been volatile.
There has been significant volatility in the market price of our common
stock, as well as in the market price of securities of technology-based
companies and the U.S. stock markets overall. Some of the factors that could
affect our stock price include:
o variations in our operating results or the operating results of our
customers or competitors, or other technology companies;
o announcements of new products by us or by our competitors;
o gain or loss of significant contracts;
o announcements of technological innovations;
o acquisitions by us or our competitors;
o changes in analysts' estimates of our financial performance;
o government regulatory action;
o developments or disputes regarding proprietary rights;
o general trends in the industry; and
o general economic or stock market conditions.
Additionally, in the past, securities class action litigation often has
been brought against companies following periods of volatility in the market
price of their securities. We may be the target of similar litigation in the
future. Securities litigation could result in substantial costs and damages and
divert management's attention and resources.
25
The increased use of consignment inventories makes it more difficult for us to
accurately forecast our quarterly revenues.
We have experienced an increase in the dollar value of our products sold
through consignment inventory or hub agreements. Under these agreements, we ship
finished goods to warehouse sites located near our customers' facilities and the
customer then withdraws this inventory at their discretion. We do not recognize
revenue until our customers withdraw the inventory for their use. As a result of
not knowing the exact usage of inventory at these sites until late each quarter,
our estimates of quarterly revenues may fluctuate from our projections. At
December 31, 2000, we had approximately $150,000 in consignment inventory at
offsite locations and approximately 7.2% of our total revenue during the first
quarter of fiscal 2001 was generated through these types of agreements.
Approximately 10% of our total revenue came from these agreements in fiscal
2000. We expect these amounts to continue to increase during the remainder of
fiscal 2001.
Certain considerations could make it more difficult for others to acquire us.
Certain anti-takeover provisions of the Florida Business Corporation Act
could have the effect of making it more difficult for a third party to acquire
us or of discouraging a third party from attempting to acquire us. These
anti-takeover measures could result in a lower value to be received by our
shareholders if our Board of Directors did not approve an acquisition. Such
provisions could limit or depress the price that certain investors might be
willing to pay in the future for shares of our stock. We are also authorized to
issue preferred stock, with rights senior to our common stock, without the
necessity of shareholder approval. We have no present plans to issue shares of
preferred stock. However, issuance of preferred stock could have the effect of
making it more difficult for a third party to acquire a majority of our
outstanding voting stock.
In addition, the Sawtek Employee Stock Ownership and 401(k) Plan, or the
ESOP, owns approximately 21% of our outstanding common stock. The ESOP trustee
has the right to vote all of these shares. The ESOP trustee generally votes the
shares allocated to participants' accounts in accordance with their voting
directions and votes in its sole discretion with respect to the unallocated
shares. If the ESOP trustee were to vote against or oppose a proposed
acquisition of us, a potential acquirer might be discouraged from acquiring us
even though the holders of a majority of the shares of our common stock were in
favor of the acquisition.
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to minimal market and interest rate risks. We manage the
sensitivity of our results of operations to these risks by maintaining a
conservative investment portfolio, which is comprised solely of highly rated,
short-term investments. We do not hold or issue derivative securities,
derivative commodity instruments or other financial instruments for trading
purposes. We are exposed to currency exchange fluctuations since we sell our
products internationally and we purchase raw materials and equipment from
foreign suppliers. We are also exposed to currency fluctuations associated with
our Costa Rican operations. We manage exchange rate sensitivity of our
international sales, purchases of raw materials and equipment and our Costa
Rican operations by denominating most transactions in U.S. dollars. We do engage
in limited foreign currency hedging transactions, principally to lock in the
cost of purchase commitments that are not denominated in U.S. dollars. At
December 31, 2000, we had no open commitments to purchase foreign currency.
We do not have any outstanding debt, therefore, we are not exposed to
interest rate risk on debt and we do not plan to use debt-based financing to
fund capital expenditures over the next 12 months.
27
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not subject to any legal proceedings that, if adversely
determined, would cause a material adverse effect on the Company's
financial condition, business or results of operations.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS IN SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Index to Exhibits
Exhibit
Number
-------
10.4 Sawtek Inc. Employee Stock Ownership and 401(k) Plan and Trust
Agreement between the Company and HSBC updated for all amendments
through November 3, 2000.
27 Financial Data Schedule (filed electronically only with the SEC)
b) Reports on Form 8-K
On November 14, 2000, we filed with the Commission a Current
Report on Form 8-K regarding the press release issued by us dated
November 14, 2000, announcing the appointment of Kimon
Anemogiannis as President and Chief Executive Officer.
28
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: January 29, 2001
SAWTEK INC.
(Registrant)
/S/ Raymond A. Link
Raymond A. Link
Senior Vice President Finance,
Chief Financial Officer
(Principal Financial and Accounting Officer)
29
Exhibit 10.4
SAWTEK INC.
EMPLOYEE STOCK OWNERSHIP AND 401(K) PLAN
PREPARED BY:
HOLLAND & KNIGHT LLP
200 South Orange Avenue
Suite 2600
Orlando, Florida 32801
[UPDATED FOR ALL AMENDMENTS THROUGH NOVEMBER 3, 2000]
TABLE OF CONTENTS
Page
----
BACKGROUND INFORMATION............................................................................. 1
ARTICLE I DEFINITIONS.............................................................................. 1
ARTICLE II ELIGIBILITY.............................................................................16
2.1 CONDITIONS OF ELIGIBILITY..........................................................16
2.2 EFFECTIVE DATE OF PARTICIPATION....................................................16
2.3 TERMINATION OF ELIGIBILITY.........................................................16
2.4 OMISSION OF ELIGIBLE EMPLOYEE......................................................17
2.5 INCLUSION OF INELIGIBLE EMPLOYEE...................................................17
ARTICLE III CONTRIBUTION AND ALLOCATION............................................................17
3.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION....................................17
3.2 PARTICIPANT'S SALARY REDUCTION ELECTION............................................20
3.3 TIME OF PAYMENT OF CONTRIBUTIONS...................................................23
3.4 ACCOUNTING AND ALLOCATION..........................................................24
3.5 AVERAGE DEFERRAL PERCENTAGE TESTS..................................................29
3.6 ADJUSTMENT TO AVERAGE DEFERRAL PERCENTAGE TESTS....................................31
3.7 AVERAGE CONTRIBUTION PERCENTAGE TESTS..............................................33
3.8 ADJUSTMENT TO AVERAGE CONTRIBUTION PERCENTAGE TESTS................................36
3.9 MAXIMUM ANNUAL ADDITIONS...........................................................37
3.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS..........................................39
3.11 TRANSFERS FROM QUALIFIED PLANS.....................................................40
3.12 PARTICIPANT'S QUALIFIED DIRECTED INVESTMENT ACCOUNT................................41
3.13 DIRECTED INVESTMENT ACCOUNT........................................................42
3.14 VOTING COMPANY STOCK...............................................................43
3.15 UNIFORMED SERVICES EMPLOYMENT AND RE-EMPLOY-MENT RIGHTS ACT........................43
ARTICLE IV VALUATIONS..............................................................................43
4.1 VALUATION OF THE TRUST FUND........................................................43
ARTICLE V FUNDING AND INVESTMENT POLICY............................................................44
5.1 INVESTMENT POLICY..................................................................44
5.2 EMPLOYER SECURITIES................................................................45
5.3 APPLICATION OF CASH................................................................45
5.4 TRANSACTIONS INVOLVING COMPANY STOCK...............................................45
5.5 LOANS TO THE TRUST.................................................................46
ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS..............................................47
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT..........................................47
6.2 DETERMINATION OF BENEFITS UPON DEATH...............................................48
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY...................................49
i
6.4 DETERMINATION OF BENEFITS UPON TERMINATION.........................................49
6.5 DETERMINATION OF BENEFITS AT AGE 59 1/2............................................52
6.6 DISTRIBUTION OF BENEFITS...........................................................52
6.7 DISTRIBUTION OF BENEFITS UPON DEATH................................................58
6.8 HOW ESOP BENEFITS WILL BE DISTRIBUTED..............................................59
6.9 IN SERVICE DISTRIBUTION............................................................60
6.10 TIME OF SEGREGATION OR DISTRIBUTION................................................60
6.11 DISTRIBUTION FOR MINOR BENEFICIARY.................................................61
6.12 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN.....................................61
6.13 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS..........................................61
6.14 DISTRIBUTION OF DEFERRAL ACCOUNT UPON HARDSHIP.....................................62
6.15 DIRECT ROLLOVERS...................................................................63
6.16 LOANS TO PARTICIPANTS..............................................................63
6.17 PUT OPTION.........................................................................66
6.18 NONTERMINABLE PROTECTIONS AND RIGHTS...............................................68
ARTICLE VII TOP HEAVY RULES........................................................................68
7.1 DEFINITIONS........................................................................68
7.2 TOP HEAVY PLAN REQUIREMENTS........................................................70
7.3 DETERMINATION OF TOP HEAVY STATUS..................................................71
7.4 REQUIRED MINIMUM ALLOCATIONS.......................................................72
7.5 TOP HEAVY VESTING SCHEDULE.........................................................72
ARTICLE VIII ADMINISTRATION........................................................................73
8.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER........................................73
8.2 ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE AUTHORITY.............................74
8.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES......................................74
8.4 POWERS, DUTIES AND RESPONSIBILITIES................................................74
8.5 RECORDS AND REPORTS................................................................76
8.6 ANNUAL REPORT......................................................................76
8.7 APPOINTMENT OF ADVISERS............................................................76
8.8 INFORMATION FROM EMPLOYER..........................................................76
8.9 PAYMENT OF EXPENSES................................................................77
8.10 MAJORITY ACTIONS...................................................................77
8.11 CLAIMS PROCEDURE...................................................................77
8.12 CLAIMS REVIEW PROCEDURE............................................................77
ARTICLE IX AMENDMENT, TERMINATION, AND MERGERS.....................................................78
9.1 AMENDMENT..........................................................................78
9.2 TERMINATION........................................................................79
9.3 MERGER OR CONSOLIDATION............................................................79
ARTICLE X MISCELLANEOUS............................................................................79
10.1 PARTICIPANT'S RIGHTS...............................................................79
10.2 ALIENATION.........................................................................80
10.3 CONSTRUCTION OF AGREEMENT..........................................................80
ii
10.4 GENDER AND NUMBER..................................................................80
10.5 LEGAL ACTION.......................................................................81
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS OR FORFEITURE FOR CAUSE.....................81
10.7 BONDING............................................................................81
10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE.........................................82
10.9 RECEIPT AND RELEASE FOR PAYMENTS...................................................82
10.10 ACTION BY THE EMPLOYER.............................................................82
10.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY.................................82
10.12 HEADINGS...........................................................................83
10.13 UNIFORMITY.........................................................................83
iii
SAWTEK INC.
EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN
This Plan document represents a restatement of the Employee Stock Ownership
and 401(k) Plan of Sawtek Inc., a Florida corporation (the "Employer"), and
includes all amendments made to the Plan through November 3, 2000.
BACKGROUND INFORMATION
A. Effective October 1, 1980, the Employer adopted the predecessor of the
Sawtek Inc. Code ss. 401(k) Profit Sharing Plan and Trust Agreement (the "401(k)
Plan").
B. The 401(k) Plan was amended and restated effective October 1, 1987, and
February 15, 1996, and also was amended from time to time in the interim. The
pre-tax salary deferral feature was added effective October 1, 1991.
C. Effective October 1, 1990, the Employer adopted the Employee Stock
Ownership Plan and Trust Agreement for Employees of Sawtek Inc. (the "ESOP") in
order to enable the Eligible Employees of the Employer to acquire a proprietary
interest in the common stock of the Employer.
D. The ESOP was amended on three occasions since its original effective
date, and then was amended and restated effective February 15, 1996.
E. On July 16, 1997, the 401(k) Plan was merged into the ESOP, creating
this Plan. At that time, an Employer matching provision was added. The Plan was
further amended in response to the favorable determination letter issued by the
IRS to the Plan on January 27, 1999, and then again on August 31, 1999, July 25,
2000 and November 3, 2000.
F. Amounts contributed under the Plan will be held and invested, and then
distributed, by the Trustee. The Trustee shall act in accordance with the terms
of a separate Trust Agreement between the Employer and the Trustee, which Trust
Agreement shall be known as the Sawtek Inc. Employee Stock Ownership and 401(k)
Trust (the "Trust"). The Trust implements and forms a part of the Plan. The
provisions of, and the benefits under, the Plan are subject to the terms and
provisions of the Trust.
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as
amended.
1
1.2 "Actual Contribution Percentage" means, with respect to a Participant,
the percentage obtained (calculated to the nearest one hundredth of one percent)
by dividing the Matching Contribution allocated to such Participant for the Plan
Year by his or her Compensation for the same Plan Year. For purposes of this
computation, a Participant's Compensation shall include only such items as are
paid after the Participant's Plan entry date specified in Section 2.2. 1.3
"Actual Deferral Percentage" means, with respect to a Participant, the
percentage obtained (calculated to the nearest one hundredth of one percent) by
dividing the Participant's Deferred Compensation for the Plan Year by his or her
Compensation for the same Plan Year. Deferred Compensation allocated to the
Participant's Deferral Account of each Non-Highly Compensated Participant shall
be reduced by Excess Deferred Compensation to the extent such excess amounts are
made under the Plan or any other plan maintained by the Employer. For purposes
of this computation, a Participant's Compensation shall include only such items
as are paid after the Participant's Plan entry date specified in Section 2.2.
1.4 "Administrator" means the Employer, unless a person or committee of persons
is designated by the Employer pursuant to Article VIII to administer the Plan on
behalf of the Employer. Until such time as the Board of Directors of the
Employer provides otherwise, the President and Chief Financial Officer of the
Employer are appointed to administer the Plan on behalf of the Employer. 1.5
"Affiliated Employer" means the Employer and any of the following entities:
(a) Any corporation which is a member of a "controlled group of
corporations" (as that phrase is defined in Code ss. 414(b)), which group
includes the Employer;
(b) Any trade or business (whether or not incorporated, and including a
sole proprietorship, partnership, estate and trust) which is under "common
control" (as that phrase is defined in Code ss. 414(c)) with the Employer;
(c) Any entity (whether or not incorporated) which is a member of an
"affiliated service group" (as that phrase is defined in Code ss. 414(m)), which
group includes the Employer; and
(d) Any entity required to be aggregated with the Employer pursuant to
Regulations promulgated pursuant to Code ss. 414(o).
1.6 "Aggregate Account" means, with respect to each Participant, the value
of all accounts (including the Participant's Deferral Account, Participant's
Profit Sharing Account, Participant's ESOP Account, Participant's Matching
Account and Participant's Rollover Account) maintained on behalf of a
Participant, whether attributable to Employer or Employee contributions. A
2
Participant's ESOP Account is comprised of his or her Participant's Company
Stock Account, Participant's ESOP Investment Account, and Participant's
Qualified Directed Investment Account.
1.7 "Agreement" or "Plan" shall mean this instrument, including all
amendments or restatements hereof.
1.8 "Anniversary Date" means September 30.
1.9 "Average Contribution Percentage" means, with respect to a specified
group of Participants for a Plan Year, the average (calculated to the nearest
one hundredth of one percent) of the Actual Contribution Percentages of the
Participants in such specified group for the Plan Year.
1.10 "Average Deferral Percentage" means, with respect to a specified group
of Participants for a Plan Year, the average (calculated to the nearest one
hundredth of one percent) of the Actual Deferral Percentages of the Participants
in such specified group for the Plan Year.
1.11 "Beneficiary" means the person or entity to whom the share of a
deceased Participant's Aggregate Account is payable, subject to the restrictions
of Section 6.2.
1.12 "Business Day" means any day on which the Federal Reserve and New York
Stock Exchange are both open for business.
1.13 "Code" means the Internal Revenue Code of 1986, as amended or replaced
from time to time.
1.14 "Company Stock" means common stock issued by the Employer (or by a
corporation which is a member of the controlled group of corporations of which
the Employer is a member) which is readily tradeable on an established
securities market.
1.15 "Compensation" means, with respect to any Participant, such
Participant's wages for the Plan Year within the meaning of Code ss. 3401(a)
(for the purposes of income tax withholding at the source) but determined
without regard to any rules that limit the remuneration included in wages based
on the nature or location of the employment or the services performed.
For purposes of this Section 1.15, the determination of Compensation shall
be made by including salary reduction contributions made on behalf of a
Participant to a plan maintained by the Employer pursuant to Code ss.ss. 125 or
401(k). However, for purposes of applying Section 3.9 for Plan Years beginning
prior to December 31, 1997, Compensation shall not include, or shall be net of,
salary reduction contributions made on behalf of a Participant to a plan
maintained by the Employer pursuant to Code ss.ss. 125 or 401(k).
3
For purposes of allocations made pursuant to Section 3.4, Compensation
shall not include any income realized or recognized relating to the exercise of
any incentive stock option or non-qualified stock option granted to the
Participant by the Employer, or relating to the purchase of Company Stock
pursuant to an employee stock purchase plan maintained by the Employer.
Furthermore, Compensation shall not include any moving allowances or tuition
reimbursements paid by the Employer.
Compensation in excess of $150,000 (or such other amount as the Secretary
of the Treasury may designate from time to time pursuant to Code ss.
401(a)(17)(B)) shall be disregarded regardless of whether the Plan is a Top
Heavy Plan. If a determination period consists of fewer than 12 months, the
foregoing 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 12.
Effective for Participants that enter the Plan on and after July 16, 1997,
Compensation for a Participant's Plan Year of entry shall mean Compensation
actually paid after the Participant enters the Plan pursuant to Article II.
However, see Section 7.4 for the definition of Compensation in the event a
minimum allocation is required for any Top Heavy Plan Year.
For Plan Years beginning prior to December 31, 1996, in determining the
Compensation of an Employee, the family attribution rules of Code ss.ss.
401(a)(17) and 414(q)(6) (as modified by Code ss. 401(a)(17)) shall apply.
1.16 "Current Obligations" means principal and interest obligations arising
from an extension of credit to the Trust which are payable in cash within one
year from the date an Employer Contribution is due.
1.17 "Deferred Compensation" means that portion of a Participant's
Compensation which has been deferred pursuant to Section 3.2, and has been
allocated to the Participant's Deferral Account.
1.18 "Determination Year" means the Plan Year for which testing is being
performed to determine if an Employee is a Highly Compensated Employee.
1.19 "Direct Rollover" means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee in accordance with Section 6.15.
1.20 "Distributee" means an Employee or former Employee. In addition, an
Employee's or former Employee's surviving spouse and an Employee's or former
Employee's spouse or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Code ss. 414(p), shall be Distributees
with regard to the interest of the spouse or former spouse.
4
1.21 "Eligible Employee" means any Employee who is not otherwise described
in this Section and has satisfied the age provisions of Section 2.1.
Employees who are Leased Employees, or who are nonresident aliens who do
not receive any earned income (as defined in Code ss. 911(d)(2) from the
Employer which constitutes United States source income (as defined in Code ss.
861(a)(3)), shall not be eligible to participate in this Plan.
Employees of Affiliated Employers shall become Eligible Employees only upon
satisfaction of the age requirement of Section 2.1 and the adoption of this Plan
by the Affiliated Employer, which adoption must be approved by the Board of
Directors of Sawtek Inc.
Employees who are included in a unit of employees covered by an agreement
which the Secretary of Labor finds to be a collective bargaining agreement
between employee representatives and the Employer shall not be eligible to
participate in this Plan if there is evidence that retirement benefits were the
subject of good faith bargaining between such employee representatives and the
Employer, unless such collective bargaining agreement requires the covered
employees to participate in this Plan.
1.22 "Eligible Retirement Plan" means an individual retirement account
described in Code ss. 408(a), an individual retirement annuity described in Code
ss. 408(b), an annuity plan described in Code ss. 403(a), or a qualified trust
described in Code ss. 401(a), that accepts the Distributee's Eligible Rollover
Distribution. However, in the case of an Eligible Rollover Distribution to a
surviving spouse, an Eligible Retirement Plan includes only an individual
retirement account or individual retirement annuity.
1.23 "Eligible Rollover Distribution" means any distribution of all or any
portion of the balance to the credit of the Distributee, except that an Eligible
Rollover Distribution does not include (i) any distribution that is one of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Distributee or the joint
lives (or joint life expectancies) of the Distributee and the Distributee's
Beneficiary, or for a specified period of ten years or more, (ii) any
distribution to the extent such distribution is required under Code ss.
401(a)(9), and (iii) the portion of any distribution that is not includable in
gross income (determined without regard to the exclusion for net unrealized
appreciation with respect to Employer securities).
1.24 "Employee" means any person who is employed by the Employer, or
Affiliated Employer, but excludes any person who is employed as an independent
contractor.
The term "Employee" shall include any Leased Employee, unless such Leased
Employee is covered by a plan described in Code ss. 414(n)(5) and Leased
Employees do not constitute more than 20% of the Employer's Non-Highly
Compensated Employees.
5
1.25 "Employer" means Sawtek Inc., a Florida corporation, any subsidiary or
parent of such corporation which adopts the Plan with the approval of the Board
of Directors of Sawtek Inc., any successor which shall maintain this Plan, and
any other employer permitted by the Employer to adopt this Plan.
1.26 "ESOP" means an employee stock ownership plan that meets the
requirements of Code ss. 4975(e)(7) and Regulation ss. 54.4975-11.
1.27 "ESOP Contribution" means the Employer's contribution to the Plan,
made pursuant to Section 3.1(a) and allocated to the Participants' ESOP
Accounts.
1.28 "Excess Deferred Compensation" means, with respect to the taxable year
of a Participant, the excess of such Participant's Deferred Compensation under
this Plan plus the elective deferrals described in Section 3.2(f) and Regulation
ss. 1.402(g)-1(b), actually made on behalf of such Participant for such taxable
year, over the dollar limitation provided for in Code ss. 402(g), which is
incorporated herein by reference. For purposes of Code ss. 415, pursuant to
Regulation ss. 1.415-6(b)(1), Excess Deferred Compensation shall be treated as
an "annual addition" unless distributed pursuant to Section 3.2(f). Excess
Deferred Compensation shall be included in an Employee's Deferred Compensation
for purposes of the Actual Deferral Percentage test and Average Deferral
Percentage test, unless such excess relates to a deferral made by a Non-Highly
Compensated Participant under this or any other qualified retirement plan of the
Employer.
1.29 "Excess Elective Contributions" means, with respect to a Plan Year,
the excess of Deferred Compensation made pursuant to Section 3.2 on behalf of a
Highly Compensated Participant for such Plan Year, over the maximum amount of
such contributions permitted under Section 3.5(a) and Code ss. 401(k)(3). Excess
Elective Contributions shall be treated as "annual additions" pursuant to
Section 3.9 and Code ss. 415.
1.30 "Excess Matching Contributions" means, with respect to a Plan Year,
the excess of Employer Matching Contributions made pursuant to Section 3.1(c) on
behalf of a Highly Compensated Participant for such Plan Year, over the maximum
amount of such Employer Matching Contributions permitted under the limitations
of Section 3.7 and Code ss. 401(m). Excess Matching Contributions shall be
attributed to individual Highly Compensated Participants in accordance with
Section 3.8(a).
1.31 "Exempt Loan" means a loan made to the Trust by a disqualified person
or a loan to the Plan which is guaranteed by a disqualified person and which
satisfies the requirements of ss. 2550.408b-3 of the Department of Labor
Regulations, Regulation ss. 54.4975-7(b) and Section 5.5 hereof.
6
1.32 "Family Member" means, with respect to an affected Participant, such
Participant's spouse, lineal descendants and ascendants and their spouses, all
as described in Code ss. 414(q)(6)(B). The family aggregation provisions no
longer apply in Plan Years beginning on and after October 1, 1997.
1.33 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets; (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the Plan or has any
authority or responsibility to do so; or (c) has any discretionary authority or
discretionary responsibility in the administration of the Plan. Such definition
includes, but is not limited to, the Trustee, the Employer and its
representative body, and the Administrator.
1.34 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on October 1 of each year and ending the following September 30.
1.35 "Forfeiture" means that portion of a Participant's ESOP Account,
Participant's Matching Account or Participant's Profit Sharing Account that is
not Vested, and occurs on the earlier of:
(a) The distribution of the entire Vested portion of a Participant's
ESOP Account, Participant's Matching Account or Participant's Profit Sharing
Account; or
(b) The last day of the Plan Year in which the Participant incurs five
consecutive One-Year Breaks in Service.
For purposes of paragraph (a) above, in the case of a Terminated
Participant whose Vested interest in his Participant's ESOP Account,
Participant's Matching Account or Participant's Profit Sharing Account is zero,
such Terminated Participant shall be deemed to have received a distribution of
his Vested interest in such account(s) upon the effective date of his
termination of employment. Restoration of such amounts shall occur pursuant to
Section 3.4.
1.36 "Former Participant" means a person who has been an active
Participant, but who has ceased to be a Participant for any reason.
1.37 "Gap Period" means the period of time between the end of the
applicable computation period (i.e., Participant's taxable year or the Plan
Year) and the date a corrective distribution is made to the Participant.
1.38 "Highly Compensated Employee" means an Employee described in Code ss.
414(q) and the Regulations thereunder, and generally means an Employee who
7
performed services for the Employer during the Determination Year, and is in one
or more of the following groups:
(a) Employees who at any time during the Determination Year or
Look-Back Year were "five percent owners" of the Employer.
(b) Employees who received Compensation during the Look-Back Year from
the Employer in excess of $75,000.
(c) Employees who received Compensation during the Look-Back Year from
the Employer in excess of $50,000 ($80,000 for Plan Years beginning after
December 31, 1996) and were in the Top Paid Group of Employees for the Plan Year
(Look-Back Year for Plan Years beginning after December 31, 1996).
(d) Employees who during the Look-Back Year were "officers" of the
Employer (as that term is defined within the meaning of the Regulations under
Code ss. 416) and received Compensation during the Look-Back Year from the
Employer greater than 50% of the limit in effect under Code ss. 415(b)(1)(A) for
any such Plan Year. The number of officers shall be limited to the lesser of (i)
50 employees; or (ii) the greater of three employees or ten percent of all
employees. For purposes of determining the number of officers, Employees
described in Section (a), (b), (c) and (d) shall be excluded, but such Employees
shall still be considered for purposes of identifying the particular Employees
who are officers. If the Employer does not have at least one officer whose
annual Compensation is in excess of 50% of the Code ss. 415(b)(1)(A) limit, then
the highest paid officer of the Employer shall be treated as a Highly
Compensated Employee.
(e) Employees who are in the group consisting of the 100 Employees paid
the greatest Compensation during the Determination Year and are also described
in (b), (c) or (d) above when these paragraphs are modified to substitute
Determination Year for Look-Back Year.
For Plan Years beginning after December 31, 1996, subparagraphs (b), (d)
and (e) shall no longer apply, except that in determining whether an Employee is
a Highly Compensated Employee for purposes of the Plan Year beginning October 1,
1997, subparagraphs (b), (d) and (e) shall not be applied to the Look-Back Year
beginning October 1, 1996, and the parenthetical language in subparagraph (c)
shall be applied to such Look-Back Year.
The dollar threshold amounts specified in (b) and (c) above shall be
adjusted at such time and in such manner as is provided in Code ss. 414(q)(1).
In the case of such an adjustment, the dollar limits which shall be applied are
those for the calendar year in which the Determination Year or Look-Back Year
begins.
In determining who is a Highly Compensated Employee, Employees who are
non-resident aliens and who received no earned income (within the meaning of
8
Code ss. 911(d)(2)) from the Employer constituting United States source income
within the meaning of Code ss. 861(a)(3) shall not be treated as Employees.
Additionally, all Affiliated Employers shall be taken into account as a single
employer and Leased Employees within the meaning of Code ss. 414(n)(2) and
414(o)(2) shall be considered Employees unless such Leased Employees are covered
by a plan described in Code ss. 414(n)(5) and are not covered in any qualified
plan maintained by the Employer. The exclusion of Leased Employees for this
purpose shall be applied on a uniform and consistent basis for all of the
Employer's retirement plans. Highly Compensated Former Employees shall be
treated as Highly Compensated Employees without regard to whether they performed
services during the Determination Year.
1.39 "Highly Compensated Former Employee" means a former Employee who (i)
had a separation year prior to the Determination Year and (ii) was either a
Highly Compensated Employee in the year of separation from service or in any
Determination Year after attaining age 55. Highly Compensated Former Employees
shall be treated as Highly Compensated Employees.
1.40 "Highly Compensated Participant" means any Highly Compensated Employee
who is eligible to participate in the Plan.
1.41 "Hour of Service" means (a) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
for the performance of duties during the applicable computation period; (b) each
hour for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period; and (c) each hour
for which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages.
For purposes of (a) above, Hours of Service shall be credited to the
computation period (See definition of Year of Service) in which the duties are
performed. For purposes of (b) above, Hours of Service shall be credited to the
computation period provided for in Department of Labor regulations
ss.2530.200b-2(c)(2). Finally, for purposes of (c) above, Hours of Service shall
be credited to the computation period or periods to which the award or agreement
for back pay pertains, rather than to the computation period in which the award,
agreement or payment is made.
Hours of Service for hourly Employees shall be based on actual hours
worked, and for salaried Employees on the basis of 45 Hours of Service for each
week (or portion thereof) employed by the Employer.
9
Notwithstanding the above, (i) no more that 501 Hours of Service are
required to be credited to any Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made by or
due from the Employer regardless of whether such payment is made by or due from
the Employer directly or indirectly through, among others, a trust, fund, or
insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust, fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
An Hour of Service must be counted for purposes of determining a Year of
Service, a year of participation for purposes of accrued benefits, a One-Year
Break in Service, and employment commencement date (or reemployment commencement
date). The provisions of Department of Labor Regulations ss.ss. 2530.200 b-2(b)
and (c) are incorporated herein by reference.
1.42 "Investment Manager" means any person, firm or corporation (other than
the Trustee or named Fiduciary) who (i) is a registered investment adviser under
the Investment Advisers Act of 1940, or is a bank or insurance company described
in Act ss. 3(38), (ii) has the power to manage, acquire, or dispose of Plan
assets, and (iii) acknowledges in writing its fiduciary responsibility to the
Plan under the Act. See Section 8.1(c).
1.43 "Leased Employee" means a person who provides services to the Employer
and is described in Code ss. 414(n) and Regulations promulgated thereunder.
Generally, a person shall be considered a Leased Employee if:
(a) He is not otherwise an Employee of the Employer,
(b) He provides services to the Employer,
(c) Such services are provided pursuant to an agreement between the
Employer and a leasing organization,
(d) Such person has performed such services for the Employer on a
substantially full-time basis for at least twelve months, and
10
(e) Such services are of a type historically performed in the
Employer's business field by employees. Effective for Plan Years beginning after
December 31, 1996, this requirement shall be amended by deleting the foregoing
"historically performed" provision and instead requiring that such services be
performed under the primary direction and control of the Employer.
1.44 "Look-Back Year" means the twelve month period immediately preceding
the Determination Year for which testing is being performed to determine if an
Employee is a Highly Compensated Employee. See definition of Highly Compensated
Employee.
1.45 "Matching Contribution" means the Employer's matching contribution
made to the Plan pursuant to Section 3.1(c) and allocated to a Participant's
Matching Account.
1.46 "Net Profit" means, with respect to any Fiscal Year, the Employer's
pre-tax profit for such Fiscal Year determined upon the basis of the Employer's
books of account in accordance with the method of accounting regularly used by
the Employer, without any reduction for taxes upon income or for contributions
made by the Employer to this Plan or any other qualified retirement plan.
1.47 "Nonallocation Period" means the period beginning on the date of the
sale of Company Stock to the Plan and ending on the later of:
(a) the date which is 10 years after the date of sale; or
(b) the date of the Plan allocation attributable to the final payment
of acquisition indebtedness incurred in connection with such sale.
1.48 "Noncurrent Obligations" means Trust obligations arising from an
extension of credit to the Trust which are payable in cash later than one year
from the date an Employer contribution is due.
1.49 "Non-Highly Compensated Employee" means any Employee who is neither a
Highly Compensated Employee or (for Plan Years beginning prior to December 31,
1996) a Family Member thereof.
1.50 "Non-Highly Compensated Participant" means any Participant who is
neither a Highly Compensated Employee or (for Plan Years beginning prior to
December 31, 1996) a Family Member thereof.
1.51 "Normal Retirement Date" means the first day of the month coinciding
with or next following the earlier of (i) the date of attainment of the
Participant's Normal Retirement Age, or (ii) the date on which the combination
of the Participants' attained age plus Years of Service equals or exceeds
seventy (70). For purposes of this Section, "Normal Retirement Age" means the
earlier of the Participant's attainment of (X) age 65 with five (5) or more
11
years of participation in the Plan, or (Y) age 55 with seven (7) or more Years
of Service. A Participant shall become 100% Vested in his Aggregate Account upon
attaining his Normal Retirement Age. See Section 6.1 for distributions following
a termination of employment after a Participant's Normal Retirement Date.
1.52 "One-Year Break in Service" means a Plan Year during which an Employee
has not completed more than 500 Hours of Service with the Employer. An Employee
shall not incur a One-Year Break in Service for the Plan Year in which he
becomes a Participant, dies, retires or suffers a Total and Permanent
Disability. Furthermore, solely for the purpose of determining whether a
Participant has incurred a One-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity or paternity leaves
of absence."
"Authorized leave of absence" means an unpaid, temporary cessation from
active employment with the Employer pursuant to an established, non-
discriminatory policy, whether occasioned by illness, military service, or any
other reason.
A "maternity or paternity leave of absence" means an absence from work for
any period by reason of the Employee's pregnancy, birth of the Employee's child,
placement of a child with the Employee in connection with the adoption of such
child, or any absence for the purpose of caring for such child for a period
immediately following such birth or placement. For this purpose, Hours of
Service shall be credited for the computation period in which the absence from
work begins only if credit therefore is necessary to prevent the Employee from
incurring a One-Year Break in Service or, in any case in which the Administrator
is unable to determine such hours normally credited, eight Hours of Service per
day. The total Hours of Service required to be credited for a "maternity or
paternity leave of absence" shall not exceed 501.
1.53 "Participant" means any Eligible Employee who becomes eligible for and
enters the Plan as provided in Sections 2.1 and 2.2, and has not for any reason
become ineligible to participate further in the Plan. Upon termination of
employment, a Participant becomes a Former Participant for purposes of the Plan.
1.54 "Participant's Company Stock Account" means the subaccount of the
Participant's ESOP Account which is credited with the shares of Company Stock
purchased and paid for by the Trust or contributed to the Trust Fund.
1.55 "Participant's Deferral Account" means the account established and
maintained by the Administrator for each Participant with respect to his
interest in the Plan resulting from the Participant's Deferred Compensation
contributed to the Plan pursuant to Sections 3.1(b) and 3.2. A Participant shall
be 100% Vested in his Participant's Deferral Account at all times.
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1.56 "Participant's ESOP Account" means the account established and
maintained by the Administrator for each Participant with respect to his
interest in the Plan resulting from the Employer's ESOP Contributions made
pursuant to Section 3.1(a) and Forfeitures allocated pursuant to Section 3.4. A
Participant's ESOP Account may be further subdivided into a Participant's
Company Stock Account, Participant's ESOP Investment Account and Participant's
Qualified Directed Investment Account. A Participant's interest in his
Participant's ESOP Account shall be subject to the vesting provisions of Section
6.4.
1.57 Participant's ESOP Investment Account" means the subaccount of the
Participant's ESOP Account which is credited with his share of net gains or
losses, Forfeitures and Employer ESOP Contributions held in a form other than
Company Stock and which is debited with payments to acquire Company Stock.
1.58 "Participant's Matching Account" means the account established and
maintained by the Administrator for each Participant with respect to his
interest in the Plan resulting from the Employer's Matching Contributions made
pursuant to Section 3.1(c). A Participant's interest in his Participant's
Matching Account shall be subject to the vesting provisions of Section 6.4.
1.59 "Participant's Profit Sharing Account" means the account established
and maintained by the Administrator for each Participant with respect to his
interest in the Plan resulting from the Employer's Profit Sharing Contribution,
if any, made pursuant to Section 3.1(e). A Participant's interest in his
Participant's Profit Sharing Account shall be subject to the vesting provisions
of Section 6.4.
1.60 "Participant's Qualified Directed Investment Account" means the
subaccount established by the Administrator for a Qualified Participant who
makes a diversification election pursuant to Section 3.12.
1.61 "Participant's Rollover Account" means the account established and
maintained by the Administrator for any Participant (or Employee) who has
transferred amounts to the Plan from another qualified plan (or conduit IRA)
pursuant to Section 3.11. A Participant shall be 100% Vested in his
Participant's Rollover Account at all times.
1.62 "Plan Year" means the Plan's accounting year of 12 months commencing
on October 1 of each year and ending the following September 30.
1.63 "Profit Sharing Contribution" means the Employer's contribution to the
Plan made pursuant to Section 3.1(e) and allocated to the Participant's Profit
Sharing Account.
1.64 "Qualified Election Period" means the six Plan Year period beginning
with the first Plan Year in which the Participant becomes a Qualified
Participant.
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1.65 "Qualified Non-Elective Contribution" means the Employer's
contributions to the Plan that are made pursuant to Section 3.1(d). Such
contributions shall be (i) considered additional Deferred Compensation for
purposes of the Plan, (ii) allocated to the Participant's Deferral Account, and
(iii) used to satisfy the Average Deferral Percentage test of Section 3.5.
1.66 "Qualified Participant" means any Participant or Former Participant
who has attained age 55 and has been credited with ten (10) Years of Service.
1.67 "Regulation" means the income tax regulations promulgated by the
Secretary of the Treasury or his delegate, as amended from time to time.
1.68 "Retired Participant" means a person who has been a Participant, but
who has become entitled to retirement benefits under the Plan.
1.69 "Retirement Date" means the date as of which a Participant retires.
1.70 "Suspense Account" means the account credited with the portion of all
Former Participant's ESOP Accounts, Participant's Matching Accounts and
Participant's Profit Sharing Accounts which have become forfeitable during any
Plan Year, but which have not been reallocated pursuant to Section 3.4(e).
1.71 "Terminated Participant" means a person who has been a Participant,
but whose employment has been terminated other than by death, Total and
Permanent Disability, or retirement.
1.72 "Total and Permanent Disability" means a physical or mental condition
of the Participant that renders the Participant incapable of continuing any
gainful occupation with the Employer for which the Participant is suited by
training, skill or experience, after reasonable accommodations have been made in
accordance with applicable federal and state laws. Except as provided below,
such condition must continue for a cumulative period of 135 business days in a
365 day period, and must result in a termination of employment of the
Participant upon a determination by the Administrator that the Participant is
incapable of continuing any such gainful occupation with the Employer.
Notwithstanding the foregoing sentence, the Administrator may waive or reduce
the 135 business day requirement upon a determination that the Participant's
physical or mental condition is such that there is a substantial probability
that the condition will continue for more than 135 business day.
The determination of Total and Permanent Disability shall be made by the
Administrator in its discretion, and shall be based upon a medical examination
of the Participant by a licensed medical provider designated by the
Administrator. All fees and costs of the examination by a licensed medical
provider shall be paid by the Employer. The decision of the Administrator shall
be subject to review by the Participant in accordance with Sections 8.11 and
8.12 below.
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For purposes of this Section, time spent by a Participant on an authorized
leave of absence or on a leave of absence under the Family and Medical Leave Act
shall be counted as part of the foregoing 135 business day period.
1.73 "Trustee" means the person named as Trustee of the Sawtek Inc.
Employee Stock Ownership and 401(k) Trust.
1.74 "Trust Fund" means the assets of the Plan as the same shall exist from
time to time.
1.75 "Unallocated Company Stock Suspense Account" means an account
containing Company Stock acquired with the proceeds of an Exempt Loan, which
Company Stock has not been released from such account and allocated to the
Participants' Company Stock Accounts.
1.76 "Valuation Date" means the Anniversary Date of the Plan, and any other
date on which the Administrator makes allocations, or pursuant to Section 4.1,
directs the Trustee to value the Trust Fund. In the event the Employer elects to
value the Trust Fund, or any portion thereof, on a daily basis, Valuation Date
also shall include all Business Days.
1.77 "Vested" means the portion of any of the Participant's accounts in the
Plan that is nonforfeitable. This Plan does not permit forfeiture for cause.
However, see Section 3.1 for permitted reversions of all or a portion of the
Trust Fund to the Employer.
1.78 "Year of Service" shall mean a Plan Year, during which an Employee is
credited with at least 1000 Hours of Service.
Years of Service (including service as a Leased Employee) with any
Affiliated Employer shall be recognized.
Service from the date on which the Employee first performs an Hour of
Service shall be counted in computing Years of Service for vesting purposes.
The Administrator shall, in accordance with a uniform, non-discriminatory
policy, elect to credit Hours of Service pursuant to this Plan by counting
actual Hours of Service for any Employee, or by adopting an equivalency based on
a period of employment as provides in ss.2530.200-2(c) of the Department of
Labor Regulations.
15
ARTICLE II
ELIGIBILITY
2.1 CONDITIONS OF ELIGIBILITY
Any full-time Employee who had entered the Plan as of July 16, 1997 shall
continue to be eligible to participate hereunder. Otherwise, an Employee must
meet the eligibility requirements described below in order to become a
Participant.
Any Employee who has attained age 18 shall be eligible to participate
hereunder immediately upon his employment, provided such Employee is not
excluded from participation by the Eligible Employee provisions of Section 1.21.
2.2 EFFECTIVE DATE OF PARTICIPATION
Any Eligible Employee who had entered the Plan as of July 16, 1997 shall
continue to participate in the Plan for all purposes. Thereafter, an Employee
who, pursuant to Section 2.1, has become eligible to participate hereunder shall
enter the Plan immediately upon meeting the requirements of Section 2.1.
2.3 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a classification of an
Eligible Employee to a non-eligible Employee (e.g., by becoming a Leased
Employee or Employee covered by a collective bargaining agreement), such
Participant shall become a Former Participant but shall continue to vest in his
or her Participant's ESOP Account, Participant's Profit Sharing Account and
Participant's Matching Account for each Year of Service completed while a
non-eligible Employee, until such time as his Participant's ESOP Account,
Participant's Profit Sharing Account and Participant's Matching Account shall be
forfeited or distributed pursuant to the terms of the Plan. Additionally, such
Former Participant's Aggregate Account in the Plan shall continue to share in
the income, gains or losses of the Trust Fund, unless such Aggregate Account is
otherwise segregated or subject to the investment direction provisions of
Section 3.13.
(b) In the event an Employee ceases to be a Participant in the Plan
because of a change of job classification (i.e., becomes a Leased Employee,
covered by a collective bargaining agreement, or an independent contractor), but
has not incurred a One-Year Break in Service, such Employee shall again become a
Participant effective as of the first day of the Plan Year in which such
Employee again becomes an Eligible Employee.
(c) In the event an individual who is an Employee, but not an Eligible
Employee, becomes a member of an eligible class, then such Employee shall enter
the Plan and become a Participant as of the later of (i) the first day of the
Plan Year in which the Employee becomes an Eligible Employee, or (ii) the entry
date provided in Section 2.2 coinciding with or next following the
16
date the Employee met any age requirement of Section 2.1 (assuming the Employee
had been an Eligible Employee during his entire period of service to the
Employer).
2.4 OMISSION OF ELIGIBLE EMPLOYEE
If in any Plan Year any Employee who should be included as a Participant in
the Plan is erroneously omitted, and discovery of such omission is not made
until after a contribution by the Employer for the Plan Year has been made and
after the allocation of such contribution has been completed pursuant to Section
3.4, the Employer shall make a subsequent contribution (or any available
Forfeitures shall be applied) with respect to the omitted Employee in an amount
which the Administrator would have allocated to such omitted Participant's
Aggregate Account (plus any lost earnings due to the omission) had the
Participant not been omitted. Such contribution shall be made regardless of its
deductibility in whole or in part in any taxable year under applicable
provisions of the Code. In addition, such Employee may immediately begin making
salary deferrals.
2.5 INCLUSION OF INELIGIBLE EMPLOYEE
If in any Plan Year any person who should not have been included as a
Participant in the Plan is erroneously included, and discovery of such incorrect
inclusion is not made until after a contribution for the Plan Year has been made
and after the allocation of such contribution erroneously has been made to the
Participant pursuant to Section 3.4, the Employer shall not be entitled to
recover the contribution made with respect to the ineligible person regardless
of its deductibility with respect to such contribution. However, in such event,
the amount contributed with respect to the ineligible person shall constitute a
Forfeiture for the Plan Year in which the discovery is made, shall be credited
to the Suspense Account and shall be reallocated as a Forfeiture pursuant to
Section 3.4(e) for the Plan Year of discovery. Such person's Deferred
Compensation shall remain in the Plan for the benefit of such person until such
time as one of the events described in Article VI shall occur and give rise to a
distribution. Such person's Participant Aggregate Account shall share in the
Trust Fund's earnings until distributed.
ARTICLE III
CONTRIBUTION AND ALLOCATION
3.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer may or shall (as the case may be)
contribute to the Plan the following amounts, which shall be subject to the
following conditions.
(a) ESOP Contribution: For each Fiscal Year, the Employer may, in its
sole discretion, determine the amount, if any, of any ESOP Contribution to be
made by it to the Plan. Such contribution may be made by the Employer
17
regardless of Net Profits or accumulated earnings, and shall be allocated to
each Participant's ESOP Account. In determining such contribution, the Employer
shall be entitled to rely upon an estimate of its Net Profits, of the total
Compensation for all Participants, and of the amounts contributable by it.
Except as otherwise provided herein, the Employer's determination of such
contribution shall be binding on all Participants, the Administrator and the
Trustee. The Trustee shall have no right or duty to inquire into the amount of
the Employer's contribution or the method used in determining the amount of the
Employer's contribution, but shall be accountable only for funds actually
received by the Trustee.
Notwithstanding the preceding paragraph, and except as otherwise required
herein, the Employer's ESOP Contribution for each Fiscal Year shall not be less
than the amount required to enable the Trust to timely discharge its Current
Obligations, even if some or all of such contribution may not be deductible by
the Employer under the Code.
(b) Deferred Compensation: The Employer shall contribute to the Plan
the total amount of all Participants' Compensation which has been deferred into
the Plan pursuant to Section 3.2. Such amount shall be deemed to be Deferred
Compensation and allocated to the applicable Participants' Deferral Accounts.
(c) Matching Contribution: Effective for Plan Years beginning on or
after October 1, 1997, on behalf of each Participant who has elected to defer a
portion of his Compensation into the Plan pursuant to Section 3.2 or has been
allocated a Qualified Non-Elective Contribution, the Employer shall make a
discretionary Matching Contribution based on the matching formula determined
from time to time by the Employer. Such amount shall be deemed to be a Matching
Contribution and allocated to the applicable Participants' Matching Accounts.
(d) Qualified Non-Elective Contribution: On behalf of each Participant
(or if elected by the Employer, on behalf of each Non-Highly Compensated
Participant only), the Employer may make a discretionary, Qualified Non-Elective
Contribution equal to a percentage of Compensation of such Participants (or, if
applicable, such Non-Highly Compensated Participants only) determined by the
Employer. Such amount shall be deemed to be additional Deferred Compensation and
allocated to the applicable Participants' Deferral Accounts.
(e) Profit Sharing Contribution: For each Fiscal Year, the Employer
may, in its sole discretion, determine the amount, if any, of any Profit Sharing
Contribution to be made by it to the Plan. Such contribution may be made by the
Employer regardless of Net Profits or accumulated earnings, and shall be
allocated to each Participant's Profit Sharing Account. In determining such
Profit Sharing Contribution, the Employer shall be entitled to rely upon an
18
estimate of its Net Profits, of the total Compensation for all Participants, and
of the amounts contributable by it. Except as otherwise provided herein, the
Employer's determination of such contribution shall be binding on all
Participants, the Administrator and the Trustee. The Trustee shall have no right
or duty to inquire into the amount of the Employer's contribution or the method
used in determining the amount of the Employer's contribution, but shall be
accountable only for funds actually received by the Trustee.
(f) Except as otherwise required herein, the Employer's contributions
provided for in this Section shall not exceed the maximum amount allowable as a
deduction to the Employer under the provisions of Code ss. 404. All
contributions by the Employer shall be made in cash or in such property as is
acceptable to the Trustee and permitted by the Act and the Code.
(g) Notwithstanding the foregoing provisions, to the extent necessary
to provide the top heavy minimum allocations required by Article VII, the
Employer shall make a contribution even if it exceeds the Employer's current or
accumulated Net Profit or the amount which is deductible under Code ss. 404.
(h) Except as provided in paragraph (g) above and in accordance with
Act ss. 403(c)(2)(C), Revenue Ruling 91-4 and the Code, any contribution by the
Employer to the Trust Fund is conditioned upon the deductibility of the
contribution by the Employer under the Code and, to the extent any such
deduction is disallowed, the Employer may, within one year following a final
determination of the disallowance, whether by agreement with the Internal
Revenue Service or by final decision of a court of competent jurisdiction,
demand repayment of such disallowed contribution, and the Trustee shall return
such contribution within one year following the disallowance, provided such
return of contribution is otherwise permitted by the Act, Revenue Ruling 91-4
and the Code. Earnings of the Plan attributable to the excess contribution may
not be returned to the Employer, but any losses attributable thereto must reduce
the amount so returned.
(i) Notwithstanding anything herein to the contrary, in the event the
Employer shall make an excessive contribution under a mistake of fact as
described in Act ss. 403(c)(2)(A) and Revenue Ruling 91-4, the Employer may
demand repayment of such excessive contribution at any time within one year
following the time of payment and the Trustee shall return such amount to the
Employer within the one year period. Earnings of the Plan attributable to the
excess contributions may not be returned to the Employer, but any losses
attributable thereto must reduce the amount so returned.
(j) Notwithstanding any provision of this Plan to the contrary, any
amount returned to the Employer pursuant to the foregoing paragraphs of this
Section 3.1 may be returned to the Employer regardless of
19
whether the Participant is Vested, in whole or in part. However, the maximum
reversion to the Employer shall not exceed the limitations of Revenue Ruling
91-4.
3.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Pursuant to procedures and guidelines established from time to time
by the Administrator in accordance with paragraph (j) below, each Participant
may elect to defer into the Plan a portion (up to a maximum percentage
determined from time to time by the Administrator) of his Compensation which
would have been received during the Plan Year (but for the deferral election).
Such deferral shall comply with the requirements of the Average Deferral
Percentage test of Section 3.5 and the annual addition requirements of Section
3.9, and shall not exceed the maximum amount allowable as a deduction to the
Employer under Code ss. 404. A deferral election (or modification of an earlier
election) may not be made with respect to Compensation which is available on or
before the date the Participant executes such election.
(b) The amount by which a Participant's Compensation is reduced shall
be that Participant's Deferred Compensation and allocated to that Participant's
Deferral Account.
(c) The balance in each Participant's Deferral Account shall be 100%
Vested at all times, and shall not be subject to Forfeiture for any reason.
(d) Amounts held in a Participant's Deferral Account shall not be
distributable earlier than the:
(1) Participant's termination of employment, Total and Permanent
Disability, or death;
(2) Participant's attainment of age 59 1/2;
(3) Termination of the Plan without the existence at the time of
Plan termination of another defined contribution plan (other than an employee
stock ownership plan as defined in Code ss. 4975(e)(7) or a simplified employee
pension as defined in Code ss.408(k)) or the establishment of a successor
defined contribution plan (other than an employee stock ownership plan as
defined in Code ss. 4975(e)(7) or a simplified employee pension as defined in
Code ss.408(k)) by the Employer or an Affiliated Employer within the period
ending twelve months after distribution of all assets from the Plan. For
purposes of this Section, the rules of Code ss.401(k)(10)(A) and of Regulation
ss.ss. 1.401(k)-1(d)(3) and (5) are incorporated herein by reference;
(4) Date of disposition by the Employer to an entity that is not an
Affiliated Employer of substantially all of the Employer's assets (within the
meaning of Code ss. 409(d)(2)) used in its trade or business. For purposes of
this Section,
20
the rules of Code ss.401(k)(10)(B) and Regulation ss.ss. 1.401(k)-1(d)(4) and
(5) are incorporated herein by reference;
(5) Date of disposition by the Employer or an Affiliated Employer
who maintains the Plan of its interest in a subsidiary (within the meaning of
Code ss. 409(d)(3)) to an entity which is not an Affiliated Employer. For
purposes of this Section, the rules of Code ss.401(k)(10)(B) and Regulation
ss.ss. 1.401(k)-1(d)(4) and (5) are incorporated herein by reference; or
(6) Proven financial hardship of a Participant, subject to the
limitations of Section 6.14.
(e) In the event a Participant has received a hardship distribution
from his Participant's Deferral Account pursuant to Section 6.14 or, pursuant to
Regulations under Code ss.401(k) (iii)(B), from any other plan maintained by the
Employer, then such Participant shall not be permitted to elect to have Deferred
Compensation contributed to the Plan on his behalf for a period of 12 months
following the date of receipt of such hardship distribution. Furthermore, the
dollar limitation under Code ss. 402(g) applicable to such Participant shall be
reduced with respect to the Participant's taxable year following the taxable
year in which the hardship distribution was received, by the amount of such
Participant's Deferred Compensation, if any, under this Plan (and any other
maintained by the Employer) for the taxable year of the hardship distribution.
(f) If a Participant's Deferred Compensation under this Plan, together
with any elective deferrals (as defined in Regulation ss. 1.402(g)-1(b)) under
another qualified cash or deferred arrangement (as defined in Code ss. 401(k)),
a simplified employee pension (as defined in Code ss. 408(k)), a salary
reduction arrangement (within the meaning of Code ss. 3121(a)(5)(D)), a deferred
compensation plan under Code ss. 457 or a trust described in Code ss.
501(c)(18), cumulatively exceed the limitation imposed by Code ss. 402(g) for
such Participant's taxable year (such limitation to be adjusted annually in
accordance with the method provided in Code ss. 415(d) pursuant to Regulations),
the Participant may, not later than March 1 following the close of his taxable
year, notify the Administrator in writing of such Excess Deferred Compensation
and request that his Deferred Compensation under this Plan be reduced by an
amount specified by the Participant. In such event, the Administrator shall
direct the Trustee to distribute such Excess Deferred Compensation (and any
"income" allocable to such excess amount) to the Participant not later than the
first April 15th following the close of the Participant's taxable year in which
such Excess Deferred Compensation was contributed. A Participant shall be deemed
to have notified the Administrator in writing of such Excess Deferred
Compensation for a taxable year if such excess is calculated by taking into
account only elective deferrals under the Plan and other plans of the Employer.
Any distribution of less than the entire amount of Excess Deferred Compensation
and "income" shall be treated as a pro rata
21
distribution of Excess Deferred Compensation and "income." The amount
distributed shall not exceed the Participant's Deferred Compensation under the
Plan for the taxable year. Any distribution on or before the last day of the
Participant's taxable year in which the Excess Deferred Compensation was
contributed must satisfy each of the following conditions:
(1) The Participant shall designate (or is deemed to have so
designated) the distribution as Excess Deferred Compensation;
(2) The distribution must be made after the date on which the Plan
received the Excess Deferred Compensation; and
(3) The Plan must designate the distribution as a distribution of
Excess Deferred Compensation.
Any Matching Contributions made on account of Excess Deferred Compensation
distributed pursuant to this Section shall be treated as a Forfeiture for the
Plan Year of distribution of such Excess Deferred Compensation.
(g) For purposes of Section 3.2(f) above, "income" means the gain or
loss allocable to Excess Deferred Compensation which shall equal the allocable
gain or loss for the taxable year of the Participant. The income allocable to
Excess Deferred Compensation for the taxable year of the Participant is
determined by multiplying the income allocable to Deferred Compensation for the
taxable year of the Participant by a fraction. The numerator of the fraction is
the Participant's Excess Deferred Compensation for the taxable year of the
Participant. The denominator of the fraction is the sum of the Participant's
Deferral Account as of the beginning of the taxable year of the Participant plus
the Deferred Compensation allocable to such Participant's Deferral Account for
the taxable year of the Participant. No income shall be allocable to Excess
Deferred Compensation for the Gap Period.
(h) Income allocable to any distribution of Excess Deferred
Compensation on or before the last day of the taxable year of the Participant
shall be calculated from the first day of the taxable year of the Participant to
the date on which distribution is made pursuant to Section 3.2(f) above, using
the method described in paragraph (g) above for the income allocable to Excess
Deferred Compensation for the taxable year of the Participant.
(i) Notwithstanding Section 3.2(f) above, a Participant's Excess
Deferred Compensation shall be reduced, but not below zero, by any distribution
and/or recharacterization of Excess Elective Contributions pursuant to Section
3.6 for the Plan Year beginning with or within the taxable year of the
Participant.
(j) The Employer and the Administrator shall implement the salary
deferral elections provided for in this Section 3.2 in accordance with the
following:
22
(1) A Participant may commence making elective deferrals to the Plan
only after first satisfying the eligibility and participation requirements
specified in Article II. If a Participant fails to make his initial salary
deferral election within the designated enrollment term, then such Participant
may thereafter make an election in accordance with the rules governing
modifications. A Participant shall make such election by executing a deferral
election form, and filing such agreement with the Administrator.
Such election (i) shall initially be effective beginning with the first pay
period administratively feasible to effect the deferral election, (ii) shall not
have retroactive effect, and (iii) shall remain in force until revoked or
modified.
(2) A Participant may modify a prior election during the Plan Year
and concurrently make a new election by filing a revised deferral election form
with the Administrator at such times or during such enrollment periods as are
established by the Administrator. However, until the Administrator provides
otherwise, modifications of a prior deferral election shall only be made as of
the first day of each calendar quarter.
(3) Notwithstanding the above provisions, a Participant may elect
prospectively to revoke his salary reduction agreement in its entirety at any
time during the Plan Year by providing the Administrator with written notice of
such revocation. Such revocation shall become effective as of the payroll date
for which it is administratively practical to give effect. Furthermore, the
receipt of a hardship distribution pursuant to Section 6.14, the termination of
the Participant's employment, or the cessation of participation in the Plan for
any reason, shall be deemed to revoke any salary reduction agreement then in
effect, effective as of the date administratively practical following the close
of the pay period within which such receipt, termination or cessation occurs.
3.3 TIME OF PAYMENT OF CONTRIBUTIONS
The Employer shall pay to the Trustee its contributions to the Plan for
each Plan Year within the time prescribed by law, including extensions of time,
for the filing of the Employer's federal income tax return for the Fiscal Year.
The Employer shall designate the Plan Year to which the contribution relates. To
the extent the Trust has Current Obligations, the Employer's ESOP Contribution
shall be paid to the Plan in cash in sufficient and timely amounts to meet the
terms of such Current obligations. However, Deferred Compensation accumulated
through payroll deductions shall be paid to the Trustee within the times
prescribed by the Department of Labor. Furthermore, any additional Employer
contributions which are Qualified Non-Elective Contributions allocable to the
Participant's Deferral Account for a Plan Year shall be paid to the Plan no
later than the twelve-month period immediately following the close of such Plan
Year.
23
3.4 ACCOUNTING AND ALLOCATION
(a) The Administrator shall establish and maintain a Participant's
Deferral Account, Participant's ESOP Account, Participant's Matching Account,
and Participant's Profit Sharing Accounts (and if applicable, a Participant's
Rollover Account) in the name of each Participant, to which the Administrator
shall credit, as of each Anniversary Date (or at more frequent intervals
determined by the Administrator), all amounts allocable to each Participant as
hereinafter set forth. The Administrator may divide the Participant's ESOP
Account into a Participant's Company Stock Account, Participant's ESOP
Investment Account and/or Participant's Qualified Directed Investment Account.
(b) The Employer shall provide the Administrator with all information
required by the Administrator to make a proper allocation of all Employer
contributions (including the ESOP Contribution, Matching Contribution and Profit
Sharing Contribution, if any), Forfeitures, Company Stock released from the
Unallocated Company Stock Suspense Account, or Trust Fund earnings or losses for
each Plan Year. Within a reasonable time after the date of receipt by the
Administrator of such information, the Administrator shall allocate any such
contributions, Company Stock released from the unallocated Company Stock
Suspense Account and Forfeitures (after making any reinstatements required by
Section 3.4(f)) as follows:
(1) With respect to any Employer's Profit Sharing Contributions,
ESOP Contributions, Forfeitures of such Employer's ESOP Contributions and Profit
Sharing Contributions, and Company Stock released from the Unallocated Company
Stock Suspense Account, after making any reinstatements required by Section
3.4(f), the Administrator shall allocate such amounts in the same proportion
that each such Participant's Compensation with respect to such Plan Year bears
to the total Compensation of all Participants with respect to such Plan Year.
(2) With respect to the Deferred Compensation contributed pursuant
to Section 3.1(b), to each Participant's Deferral Account, an amount equal to
his Deferred Compensation for such Plan Year (or other interval).
(3) Effective for Plan Years beginning on and after October 1, 1997,
with respect to the Matching Contributions made pursuant to Section 3.1(c), to
each Participant's Matching Account an amount determined under the matching
formula for the Plan Year (or other interval).
(4) With respect to any Qualified Non-Elective Contributions made
pursuant to Section 3.1(d), to each Participant's (or if applicable, to each
Non-Highly Compensated Participant only) Deferral Account, an amount determined
by the Employer for such Plan Year.
24
(c) Notwithstanding the above provisions of Section 3.4(b), a
Participant who performed less than 500 Hours of Service during a Plan Year or
terminated employment for any reason during the Plan Year shall not be allocated
a share of the Employer's ESOP Contribution, Profit Sharing Contribution,
Company Stock Released from the Unallocated Company Stock Suspense Account,
Forfeitures, Matching Contribution, or Qualified Non-Elective Contribution,
unless required by Section 7.4 or unless required to meet the minimum
participation or coverage tests of Code ss.ss. 401(a)(26) and 410 or to avoid
discrimination under Code ss. 401(a)(4) for that Plan Year. However, effective
October 1, 1997, a Participant who terminated employment during the Plan Year
due to death or Total and Permanent Disability shall be allocated a share of
such contributions for such Plan Year, provided such Participant had 500 Hours
of Service for that Plan Year. Furthermore, a Participant whose effective date
of termination is September 30 shall be deemed to be employed on the last day of
the Plan Year.
(d) The Company Stock Account of each Participant shall be credited as
of each Anniversary Date with the Participant's allocable share (determined
pursuant to paragraph (b) above) of Company Stock (including fractional shares)
purchased and paid for by the Trust or contributed in kind to the Trust by the
Employer. In addition, each Participant's Company Stock Account shall be
credited as of each Anniversary Date with Forfeitures of Company Stock and with
stock dividends on Company Stock that previously had been allocated to the
Participant's Company Stock Account. Cash dividends on Company Stock held in a
Participant's Company Stock Account shall, in the discretion of the
Administrator, be allocated to the Participant's ESOP Investment Account, paid
directly to the Participant, or used to repay an Exempt Loan (provided that
Company Stock released from the Unallocated Company Stock Suspense Account and
allocated to the Participant's Company Stock Account has a fair market value not
less than the amount of cash dividends which would have been allocated to such
Participant's ESOP Investment Account for the Plan Year). Company Stock acquired
by the Plan with the proceeds of an Exempt Loan shall be allocated to each
Participant's Company Stock Account upon release from the Unallocated Company
Stock Suspense Account as provided in Section 3.4(g) below. Company Stock
received by the Trust during a Plan Year with respect to an ESOP Contribution by
the Employer for the preceding Plan Year shall be allocated to the Participant's
Company Stock Accounts as of the Anniversary Date of such preceding Plan Year.
(e) As of each Anniversary Date or other Valuation Date, before
allocation of the Employer's contributions made pursuant to Section 3.1, any
Company Stock released from the Unallocated Company Stock Suspense Account, any
Forfeitures, and any earnings or losses (including net appreciation or net
depreciation) of the Trust Fund (other than earnings or losses on segregated
accounts subject to Participant self-direction) since the last valuation shall
be allocated in the same proportion that each Participant's and Former
25
Participant's Aggregate Account (as of the beginning of the valuation period)
bears to the total of all Participants' and Former Participants' Aggregate
Accounts as of the same date. Such allocation shall, pursuant to a uniform
procedure determined by the Administrator, be reduced by any withdrawals,
distributions, forfeitures, or hardship distributions made pursuant to Section
6.14. Notwithstanding the foregoing, unless the Administrator elects to value
the Trust Fund daily, the Administrator may, pursuant to a uniform procedure
determined by the Administrator, provide that gains or losses on Deferred
Compensation may be computed on a time-weighted basis to give effect to the
periodic contribution of Deferred Compensation required by Section 3.4.
Furthermore, in the event the Employer elects to value the Trust Fund on each
Business Day, (i) each distribution or withdrawal shall be charged to the
appropriate account on the Business Day as of which such distribution or
withdrawal is processed, and (ii) contributions made by or on behalf of a
Participant shall be credited to the appropriate account on the Business Day as
of which such contribution is received and processed. The Trustee's
determination of the net value of the Trust Fund, and of the debits and credits
to each account, shall be conclusive and binding on the Participants and
Beneficiaries. See also Section 3.12 regarding the allocation of earnings to
Participant's Qualified Directed Investment Accounts.
(f) As of each Anniversary Date, any amounts credited to the Suspense
Account that have become Forfeitures during the Plan Year (including amounts
forfeited under Section 6.4) first, in accordance with Section 8.9, shall be
used to pay Plan expenses, costs and fees, and the balance shall be allocated as
follows:
(1) Forfeitures in the Suspense Account relating to Participants'
and Former Participants' ESOP Accounts, Participants' Profit Sharing Accounts,
and Participant's Matching Accounts shall first be used to reinstate previously
forfeited Participants' ESOP Accounts, Participants' Profit Sharing Accounts and
Participants' Matching Accounts, if any, pursuant to Section 6.4(g). If required
restorations exceed available Forfeitures, the Employer shall contribute the
excess to the Plan.
(2) Any remaining Forfeitures in the Suspense Account relating to
Participants' ESOP Accounts and Participants' Profit Sharing Accounts shall be
allocated in the year forfeited among the Participants' ESOP and Participants'
Profit Sharing Accounts in the same manner, and in connection with, the
allocation of the Employer's ESOP Contribution and Profit Sharing Contribution
respectively allocated pursuant to Section 3.4(b).
(3) Any remaining Forfeitures in the Suspense Account relating to
Participant's Matching Accounts shall be used in the year forfeited to reduce
the Employer's Matching Contribution required by Section 3.1(c) above.
26
(4) In the event the allocation of Forfeitures shall cause the
"annual addition" limitation of Section 3.9 to be exceeded, the excess shall be
reallocated in accordance with Section 3.10.
(5) Notwithstanding the above provisions of this Section 3.4(f), a
Participant who performed less than 500 Hours of Service during the Plan Year or
terminated employment for any reason during the Plan Year shall not be allocated
a share of the Plan Forfeitures for that Plan Year unless required pursuant to
Section 7.4 or unless required to meet the minimum participation or coverage
tests of Code ss.ss. 401(a)(26) and 410 or to avoid discrimination under Code
ss. 401(a)(4) for that Plan Year. However, effective October 1, 1997, a
Participant who terminated employment during such Plan Year due to death or
Total and Permanent Disability shall be allocated a share of such Plan
Forfeitures for such Plan Year, provided such Participant was credited with 500
Hours of Service for that Plan Year. Furthermore, a Participant whose effective
date of termination is September 30 shall be deemed to be employed on the last
day of the Plan Year.
(g) All Company Stock acquired by the Plan with the proceeds of an
Exempt Loan shall be added to and maintained in the Unallocated Company Stock
Suspense Account. Such Company Stock shall be released and withdrawn from that
account as if all Company Stock in that account were encumbered. For each Plan
Year during the duration of the Exempt Loan, the number of shares of the Company
Stock released shall equal the number of encumbered shares held immediately
before release for the current Plan Year multiplied by a fraction, the numerator
of which is the amount of principal and interest paid for the Plan Year and the
denominator of which is the sum of the numerator plus the principal and interest
to be paid for all future Plan Years. (See Section 5.5 regarding Exempt Loans).
The rules of Labor Regulation ss.2550.408b-3(h)(1) are incorporated herein by
reference. As of each Anniversary Date, the Administrator shall consistently
allocate to each Participant's Company Stock Account, in the same manner as the
Employer's ESOP Contributions are allocated, non-monetary units (i.e., shares
and fractional shares of Company Stock) representing each Participant's interest
in the Company Stock withdrawn from the Unallocated Company Stock Suspense
Account. Notwithstanding the foregoing, Company Stock released from the
Unallocated Company Stock Suspense Account with cash dividends pursuant to this
Section shall be allocated to each Participant's Company Stock Account in the
same proportion that each such Participant's number of shares of Company Stock
sharing in such cash dividends bears to the total number of shares of all
Participants' Company Stock sharing in such cash dividends. Income earned with
respect to Company Stock in the Unallocated Company Stock Suspense Account may
be used, at the discretion of the Administrator, to repay the Exempt Loan used
to purchase such Company Stock. Any income which is not so used shall be
allocated as income of the Plan.
27
(h) If a Former Participant is reemployed after five consecutive
One-Year Breaks in Service, then separate accounts shall be maintained as
follows:
(1) One account for nonforfeitable benefits attributable to
pre-break service; and
(2) One account representing his status in the Plan attributable to
post-break service.
(i) If, because of the service requirements in Sections 3.4(c) or
3.4(f)(5), this Plan would otherwise fail to meet the requirements of Code
ss.ss. 401(a)(26), 410 or 401(a)(4) and the Regulations thereunder, because the
Employer's ESOP Contributions, Profit Sharing Contributions and/or Forfeitures
have not been allocated to a sufficient number or percentage of Participants or
Former Participants for a Plan Year, then the following rules shall apply:
(1) The group of Participants eligible to share in the Employer's
ESOP Contributions, Profit Sharing Contribution and/or Forfeitures for the Plan
Year shall be expanded to include the minimum number of Participants who would
not otherwise be eligible as are necessary to satisfy the applicable test
specified above. The specific Participants who shall become eligible under the
terms of this paragraph shall be those who are actively employed on the last day
of the Plan Year and, when compared to similarly situated Participants, have
completed the greatest number of Hours of Service in the Plan Year.
(2) If after application of paragraph (1) above, the applicable test
is still not satisfied, then the group of Participants or Former Participants
eligible to share in the Employer's ESOP Contributions, Profit Sharing
Contribution and/or Forfeitures for the Plan Year shall be further expanded to
include the minimum number of Participants or Former Participants who are not
actively employed on the last day of the Plan Year as are necessary to satisfy
the applicable test. The specific Participants or Former Participants who shall
become eligible to share shall be those Participants or Former Participants,
when compared to similarly situated Participants or Former Participants, who
have completed the greatest number of Hours of Service in the Plan Year before
terminating employment.
(3) Nothing in this Section shall permit the reduction of a
Participant's Aggregate Account. Therefore, any amounts that have previously
been allocated to Participants or Former Participants may not be reallocated to
satisfy these requirements. In such event, the Employer shall make an additional
contribution equal to the amount such affected Participants or Former
Participants would have received had they been included in the allocations, even
if its exceeds the amount which would be deductible under Code ss. 404. Any
adjustment to the
28
allocations pursuant to this paragraph shall be considered a retroactive
amendment adopted by the last day of the Plan Year.
3.5 AVERAGE DEFERRAL PERCENTAGE TESTS
(a) For each Plan Year, the annual allocation under Section 3.4(b)(2)
derived from Deferred Compensation allocated to a Participant's Deferral Account
shall satisfy one of the following tests:
(1) The Average Deferral Percentage for the Highly Compensated
Participant group for the Plan Year shall not be more than the Average Deferral
Percentage of the Non-Highly Compensated Participant group for the Plan Year (or
for Plan Years beginning after December 31, 1996, for the preceding Plan Year)
multiplied by 1.25, or
(2) The excess of the Average Deferral Percentage for the Highly
Compensated Participant group for the Plan Year over the Average Deferral
Percentage for the Non-Highly Compensated Participant group for the Plan Year
(or for Plan Years beginning after December 31, 1996, for the preceding Plan
Year) shall not be more than two percentage points, and the Average Deferral
Percentage for the Highly Compensated Participant group for the Plan Year shall
not exceed the Average Deferral Percentage for the Non-Highly Compensated
Participant group for the Plan Year (or for Plan Years beginning after December
31, 1996, for the preceding Plan Year) multiplied by two. The provisions of Code
ss. 401(k)(3) and Regulation ss. 1.401(k)-1(b) are incorporated herein by
reference.
For Plan Years beginning after December 31, 1996, the current Plan Year may
be used for computing the Average Deferral Percentage of the Non-Highly
Compensated Participant group if the Employer so elects, but once such election
is made, it may not be changed except as provided by the Secretary of the
Treasury.
(b) In order to prevent the multiple use of the alternative method
described in subparagraph (a)(2) above and Section 3.7(a)(2) with respect to any
Highly Compensated Employee, the provisions of Regulation ss. 1.401(m)-2 are
incorporated herein by reference. See Section 3.7(b) for the method of
eliminating such multiple use.
(c) For Plan Years beginning prior to December 31, 1996, for purposes
of determining the Actual Deferral Percentage of a Highly Compensated Employee
who is subject to the Family Member rules of Code ss. 414(q)(6) the following
shall apply:
(1) The combined Actual Deferral Percentage for the family group
(which shall be treated as one Highly Compensated Participant) shall be
determined by aggregating the Deferred Compensation and Compensation of all
eligible Family Members (including Highly Compensated Participants). However, in
applying the
29
$150,000 limit (as adjusted) to Compensation, Family Member shall include only
the affected Employee's spouse and any lineal decedents who have not attained
age 19 before the close of the Plan Year.
(2) The Deferred Compensation, Compensation and Qualified
Non-Elective Contributions of all Family Members shall be disregarded for
purposes of determining the Actual Deferral Percentage of the Non-Highly
Compensated Participated group except to the extent taken into account in
paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of
more than one family group in a plan, all Participants who are members of those
family groups that include the Participant are aggregated as one family group in
accordance with paragraphs (1) and (2) above.
(d) For purposes of Sections 3.5(a) and 3.6, a Highly Compensated
Participant and a Non-Highly Compensated Participant shall include any Employee
eligible to make a deferral election pursuant to Section 3.2, whether or not
such deferral election was made or suspended.
(e) For purposes of this Section and Code ss.ss. 401(a)(4), 410(b) and
401(k), if two or more plans which include cash or deferred arrangements are
considered one plan for purposes of Code ss. 410(b) (other than for purposes of
the average benefit percentage test), the cash or deferred arrangements included
in such plans shall be treated as one arrangement. In addition, two or more cash
or deferred arrangements may be considered as a single arrangement for purposes
of determining whether such arrangements satisfy Code ss.ss. 401(a)(4), 410(b)
and 401(k). In such case, the cash or deferred arrangements included in such
plans and the plans including such arrangements shall be treated as one
arrangement and as one plan for purposes of this Section and Code ss.ss.
401(a)(4), 410(b) and 401(k). For Plans Years beginning after December 31, 1989,
plans may be aggregated under this paragraph (e) only if they have the same plan
year.
(f) For purposes of this Section, if a Highly Compensated Participant
is a Participant under two or more cash or deferred arrangements (other than a
plan described in Regulation ss. 1.401(k)-1(b)(3)(ii)(B)) which are maintained
by the Employer or an Affiliated Employer and to which Deferred Compensation
contributions are made, all such cash or deferred arrangements shall be treated
as one cash or deferred arrangement for the purpose of determining the Actual
Deferral Percentage with respect to such Highly Compensated Participant. If the
cash or deferred arrangements have different plan years, this paragraph shall be
applied by treating all cash or deferred arrangements ending with or within the
same calendar year as a single arrangement.
30
3.6 ADJUSTMENT TO AVERAGE DEFERRAL PERCENTAGE TESTS
(a) In the event that the initial allocations of Deferred Compensation
made pursuant to Section 3.4(b)(2) do not satisfy one of the tests set forth in
Section 3.5(a), then on or before the fifteenth day of the third month following
the end of the Plan Year, the Administrator shall adjust the Excess Elective
Contributions as follows:
(1) For Plan years beginning prior to December 31, 1996, the
Administrator shall direct the Trustee that the Highly Compensated Participant
having the highest Actual Deferral Percentage shall have his portion of Excess
Elective Contributions distributed to him (without the need for Participant or
spousal consent) until one of the tests set forth in Section 3.5(a) is satisfied
by the Highly Compensated Participant group, or until his Actual Deferral
Percentage equals the Actual Deferral Percentage of the Highly Compensated
Participant having the second highest Actual Deferral Percentage. This process
shall continue until one of the tests set forth in Section 3.5(a) is satisfied
by the Highly Compensated Participant group. For each Highly Compensated
Participant, the amount of Excess Elective Contributions is equal to the
difference between the Deferred Compensation of such Highly Compensated
Participant (determined prior to the application of this paragraph) minus the
amount determined by multiplying the Highly Compensated Participant's Actual
Deferral Percentage (determined after application of this paragraph) by his
Compensation. However, in determining the amount of Excess Elective
Contributions to be distributed with respect to an affected Highly Compensated
Participant as determined herein, such amount shall be reduced by any Excess
Deferred Compensation previously distributed to such affected Highly Compensated
Participant for his taxable year ending with or within such Plan Year. See
Sections 3.2(f) and (g).
(2) For Plan Years beginning after December 31, 1996, the
Administrator first shall determine the total dollar amount of Excess Elective
Contributions that must be returned to the Highly Compensated Participant group
in order to satisfy one of the tests set forth in Section 3.5(a). Next, the
Administrator shall direct the Trustee to distribute such total dollar amount of
Excess Elective Contributions to the Highly Compensated Participants on the
basis of the dollar amount of Deferred Compensation allocated to the Highly
Compensated Participants pursuant to Section 3.4(b)(2) (prior to the application
of this subsection), such that Excess Elective Contributions shall be
distributed to the Highly Compensated Participants who were allocated the
highest dollar amount of Deferred Compensation. This provision shall be applied
by distributing (without the need for Participant or spousal consent) to the
Highly Compensated Participant who was allocated the highest dollar amount a
dollar amount of
31
Excess Elective Contributions until the total amount of Excess Elective
Contributions is distributed, or until his dollar amount of Deferred
Compensation equals the dollar amount of Deferred Compensation of the Highly
Compensated Participant that was allocated the second highest amount of Deferred
Compensation. This process shall continue until the total dollar amount of
Excess Elective Contributions that must be returned to the Highly Compensated
Participant group is in fact returned and distributed. The rules of Notice 97-2,
1997-1 C.B. 348 are incorporated herein by reference. However, in determining
the amount of Excess Elective Contributions to be distributed, such total amount
shall be reduced by any Excess Deferred Compensation previously distributed to a
Highly Compensated Participant for his taxable year ending with or within such
Plan Year. See Sections 3.2(f) and (g).
(3) With respect to the distribution of Excess Elective
Contributions pursuant to (a) above, such distribution:
(i) may be postponed, but not later than the close of the Plan
Year following the Plan Year to which they are allocable;
(ii) shall be made first from unmatched Deferred Compensation
and, thereafter, from Deferred Compensation which is matched. Matching
Contributions relating to Excess Elective Contributions shall not be
distributed, but rather shall be treated as a Forfeiture of a Matching
Contribution in the Plan Year of the distribution and reallocation pursuant to
Section 3.4.
(iii) shall be made from Qualified Non-Elective Contributions
only to the extent that Excess Elective Contributions exceed the balance in the
Participant's Deferral Account attributable to Deferred Compensation contributed
pursuant to Section 3.1(b);
(iv) shall be adjusted for "income" (as defined in paragraph 4
below); and
(v) shall be designated by the Employer as a distribution of
Excess Elective Contributions and "income".
(4) For purposes of this Section 3.6, "income" means the gain or
loss allocable to Excess Elective Contributions for the Plan Year. Such amount
shall be determined by multiplying the income allocable to Deferred Compensation
for the Plan Year by a fraction. The numerator of the fraction is the
Participant's Excess Elective Contributions for the Plan Year. The denominator
of the fraction is the sum of the Participant's Deferral Account as of the
beginning of the Plan Year plus the Deferred Compensation allocable to such
Participant's Deferral Account for the Plan Year. No income shall be allocable
to Excess Elective Contributions for the Gap Period.
(5) Any distribution of less than the entire amount of Excess
Elective Contributions shall be treated as a pro rata distribution of Excess
Elective Contributions and income.
32
(6) For Plan Years beginning prior to December 31, 1996, the
determination and correction of Excess Elective Contributions of a Highly
Compensated Participant whose Actual Deferral Percentage is determined under the
Family Member rules of Code ss. 414(q)(6) and Section 3.5(b) shall be
accomplished by reducing the Actual Deferral Percentage as required herein, and
allocating the Excess Elective Contributions for the family unit among the
Family Members in proportion to the Deferred Compensation of each Family Member
that was combined to determine the group Actual Deferral Percentage.
(b) Within 12 months after the end of the Plan Year, the Employer may
make a special Qualified Non-Elective Contribution on behalf of all Participants
(or Non-Highly Compensated Participants only) in an amount sufficient to satisfy
one of the tests set forth in Section 3.5(a). Such contribution shall be
allocated to the Participant's Deferral Account of each Participant (or
Non-Highly Compensated Participants only) in the same proportion that each
Participant's Compensation (or Non-Highly Compensated Participant's Compensation
only) for the Plan Year bears to the total Compensation of all Participants (or
Non-Highly Compensated Participants only).
3.7 AVERAGE CONTRIBUTION PERCENTAGE TESTS
(a) For each Plan Year, the Average Contribution Percentage for the
Highly Compensated Participant group shall satisfy one of the following tests:
(1) The Average Contribution Percentage for the Highly Compensated
Participant group for the Plan Year shall not be more than the Average
Contribution Percentage for the Non-Highly Compensated Participant group for the
Plan Year (for Plan Years beginning after December 31, 1996, for the preceding
Plan Year) multiplied by 1.25, or
(2) The excess of the Average Contribution Percentage for the Highly
Compensated Participant group for the Plan Year over the Average Contribution
Percentage for the Non-Highly Compensated Participant group for the Plan Year
(for Plan Years beginning after December 31, 1996, for the preceding Plan Year)
shall not be more than two percentage points, and the Average Contribution
Percentage for the Highly Compensated Participant group for the Plan Year (for
Plan Years beginning after December 31, 1996, for the preceding Plan Year) shall
not exceed the Average Contribution Percentage for the Non-Highly Compensated
Participant group for the Plan Year (for Plan Years beginning after December 31,
1996, for the preceding Plan Year) multiplied by two.
For Plan Years beginning after December 31, 1996, the current Plan Year may
be used in computing the Average Contribution Percentage of the Non-Highly
Compensated Participant group if the Employer so elects, but once such election
is made, it may not be changed except as provided by the Secretary of the
Treasury.
33
(b) In order to prevent the multiple use of the alternative method
described in subparagraph (a)(2) above and Section 3.5(a)(2), any Highly
Compensated Participant eligible to make Deferred Compensation contributions
pursuant to Section 3.2 or any other cash or deferred arrangement maintained by
the Employer or an Affiliated Employer, and to receive Matching Contributions
under this Plan or under any other plan maintained by the Employer or an
Affiliated Employer, shall have his Actual Contribution Percentage reduced
pursuant to Regulation ss. 1.401(m)-2. The provisions of Code ss. 401(m) and
Regulation ss.ss. 1.401(m)-1(b) and 1.401(m)-2 are incorporated herein by
reference. See Section 3.8 for the reduction of the Actual Contribution
Percentage. In lieu of such reduction, the Employer may eliminate such multiple
use by making Qualified Non-Elective Contributions.
(c) For purposes of determining the Actual Contribution Percentage and
the amount of Excess Matching Contributions pursuant to Section 3.8, only
Employer Matching Contributions contributed to the Plan prior to the end of the
succeeding Plan Year shall be considered. In addition, the Administrator may
elect to take into account, with respect to Employees eligible to have Employer
Matching Contributions pursuant to Section 3.1(c) allocated to their accounts,
elective deferrals (as defined in Regulation ss. 1.402(g)-1(b)) and qualified
non-elective contributions (as defined in Code ss. 401(m)(4)(C)) contributed to
any plan maintained by the Employer. Qualified non-elective contributions may be
treated as Employer Matching Contributions only if the requirements of
Regulation ss.ss.1.401(m)-1(b)(5) and 1.401(k)-1(g)(13)(iii) are satisfied.
Furthermore, such elective deferrals and qualified non-elective contributions
shall be treated as Employer Matching Contributions subject to Regulation ss.
1.401(m)-1(b)(2) which is incorporated herein by reference. However, the Plan
Year of this Plan must be the same as the plan year of the plan to which the
elective deferrals and the qualified non-elective contributions are made.
(d) For Plan Years beginning prior to December 31, 1996, for purposes
of determining the Actual Contribution Percentage of a Highly Compensated
Employee who is subject to the Family Member aggregation rules of Code ss.
414(q)(6), the following shall apply:
(1) The combined Actual Contribution Percentage for the family group
(which shall be treated as one Highly Compensated Participant) shall be
determined by aggregating Employer Matching Contributions made pursuant to
Section 3.1(c) of all eligible Family Members (including Highly Compensated
Participants). However, in applying the $200,000 limit to Compensation, for Plan
Years beginning after December 1988, Family Members shall include only the
affected Employee's spouse and any lineal descendants who have not attained age
19 before the close of the Plan Year.
34
(2) The Employer Matching Contributions made pursuant to Section
3.1(c), Deferred Compensation, Compensation and contributions treated as
Matching Contributions of all Family Members shall be disregarded for purposes
of determining the Average Contribution Percentage of the Highly Compensated
Participant and the Non-Highly Compensated Participant group, except to the
extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of
more than one family group in a plan, all Participants who are members of those
family groups that include the Participant are aggregated as one family group in
accordance with paragraphs (1) and (2) above.
(e) For purposes of this Section and Code ss.ss. 401(a)(4), 410(b) and
401(m), if two or more plans of the Employer to which Matching Contributions are
made are treated as one plan for purposes of Code ss. 410(b) (other than the
average benefits test under Code ss. 410(b)(2)(A)(ii) as in effect for Plan
Years beginning after December 31, 1988), such plans shall be treated as one
plan. In addition, two or more plans of the Employer to which Matching
Contributions are made may be considered as a single plan for purposes of
determining whether such plans satisfy Code ss.ss. 401(a)(4), 410(b) and 401(m).
In such case, the aggregated plans must satisfy this Section and Code ss.ss.
401(a)(4), 410(b) and 401(m) as though such aggregated plans were a single plan.
For Plan Years beginning after December 31, 1989, plans may be aggregated under
this paragraph (d) only if they have the same plan year.
Notwithstanding the above, an employee stock ownership plan described
in Code ss. 4975(e)(7) may not be aggregated with this Plan for purposes of
determining whether the employee stock ownership plan or this Plan satisfies
this Section and Code ss.ss. 401(a)(4), 410(b) and 401(m).
(f) For purposes of this Section, if a Highly Compensated Participant
is a Participant under two or more plans (other than a plan described in
Regulation ss. 1.401(m)-1(b)(3)(ii)) which are maintained by the Employer or an
Affiliated Employer and to which Matching Contributions are made, all such
contributions on behalf of such Highly Compensated Participant shall be
aggregated for purposes of determining such Highly Compensated Participant's
Actual Contribution Percentage. However, if the plans have different plan years,
this paragraph shall be applied by treating all plans ending with or within the
same calendar year as a single plan.
(g) For purposes of Sections 3.7(a) and 3.8, a Highly Compensated
Participant and Non-Highly Compensated Participant shall include any Employee
eligible to have Employer Matching Contributions pursuant to Section 3.1(c)
(whether or not a deferral election was made or suspended pursuant to Section
3.2(d)) allocated to his Participant Matching Account for the Plan Year.
35
3.8 ADJUSTMENT TO AVERAGE CONTRIBUTION PERCENTAGE TESTS
(a) In the event that the initial allocations of Matching Contributions
made pursuant to Section 3.4(b)(3) do not satisfy one of the tests set forth in
Section 3.7(a), then on or before the fifteenth day of the third month following
the end of the Plan Year, the Administrator shall adjust the Excess Matching
Contributions.
(1) Effective for Plan Years beginning on and after October 1, 1997,
the Administrator first shall determine the total dollar amount of Excess
Matching Contributions that must be distributed to or forfeited by the Highly
Compensated Participant group in order to satisfy one of the tests set forth in
Section 3.7(a). Next, the Administrator shall direct the Trustee to distribute
or forfeit (as provided below) such total dollar amount of Excess Matching
Contributions with respect to the Highly Compensated Participants on the basis
of the dollar amount of Matching Contributions allocated to the Highly
Compensated Participants pursuant to Section 3.4(b)(3) (prior to the application
of this subsection), such that Excess Matching Contributions shall be
distributed to or forfeited with respect to the Highly Compensated Participants
who were allocated the highest dollar amount of Matching Contributions. This
provision shall be applied by distributing to or forfeiting with respect to the
Highly Compensated Participant with the highest dollar allocation of Matching
Contributions a dollar amount until the total amount of Excess Matching
Contributions that must be distributed to or forfeited by the Highly Compensated
Participant group are distributed or forfeited, or until his dollar amount of
Matching Contributions equals the dollar amount of Matching Contributions of the
Highly Compensated Participant who was allocated the second highest amount of
Matching Contributions. This process shall continue until the total dollar
amount of Excess Matching Contributions that must be distributed to or forfeited
by the Highly Compensated Participant group are distributed or forfeited. The
rules of Notice 97-2, 1997-1 C.B. are incorporated herein by reference. Except
as provided in Section 3.6(a)(3)(ii), for purposes of this subsection, to the
extent a Highly Compensated Participant described herein is Vested, Excess
Matching Contributions (and income allocable thereto) shall be distributed, and
the portion thereof that is not Vested shall be forfeited at that time.
(2) The distribution and/or Forfeiture of Excess Matching
Contributions shall be made in the following order:
(i) Employer Matching Contributions forfeited pursuant to
Section 3.6(a)(3)(ii);
(ii) Remaining Employer Matching Contributions.
(b) Any distribution and/or Forfeiture of less than the entire amount
of Excess Matching Contributions and income shall be treated as a pro
36
rata distribution and/or Forfeiture of Excess Matching Contributions and income.
Distribution of Excess Matching Contributions shall be designated by the
Employer as a distribution of Excess Matching Contributions and income.
Forfeitures of Excess Matching Contributions shall be treated in accordance with
Section 3.4. However, no such Forfeiture may be allocated to a Highly
Compensated Participant whose contributions are reduced pursuant to this
Section.
(c) Excess Matching Contributions, including forfeited Matching
Contributions, shall be treated as Employer contributions for purposes of Code
ss.ss. 404 and 415, even if distributed from the Plan.
(d) For purposes of this Section 3.8, "income" means the gain or loss
allocable to Excess Matching Contributions for the Plan Year. Such amount shall
be determined by multiplying the income allocable to Matching Contributions for
the Plan Year by a fraction. The numerator of the fraction is the Participant's
Excess Matching Contributions for the Plan Year. The denominator of the fraction
is the sum of the Participant's Matching Account as of the beginning of the Plan
Year plus the Matching Contributions allocable to such Participant's Matching
Account for the Plan Year. No income shall be allocable to Excess Matching
Contributions for the Gap Period.
(e) In no case shall the amount of Excess Matching Contributions with
respect to any Highly Compensated Participant exceed the amount of Employer
Matching Contributions made pursuant to Section 3.1(c) and any Qualified
Non-Elective Contributions or elective deferrals taken into account pursuant to
Section 3.7 on behalf of such Highly Compensated Participant for such Plan Year.
(f) Notwithstanding the above, within 12 months after the end of the
Plan Year, the Employer may make a special Qualified Non-Elective Contribution
on behalf of all Participants (or Non-Highly Compensated Participants only) in
an amount sufficient to satisfy one of the tests set forth in Section 3.7(a).
Such contributions shall be allocated to the Participant's Deferral Account of
each Participant (or Non-Highly Compensated Participant only) in the same
proportion that each Participant's Compensation (or Non-Highly Compensated
Participant's Compensation only) for the Plan Year bears to the total
Compensation of all Participants (or Non-Highly Compensated Participants only).
A separate accounting shall be maintained for the purpose of excluding such
contributions from the Actual Deferral Percentage tests pursuant to Section
3.5(a) and shall comply with the requirements of Regulation ss.1.401(m) -
1(b)(5).
3.9 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding Section 3.4, the maximum annual additions (as
defined in Section 3.9(b) below) credited to a Participant's Aggregate
37
Account for any limitation year (as defined in Section 3.9(d) below) shall equal
the lesser of: (1) $30,000, or (2) 25% of the Participant's Compensation for
such limitation year, as adjusted from time to time as in Section 3.9(e) below.
Provided that no more than one-third of the Employer's ESOP Contributions for
the Plan Year, which are deductible under the principal and interest deduction
rules of Code ss.404(a)(9), are allocated to Highly Compensated Participants,
the limitations of Code ss.415 shall not apply to Forfeitures of Company Stock
if such Company Stock was acquired with the proceeds of an Exempt Loan, or to
the portion of the Employer's ESOP Contribution which is deductible as an
interest payment under Code ss.404(a)(9)(B).
(b) For purposes of applying the limitations of Code ss. 415, annual
additions means the sum credited to a Participant's Aggregate Account for any
limitation year of: (1) Deferred Compensation, Matching Contributions, Profit
Sharing Contributions, and Qualified Non-Elective Contributions; (2) ESOP
Contributions; (3) Forfeitures; (4) amounts allocated to an individual medical
account, as defined in Code ss. 415(l)(2) which is part of a pension or annuity
plan maintained by the Employer; and (5) except for purposes of subsection
(a)(2) above, amounts derived from contributions paid or accrued which are
attributable to postretirement medical benefits allocated to the separate
account of a key employee (as defined in ss. 419(A)(d)(3) of the Code) under a
welfare benefit plan (as defined in ss. 419(e) of the Code) maintained by the
Employer. Contributions do not fail to be annual additions merely because they
are Excess Deferred Compensation, Excess Elective Contributions, or Excess
Matching Contributions, or merely because Excess Elective Contributions or
Excess Matching Contributions are distributed or recharacterized. Excess
Deferred Compensation distributed pursuant to Regulation ss. 1.402(g)-1(e)(2) or
(3) are not annual additions. The Compensation percentage limitation referred to
in Section 3.9(a)(2) above shall not apply to any contribution for medical
benefits (within the meaning of Code ss. 419A(f)(2)) after separation from
service which is otherwise treated as an annual addition, or any amount
otherwise treated as an annual addition under Code ss. 415(l)(i).
(c) For purposes of applying the limitations of Code ss. 415, the
following are not annual additions: (1) transfer of funds from one qualified
plan to another; (2) rollover contributions (as defined in Code ss.ss.
402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3)); (3) repayments of loans made to
a Participant from the Plan; (4) repayments of distributions received by an
Employee pursuant to Code ss. 411(a)(7)(B) (cash-outs); (5) repayments of
distributions received by an Employee pursuant to Code ss. 411(a)(3)(D)
(mandatory contributions); (6) Employee contributions to a simplified employee
pension excludable under Code ss. 408(k)(6); and (7) deductible Employee
contributions to a qualified Plan.
(d) For purposes of applying the limitations of Code ss. 415, the
"limitation year" shall be the Plan Year.
38
(e) The limitation stated in paragraph (a)(1) above shall be adjusted
annually as provided in Code ss. 415(d) pursuant to Regulations. The adjusted
limitation is effective as of January 1 of each calendar year and is applicable
to limitation years ending with or within that calendar year.
(f) For purposes of this Section, all qualified defined benefit plans
(whether terminated or not) ever maintained by the Employer shall be treated as
one defined benefit plan, and all qualified defined contribution plans (whether
terminated or not) ever maintained by the Employer shall be treated as one
defined contribution plan.
(g) For purposes of this Section, all Employees of any Affiliated
Employers shall be considered to be employed by a single Employer.
3.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of a reasonable error in estimating a Participant's
Compensation, a reasonable error in determining the amount of Deferred
Compensation (within the meaning of Code ss.402(g)(3)) that may be made with
respect to any Participant under the limits of Section 3.9 above, or other facts
and circumstances to which Regulation ss. 1.415-6(b)(6) shall be applicable, the
annual additions under this Plan would cause the maximum annual additions to be
exceeded for any Participant, the Administrator shall (1) distribute any
Deferred Compensation (within the meaning of Code ss.402(g)(3)) credited for the
limitation year to the extent that the return would reduce the "excess amount"
in the Participant's Aggregate Account; (2) hold any remaining "excess amount"
after the return of any voluntary Employee contributions in a "Section 415
suspense account"; (3) allocate and reallocate the "Section 415 suspense
account" in the next limitation year (and succeeding limitation years if
necessary) to all Participants in the Plan before any Employer or Employee
contributions which would constitute annual additions are made to the Plan for
such limitation year; and (4) reduce the Employer's discretionary contributions
to the Plan for such limitation year by the amount of the "Section 415 suspense
account" allocated and reallocated during such limitation year.
(b) For purposes of this Article, "excess amount" for any Participant
for a limitation year shall mean the excess, if any, of: (1) the annual
additions which would be credited to his account under the terms of the Plan
without regard to the limitations of Code ss. 415, over (2) the maximum annual
additions determined pursuant to Section 3.9.
(c) For purposes of this Section, "Section 415 suspense account" shall
mean an unallocated account equal to the sum of "excess amounts" for all
Participants in the Plan during the limitation year. The "Section 415 suspense
account" shall not share in any earnings or losses of the Trust Fund.
39
(d) Except as provided in this Section 3.10, the Plan may not
distribute "excess amounts" to Participants or Former Participants.
3.11 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be transferred
by or on behalf of a Participant from other qualified corporate and noncorporate
plans, provided that the trust from which such funds are transferred permits the
transfer to be made and, in the opinion of legal counsel for the Employer, the
transfer will not jeopardize the tax exempt status of the Plan or create adverse
tax consequences for the Employer. The amounts transferred shall be credited to
the Participant's Rollover Account. Such account shall be 100% Vested at all
times and shall not be subject to Forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account shall be held by the
Trustee pursuant to the provisions of this Plan, and such amounts may not be
withdrawn by, or distributed to the Participant, in whole or in part, except as
provided in paragraph (c) of this Section.
(c) At Normal Retirement Date, or such other date when the Participant
or his Beneficiary would be entitled to receive his Participants' Matching
Account and/or Participant's Profit Sharing Account under the terms of the Plan,
the Participant's Rollover Account shall be distributed to the Participant or
his Beneficiary in the form that the Participant or Beneficiary shall elect
pursuant to Article VI. Notwithstanding the foregoing, a Participant may request
and receive a lump sum distribution of all, and only all, of his Participant's
Rollover Account at any time, even while still employed by the Employer. Such
lump sum distribution shall be made as soon as practical after the Anniversary
Date or Valuation Date coinciding with, or next following, the date on which the
Participant requests distribution of his Participant's Rollover Account.
(d) Unless the Administrator directs that the Participant's Rollover
Account be segregated into a separate account for such Participant in a
federally insured savings account, certificate of deposit in a bank or savings
and loan association, money market certificate, or other short-term debt
security acceptable to the Trustee, or unless the Participant's Rollover Account
is subject to the directed investment provisions of Section 3.13, such account
shall be invested as part of the general Trust Fund and shall share in any
income earned or losses incurred thereon pursuant to the terms of Section 3.4.
(e) The Administrator may direct that Employee transfers and rollovers
made after a certain date pursuant to this Section be segregated into a separate
account for each Participant in a federal insured savings account, certificate
of deposit in a bank or savings and loan association, money market certificate,
or other short-term debt security acceptable to the Trustee until
40
such time as the allocations pursuant to this Agreement have been made.
Alternately, the Administrator may direct that Participant transfers and
rollovers be received only at certain times throughout the Plan Year.
(f) For purposes of this Section, the term "amounts transferred from
another qualified corporate and noncorporate plan" shall mean: (1) amounts
transferred to this Plan directly from another corporate or noncorporate plan;
(2) lump sum distributions received by an Employee from another qualified plan
which are eligible for tax free rollover to a qualified corporate or
noncorporate plan and which are transferred by the Employee to this Plan within
60 days following his receipt thereof; (3) amounts transferred to this Plan from
a conduit individual retirement account provided that the conduit individual
retirement account has no assets other than assets (and the earnings therein)
which (i) were previously distributed to the Employee by another qualified
corporation or noncorporation plan as a lump sum distribution, (ii) were
eligible for tax free rollover to a qualified corporate or noncorporate plan,
and (iii) were deposited in such conduit individual retirement account within 60
days of receipt thereof; and (4) amounts distributed to the Employee from a
conduit individual retirement account meeting the requirements of clause (3)
above, and transferred by the Employee to this Plan within 60 days of his
receipt thereof from such conduit individual retirement account. Prior to
accepting any transfers to which this Section applies, the Administrator may
require the Participant to establish that the amounts to be transferred to this
Plan meet the requirements of this Section and may also require the Participant
to provide an opinion of counsel satisfactory to the Employer that the amounts
to be transferred meet the requirements of this Section.
(g) For purposes of this Section, the term "qualified corporate or
noncorporate plan" shall mean any tax qualified plan under Code ss. 401(a).
3.12 PARTICIPANT'S QUALIFIED DIRECTED INVESTMENT ACCOUNT
(a) Each Qualified Participant may elect no later than 90 days after
the close of each Plan Year during the Qualified Election Period to direct the
Trustee in writing as to the investment of 25% of the total number of shares of
Company Stock acquired by or contributed to the Plan that have ever been
allocated to the Participant's Company Stock Account of such Qualified
Participant (reduced by the number of shares of Company Stock previously
diversified or distributed pursuant to this Section 3.12). In the last Plan Year
of the Qualified Election Period, 50% shall be substituted for 25% in the
preceding sentence. Furthermore, the rules of Code ss. 401(a)(28) are
incorporated herein by reference.
(b) Notwithstanding Section 3.12(a), if the fair market value
(determined as of the Valuation Date immediately preceding the beginning of the
90 day election period) of Company Stock acquired by or contributed to the Plan
that has ever been allocated to the Participant's Company Stock Account of the
41
Qualified Participant is less than $500, then such Participant's Company Stock
Account shall not be subject to the diversification requirements of this Section
3.12.
(c) A separate Participant's Qualified Directed Investment Account
shall be established by the Administrator for any Qualified Participant that
makes a diversification election pursuant to this Section 3.12. Such Qualified
Directed Investment Account shall not share in the earning or losses of the
Trust Fund with respect to the Company Stock so diversified, but instead shall
be credited or debited with only the earnings or losses attributable to the
investments directed pursuant to Section 3.12(d) below.
(d) The Administrator shall select a minimum of three investment
options that shall be available to Qualified Participants for reinvestment of
the portion of their Participant's Company Stock Account diversified pursuant to
Section 3.12(a). A Qualified Participant shall have the right to direct the
portion of his Participant's Company Stock Account that has been diversified
into a minimum of one of the three available options. A Qualified Participant
may change his investment option at least once a Plan Year in accordance with
procedures established by the Administrator. If the Administrator permits a
change of investment options only once a year, such change shall be made during
the first 90 days of the Plan Year. The Administrator and Trustee shall complete
a Qualified Participant's election under Section 3.12(a) or change his
investment option pursuant to this Section 3.12(d) within 90 days of receipt of
written notice from the Qualified Participant. Alternately, in lieu of
establishing three investment options, the Administrator may authorize and
direct the Trustee to distribute the Company Stock subject to the
diversification elections within 90 days after the close of the Plan Year.
(e) In the event a Qualified Participant directs a portion of his
Participant's Employer Account pursuant to this Section 3.12, such Qualified
Participant shall not have, with respect to such directed portion, the right to
demand Company Stock pursuant to Code ss.409(h)(1)(A) and Section 6.8 of this
Plan.
3.13 DIRECTED INVESTMENT ACCOUNT
The Administrator, in its sole discretion, may permit Participants, Former
Participants, Terminated Participants and Beneficiaries to direct the investment
of all or any portion of their Aggregate Account (other than their Participants'
Company Stock Account) among investment funds or options designated by the
Investment Advisory Committee appointed by the Employer pursuant to Section
8.1(a). Such investment direction shall be in accordance with the rules and
procedures established by the Administrator from time to time.
42
3.14 VOTING COMPANY STOCK
The Trustee shall vote all Company Stock held by it as part of the Plan's
assets and in accordance with this Section.
Except as otherwise required by the Act, the Trustee shall vote Company
Stock which has been allocated to a Participant's or Former Participant's
Company Stock Account in accordance with the voting instructions of such
Participant or Former Participant. To the extent a Participant or Former
Participant fails to timely exercise the right to vote Company Stock which has
been so allocated to his Company Stock Account, the Trustee shall vote such
allocated shares of Company Stock, together with any Company Stock held in the
Unallocated Company Stock Suspense Account, in the sole discretion of the
Trustee.
In the event the Trustee receives a notice of tender offer for the Company
Stock, the Trustee immediately shall forward such notice to Participants and
Former Participants with Company Stock Accounts at that time. Except as
otherwise required by the Act, the Trustee shall request each Participant and
Former Participant to instruct the Trustee as to the tender of shares of Company
Stock allocated to his Company Stock Account, and the Trustee shall tender (or
not tender) those shares according to such instructions. To the extent a
Participant or Former Participant fails to timely instruct the Trustee, the
Trustee shall determine, in its sole discretion, whether to tender such
allocated shares of Company Stock, together with any Company Stock then held in
the Unallocated Company Stock Suspense Account.
3.15 UNIFORMED SERVICES EMPLOYMENT AND RE-EMPLOY-MENT RIGHTS ACT
Notwithstanding any provision of this Plan to the contrary, contributions,
benefits and service credit with respect to qualified military service will be
provided in accordance with Code ss.414(u). Loan repayments will be suspended
under this Plan as permitted under Code ss.414(u)(4).
ARTICLE IV
VALUATIONS
4.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary Date and
Valuation Date, to determine the net worth of the assets comprising the Trust
Fund as it exists on such Anniversary Date or Valuation Date. See Section 3.4(e)
for the rules and methods by which the Participants' Aggregate Accounts shall be
valued and by which distributions, withdrawals and contributions shall be
debited and credited to such accounts. In determining such net worth, the
Trustee shall value the assets comprising the Trust Fund at their fair market
43
value as of such Anniversary Date or Valuation Date and may deduct and pay all
expenses for which the Trustee, Administrator or other third party service
provider has not yet obtained reimbursement from the Employer or the Trust Fund.
See Section 8.9 pertaining to the payment of expenses.
Determination of fair market value shall be made in good faith and based on
all relevant factors for determining the fair market value of the asset.
In determining the value of any security, if the security is traded on a
national exchange, the Trustee shall consider the price at which it was last
traded. With respect to any unlisted security held in the Trust Fund, the bid
price next preceding the close of business on the Valuation Date shall be
considered. In either event, the Trustee shall also consider such other facts
(including without limitation minority discounts and discounts for lack of
marketability) that the Trustee determines, in its discretion, to reasonably
influence the price of the security. The Trustee may, in any case, employ one or
more appraisers for the purpose of valuing the securities or any other assets
and may rely on the values established by such appraiser or appraisers. All
valuations of Company Stock which is not readily tradeable on an established
securities market shall be made by an independent appraiser that meets the
requirements of Code ss.401(a)(28)(c).
ARTICLE V
FUNDING AND INVESTMENT POLICY
5.1 INVESTMENT POLICY
(a) The Plan is designed to have a cash or deferred component (i.e.,
the Deferred Compensation and Matching Contribution) and an ESOP component. The
ESOP component is designed to invest primarily in Company Stock.
(b) Notwithstanding paragraph (a) above, the Administrator may also
direct the Trustee to invest (or may permit Participant direction) in other
property described in the Trust or the Trustee may hold such funds in cash or
cash equivalents.
(c) The Plan may not obligate itself to acquire Company Stock from a
particular holder thereof at an indefinite time determined upon the happening of
an event such as the death of the holder.
(d) The Plan may not obligate itself to acquire Company Stock under a
put option binding upon the Plan. However, at the time a put option is exercised
by the Employer, the Plan may be given an option to assume the rights and
obligations of the Employer under a put option binding upon the Employer.
(e) All purchases of Company Stock shall be made at a price which, in
the judgment of the Administrator, does not exceed the fair market
44
value thereof. All sales of the Company Stock shall be made at a price which, in
the judgment of the Administrator, is not less than the fair market value
thereof. The valuation rules set forth in Article IV and Code ss. 401(a)(28)
shall be applicable to all such purchases and sales.
5.2 EMPLOYER SECURITIES
The ESOP component of the Plan is designed to invest in "qualifying
Employer securities" as that term is defined in the Act.
5.3 APPLICATION OF CASH
Employer contributions in cash and other cash received by the Trust Fund
(other than Deferred Compensation, Matching Contributions and rollover
contributions) shall first be applied to pay any Current Obligations of the
Trust Fund.
5.4 TRANSACTIONS INVOLVING COMPANY STOCK
(a) No portion of the Trust Fund attributable to (or allocable in lieu
of) Company Stock acquired by the Plan in a sale to which Code ss. 1042 applies
may accrue, or be allocated directly or indirectly under any plan maintained by
the Employer meeting the requirements of Code ss. 401(a):
(1) During the Nonallocation Period, for the benefit of:
(i) Any taxpayer who makes an election under Code ss. 1042(a)
with respect to Company Stock; or
(ii) Any individual who is related to the taxpayer within the
meaning of Code ss. 267(b), or
(2) For the benefit of any other person who owns (after application
of Code ss. 318(a), applied without regard to the employee trust exemption in
Code ss. 318(a)(2)(B)(i)) more than 25% of:
(i) Any class of outstanding stock of the Employer or Affiliated
Employer which issued such Company Stock, or
(ii) The total value of any class of outstanding stock of the
Employer or Affiliated Employer.
(b) Subparagraph (a)(1)(ii) (relating to family attribution rules)
shall not apply to lineal descendants of the taxpayer, provided that the
aggregate amount allocated to the benefit of all such lineal descendants during
45
the Nonallocation Period does not exceed more than 5% of the Company Stock (or
amounts allocated in lieu thereof) held by the Plan which are attributable to a
sale to the Plan by any person related to such descendants (within the meaning
of Code ss. 267(c)(4)) in a transaction to which Code ss. 1042 is applied.
(c) A person shall be treated as failing to meet the 25% stock
ownership limitation under paragraph (a)(2) above if such person fails such
limitation:
(1) At any time during the one year period ending on the date of
sale of Company Stock to the Plan, or
(2) On the date as of which Company Stock is allocated to
Participants in the Plan.
5.5 LOANS TO THE TRUST
(a) The Plan may borrow money for any lawful purpose, provided the
proceeds of an Exempt Loan are used within a reasonable time after receipt only
to:
(1) Acquire Company Stock;
(2) Repay an Exempt Loan; or
(3) Repay a prior Exempt Loan.
(b) All loans to the Trust which are made or guaranteed by a
disqualified person must satisfy all requirements applicable to Exempt Loans
under Code ss. 4975(d)(3), Regulation ss. 54.4975-7(b), Act ss.408(b)(3) and
Department of Labor Regulation ss. 2550.408(b)-3 including, but not limited to,
the following:
(1) The loan must be at a reasonable rate of interest;
(2) The amount of interest paid shall not exceed the amount of each
payment which would be treated as interest under standard loan amortization
tables;
(3) Any collateral pledged to the creditor by the Plan shall consist
only of the Company Stock purchased with the borrowed funds;
(4) Under the terms of the loan, any pledge of Company Stock shall
provide for the release of shares so pledged on a pro-rata basis pursuant to
Section 3.4(g);
46
(5) Under the terms of the loan, the creditor shall have no recourse
against the Plan except with respect to such collateral, earnings attributable
to such collateral, Employer contributions (other than contributions of Company
Stock) that are made to meet Current Obligations and earnings attributable to
such contributions;
(6) The loan must be for a specific term and may not be payable at
the demand of any person, except in the case of default;
(7) In the event of default upon an Exempt Loan, the value of the
Trust Fund transferred in satisfaction of the Exempt Loan shall not exceed the
amount of default. If the lender is a disqualified person, an Exempt Loan shall
provide for a transfer of Trust Funds upon default only upon and to the extent
of the failure of the Plan to meet the payment schedule of the Exempt Loan; and
(8) Exempt Loan payments during a Plan Year must not exceed an
amount equal to: (A) the sum, over all Plan Years, of all contributions and cash
dividends paid by the Employer to the Plan with respect to such Exempt Loan and
earnings on such Employer contributions and cash dividends, less (B) the sum of
the Exempt Loan payments in all preceding Plan Years. A separate accounting
shall be maintained for such Employer contributions, cash dividends and earnings
until the Exempt Loan is repaid.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
(a) As of, or after, a Participant's Normal Retirement Date, such
Participant may terminate employment and request a distribution of his
Participant's Aggregate Account. As of the attainment of Normal Retirement Age,
such Participant's Aggregate Account shall become 100% vested. Participants
shall be permitted to continue participation in the Plan after the attainment of
their Normal Retirement Age.
(b) As soon as is practicable after the Participant's request for a
Normal Retirement distribution, the Administrator shall direct the Trustee
47
to distribute, or begin the distribution of, all amounts credited to such
Participant's Aggregate Account in accordance with Section 6.6.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date or other
termination of employment, all amounts credited to such Participant's Aggregate
Account shall become 100% Vested. Unless a later date is elected by the deceased
Participant's Beneficiary, as soon as is practical after the Beneficiary's
request for a distribution, the Administrator shall direct the Trustee, in
accordance with the provisions of Section 6.7, to distribute, or begin the
distribution of, the deceased Participant's Aggregate Account to the
Participant's Beneficiary.
(b) Unless a later date is elected by a deceased Former Participant's
Beneficiary, as soon as is practical after the Beneficiary's request for
distribution, the Administrator shall direct the Trustee, in accordance with the
provisions of Section 6.7, to distribute, or begin the distribution of, any
remaining amounts credited to the Participant's Aggregate Account of such
deceased Former Participant to such Former Participant's Beneficiary.
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive payment of the value of the
Aggregate Account of a deceased Participant or Former Participant as the
Administrator may deem desirable. The Administrator's determination of death and
of the right of any person to receive payment shall be conclusive.
(d) Unless otherwise elected and consented to in the manner prescribed
in Code ss. 417(a)(2), the Beneficiary of the death benefit of a married
Participant shall be the Participant's spouse. However, the Participant may
designate a Beneficiary other than his spouse if:
(1) The spouse has validly waived her right to be the Participant's
Beneficiary pursuant to Code ss. 417(a)(2);
(2) The Participant has no spouse; or
(3) The spouse cannot be located.
The designation of a Beneficiary by a Participant (whether married or
single) shall be made on a form satisfactory to the Administrator. A Participant
may at any time revoke his designation of a Beneficiary or change his
Beneficiary by filing notice of such revocation or change with the
Administrator. However, if married, the Participant's spouse must again consent
in writing to any change in Beneficiary unless the original consent acknowledges
that the spouse had the right to limit consent only to a specific Beneficiary
and that the spouse voluntarily elected to relinquish such right. In the event a
Participant has no spouse and no valid designation of Beneficiary exists at the
48
time of the Participant's death, the Participant's Aggregate Account shall be
payable in the following order:
(1) To the Participant's lineal descendants, per stirpes, including
his legally adopted children;
(2) To the Participant's lineal ascendants, per capita, that survive
the Participant; and
(3) To the Participant's estate.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
Upon a Participant's Total and Permanent Disability prior to his Retirement
Date or other termination of employment, all amounts credited to such
Participant's Aggregate Account shall become 100% Vested. Unless otherwise
elected by the Participant, as soon as is practical after the determination of
Total and Permanent Disability and the Participant's request for a distribution,
the Administrator shall direct the Trustee, in accordance with the provisions of
Section 6.6, to distribute to (or begin the distribution to) such Participant
all amounts credited to such Participant's Aggregate Account as though he had
retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) Upon the termination of employment of a Participant prior to his
retirement, death or Total and Permanent Disability, the Terminated Participant
shall be entitled to a distribution of the Vested portion of his Aggregate
Account in accordance with this Section and Section 6.6 below.
(b) With respect to the Terminated Participant's Deferral Account,
Participant's Matching Account, Participant's Profit Sharing Account and
Participant's Rollover Account, as soon as is practical after the terminated
Participant's request for a termination of service distribution, the
Administrator shall direct the Trustee, in accordance with the provisions of
Section 6.6, to distribute, or begin the distribution of, the Terminated
Participant's Deferral Account, Participant's Matching Account, Participant's
Profit Sharing Account and Participant's Rollover Account. With respect to the
Participant's ESOP Account (which includes the Participant's Company Stock
Account, Participant's ESOP Investment Account and Participant's Qualified
Directed Investment Account), upon a request for a termination of service
distribution, unless the Terminated Participant elects a later distribution
commencement date, distribution of the Participant's ESOP Account shall commence
not later than the last day of the Plan Year which is the fifth Plan Year after
the Plan Year in which the Participant otherwise separated from service with the
Employer, unless the Participant is reemployed by the Employer before
distribution is otherwise required by this paragraph. The rules of Code
ss.409(o) are incorporated herein by reference. See Section 6.6. In the event a
49
Participant's effective date of termination of service is September 30, the Plan
Year that includes such September 30 shall be regarded as the Plan Year in which
the Participant otherwise separated from Service with the Employer. See also
Section 3.4(c).
(c) The amount of the Terminated Participant's ESOP Account,
Participant's Profit Sharing Account and Participant's Matching Account which is
not Vested shall be credited to the Suspense Account, pending Forfeiture, as of
the effective date of termination of employment.
(d) For purposes of this Section 6.4, if a Terminated Participant's
Vested balance in his Aggregate Account is zero, the Terminated Participant
shall be deemed to have received a distribution of such vested balance upon
termination of employment.
(e) The Vested portion of any Participant's ESOP Account, Participant's
Profit Sharing Account, and Participant's Matching Account shall be a percentage
of the total amount credited to such Participant's ESOP Account, Participant's
Profit Sharing Account and Participant's Matching Account, respectively,
determined on the basis of the Participant's number of Years of Service
according to the following schedule:
Vesting Schedule
Years of Service Percentage
---------------- ----------
Less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 or more 100%
Effective with respect to terminations of employment occurring after
November 3, 2000, the Vesting Schedule shall be as follows:
Vesting Schedule
Years of Service Percentage
---------------- ----------
Less than 1 0%
1 15%
2 30%
3 45%
4 60%
5 75%
6 90%
7 or more 100%
50
(f) The computation of a Participant's Vested percentage of his
interest in the Plan shall not be reduced as the result of any direct or
indirect amendment to this Plan. In the event that this Plan is amended to
change or modify any vesting schedule, a Participant with at least three Years
of Service as of the expiration date of the election period provided herein may
elect to have his Vested percentage computed under the Plan without regard to
such amendment. If a Participant fails to make such election, then such
Participant shall be subject to the amended vesting schedule. The Participant's
election period shall commence on the adoption date of the amendment and shall
end 60 days after the latest of:
(1) The adoption date of the amendment;
(2) The effective date of the amendment; or
(3) The date the Participant received written notice of the
amendment from the Employer or Administrator.
(g)(1) If any Former Participant shall be reemployed by the Employer
before a One-Year Break in Service occurs, he shall continue to participate in
the Plan in the same manner as if such termination had not occurred.
(2) If any Former Participant shall be reemployed by the Employer
before five consecutive One-Year Breaks in Service, his forfeited Aggregate
Account shall be reinstated only if he repays the full amount distributed to
him, other than his voluntary contributions, prior to the fifth anniversary of
his date of reemployment. In the event the Former Participant does repay the
full amount distributed to him, the undistributed portion of the Participant's
Aggregate Account must be restored in full, unadjusted by any gains or losses
occurring subsequent to the Anniversary Date or other Valuation Date preceding
his termination. See Section 3.4(f) regarding the reinstatement of Aggregate
Accounts.
(3) If any Former Participant is reemployed after a One-Year Break
in Service has occurred, Years of Service shall include Years of Service prior
to his One-Year Break in Service subject to the following rules:
(i) If any non-Vested, Former Participant (i.e., had less than 7
Years of Service at his termination of service) has a One-Year Break in Service
(but less than 5 consecutive One-Year Breaks in Service) he shall immediately be
eligible to participate in the Plan. Except as provided below, Years of Service
before and after his One-Year Break in Service shall be recognized for vesting
purposes with respect to his Aggregate Account balance attributable to both
pre-break and post-break service.
(ii) After the greater of (A) five consecutive One-Year Breaks
in Service, or (B) a number of One-Year Breaks in Service equal to the Former
Participants'
51
pre-break Years of Service, a Participant's Vested Aggregate Account
attributable to post-break Years of Service shall not be increased as a result
of pre-break Years of Service pursuant to Code ss. 411(a)(6)(D)(I);
(iii) After five consecutive One-Year Breaks in Service, a
Former Participant's Vested Aggregate Account balance attributable to pre-break
service shall not be increased as a result of post-break service;
(iv) If a non-Vested, Former Participant incurs five consecutive
One-Year Breaks in Service, he must again satisfy the requirements of Sections
2.1 and 2.2 in order to become eligible for and enter the Plan; and
(v) If a Former Participant completes a Year of Service (a
One-Year Break in Service previously occurred, but employment had not
terminated), he shall participate in the Plan retroactively from the first day
of the Plan Year during which he completes one Year of Service.
6.5 DETERMINATION OF BENEFITS AT AGE 59 1/2
(a) As of, or after, the date a Participant attains age 59 1/2, such
Participant may request a distribution of all, or any portion, of his
Participant's Deferral Account, even if the Participant continues as an Employee
of the Employer. Such Participant shall continue to participate in the Plan
provided the Participant continues to meet the eligibility requirements of
Article II.
(b) Upon a request for a distribution in accordance with the preceding
paragraph, or as soon as practicable thereafter, the Administrator shall direct
the Trustee to distribute, or begin the distribution of, all amounts credited to
such Participant's Deferral Account in accordance with Section 6.6.
6.6 DISTRIBUTION OF BENEFITS
(a) This plan provides for different forms of payment and different
commencement dates for the Participant's ESOP Account (which includes his
Company Stock Account, ESOP Investment Account and Qualified Directed Investment
Account) on the one hand, and all other accounts of the Participant (which
includes his Participant's Deferral Account, Participant's Matching Account and
Participant's Rollover Account) on the other hand.
(b) The ESOP Account. With respect to the distribution of the
Participant's ESOP Account, effective February 15, 1996, distribution on account
of retirement (Section 6.1) or Total and Permanent Disability (Section 6.3)
shall be made in cash or in kind (as determined by the Administrator, but
subject to Section 6.8) in one lump sum, or in a fixed number of quarterly,
semiannual or annual installments over a period not to exceed the Participant's
life expectancy (or the life expectancy of the Participant and his designated
Beneficiary). The Participant shall have the right to determine whether such
distribution is in one lump sum or installments. Furthermore, the Participant
52
shall have the right to modify, from time to time, the amount and frequency of
the installments and the period over which such installments will be made in
accordance with procedures established by the Administrator. A participant may
make separate payment elections under this paragraph with respect to his Company
Stock Account, ESOP Investment Account and Qualified Directed Investment
Account. With respect to distributions to Participants that have terminated
employment and have requested a distribution pursuant to Section 6.4, unless the
Participant elects in writing a longer distribution period, such distribution of
the Participant's ESOP Account, including the Company Stock Account, ESOP
Investment Account and Qualified Directed Investment Account, made pursuant to
Section 6.4, may be distributed in cash or in kind, (as determined by the
Administrator, but subject to Section 6.8) in substantially equal periodic
payments (not less frequently than annually) over a period of five years. In the
case of a Participant with a Participant's ESOP Account in excess of $500,000,
the five year period shall be extended one additional year (up to an additional
five) for each $100,000, or fraction thereof, by which such account exceeds
$500,000. Such dollar amounts shall be adjusted at the same time and in the same
manner as provided in Code ss. 415(d).
Notwithstanding the foregoing paragraph and the fifth Plan Year delay
provision of Section 6.4(b) above, with respect to distributions to Participants
who have terminated employment and have requested a distribution pursuant to
Section 6.4 above, if the fair market value of the Vested portion such
Participant's ESOP Account (and only his Participant's ESOP Account) is less
than $50,000 as of the effective date of such Participant's termination of
employment with the Employer, distribution of the Vested portion of such
Participant's ESOP Account, including the Company Stock Account, ESOP Investment
Account and Qualified Directed Investment Account, made pursuant to Section 6.4,
may be made in cash or in kind (as determined by the Administrator, but subject
to Section 6.8) in a single lump sum, at any time after the Participant's
termination of employment. In all other cases, except as provided in the
following paragraph, the fifth Plan Year delay provision of Section 6.4(b) and
the five year installment period (and possible five year extension thereof)
specified in the paragraph above shall apply. Such Participant shall not be
subject to the five Plan Year deferral period of Section 6.4(b) of this Plan.
Notwithstanding the first paragraph hereof, in the event a Participant's
ESOP Account (and only his ESOP Account) as of the effective date of such
Participant's termination of employment with the Employer is greater than
$50,000 but less than $500,000 (as adjusted at the same time and in the same
manner as provided in Code ss.415(d)), then in lieu of receiving substantially
equal periodic payments over a period of five years, such Participant may
request an acceleration of his payments by requesting a payment each Plan Year
in an amount not to exceed one-fifth of such $500,000 amount (as adjusted). Such
Participant shall remain subject to the five Plan Year deferral period of
Section 6.4(b) of this Plan.
53
The Other Accounts. With respect to the Participant's Deferral Account,
Participant's Matching Account, Participant's Profit Sharing Account and
Participant's Rollover Account, in the event a Participant is entitled to a
lifetime distribution in accordance with Sections 6.1, 6.3, 6.4 or 6.5, the
Administrator, pursuant to the election of the Participant, shall direct the
Trustee to distribute to the Participant or Former Participant, the Vested
portion of his Participant's Deferral Account, Participant's Matching Account,
Participant's Profit Sharing Account, and/or Participant's Rollover Account, in
one of the following methods selected by the Participant or Terminated
Participant
(1) One lump sum payment in cash or in kind;
(2) Payments over a period certain (not to exceed the life
expectancy of the Participant or the joint life expectancy of the Participant
and his Beneficiary) in monthly, quarterly, semiannual or annual installments.
Furthermore, the Participant shall have the right to modify, from time to time,
the amount and frequency of the installments and the period over which such
installments will be made in accordance with procedures established by the
Administrator. A Participant's election under this paragraph shall apply to his
Participant's Deferral Account, Participant's Profit Sharing Account and
Participant's Rollover Account. In order to provide such installment payments,
the Administrator may (A) segregate the Participant's Deferral Account,
Participant's Matching Account, Participant's Profit Sharing Account, and
Participant's Rollover Account in a separate, federally insured savings account,
certificate of deposit in a bank or savings and loan association, money market
certificate or other liquid short-term security or (B) purchase a
nontransferable annuity contract for a term certain (with no life contingencies)
providing for such payment;
(3) A single life annuity (payable over the lifetime of the
Participant) with or without a term certain; or
(4) A joint and survivor annuity (with the survivor benefit being
50%, 75% or 100%).
(c) In the event a Participant desires to elect a distribution of his
Participant's Deferral Account, Participant's Matching Account, Participant's
Profit Sharing Account and Participant's Rollover Account in the form of a life
annuity, the following rules shall apply:
(1) Unless otherwise elected as provided below, a Participant who
desires an annuity form of payment, is married on his distribution commencement
date, and who does not die before such date, shall receive the combined value of
his Participant's Deferral Account, Participant's Matching Account,
Participant's
54
Profit Sharing Account and Participant's Rollover Account in the form of a joint
and survivor annuity. The joint and survivor annuity shall be an annuity that
commences immediately and shall be equal in value to a single life annuity that
may be purchased with the total value of such accounts. The survivor benefits
following the Participant's death shall continue to the Participant's spouse
during the spouse's lifetime at a rate equal to 50% of the rate at which such
benefits were payable to the Participant during his lifetime. This joint and 50%
survivor annuity shall be considered the designated qualified joint and survivor
annuity and automatic form of payment for the purposes of this Plan. An
unmarried Participant shall receive the value of his benefit in the form of a
life annuity. Such unmarried Participant, however, may elect in writing to waive
the life annuity. The election must comply with the provisions of this Section
as if it were an election to waive the joint and survivor annuity by a married
Participant, but without the spousal consent requirement.
(2) Any election to waive the joint and survivor annuity must be
made by the Participant in writing during the election period described below
and be consented to in writing by the Participant's spouse. If the spouse is
legally incompetent to give consent, the spouse's legal guardian, even if such
guardian is the Participant, may give consent. The election to waive the joint
and survivor annuity shall designate a Beneficiary (or a form of benefits) that
may be changed only with spousal consent (unless the consent of the spouse
expressly permits designations by the Participant without the requirement of
further consent by the spouse). Such spouse's consent shall be irrevocable and
must acknowledge the effect of such election and be witnessed by a notary
public. Such consent shall not be required if it is established to the
satisfaction of the Administrator that the required consent cannot be obtained
because there is no spouse, the spouse cannot be located, or other circumstances
that may be prescribed by Regulations. The election made by the Participant and
consented to by his spouse may be revoked (but not modified unless as provided
above) by the Participant in writing without the consent of the spouse at any
time during the election period. The number of revocations shall not be limited.
Any new election must comply with the requirements of this Section. A former
spouse's waiver shall not be binding on a new spouse.
(3) The election period to waive the joint and survivor annuity
shall be the 90 day period ending on the Participant's distribution commencement
date.
(4) For purposes of this Section, the "distribution commencement
date" means the first day of the first period for which an amount is paid as an
annuity, or, in the case of a benefit not payable in the form of an annuity, the
first day on which all events have occurred which entitle the Participant to a
distribution.
55
(5) With regard to the election, the Administrator shall provide to
the Participant no less than 30 days and no more than 90 days before the
"distribution commencement date" a written explanation of:
(i) the terms and conditions of the joint and survivor annuity;
(ii) the Participant's right to make, and the effect of, an
election to waive the joint and survivor annuity;
(iii) the right of the Participant's spouse to consent to any
election to waive the joint and survivor annuity; and
(iv) the right of the Participant to revoke such election, and
the effect of such revocation.
(d) Notwithstanding this Section 6.6, cash dividends on shares of
Company Stock allocable to the Participants' Company Stock Accounts may be paid
pursuant to Section 3.4(d) to the Participants or Beneficiaries within 90 days
after the close of the Plan Year in which the dividend is paid.
(e) Any part of a Participant's Aggregate Account which is retained in
the Plan after the Anniversary Date on which his participation in the Plan
terminates will continue to be treated as a Participant's Aggregate Account.
However, such account shall not be credited with any further Employer
contributions or Forfeitures.
(f) The Participant's Aggregate Account may not be paid without his
written consent if the value exceeds, or has ever exceeded, $3,500 at the time
of any prior distribution. If the value of the Participant's Aggregate Account
does not exceed $3,500, and has never exceeded $3,500, at the time of any prior
distribution, the Administrator may immediately distribute such Aggregate
Account (in a single lump sum) without such Participant's consent. No
distribution may be made under this Section 6.6 unless the Administrator first
complies with the tax and distribution reporting and disclosure provisions of
the Code and Regulations.
(g) Notwithstanding any provision in the Plan to the contrary, the
distribution of a Participant's Aggregate Account shall be made in accordance
with the following requirements and shall otherwise comply with Code ss.
401(a)(9) and the Regulations thereunder (including Regulation ss.
1.401(a)(9)-(2)), the provisions of which are incorporated herein by reference:
(1) A Participant's Aggregate Account shall be distributed to him
not later than the Participant's "required beginning date." Alternatively,
distributions to a Participant must begin no later than the Participant's
"required beginning date," and must be made over the life of the Participant (or
the joint lives of
56
the Participant and the Participant's designated Beneficiary) or a period
certain measured by the life expectancy of the Participant (or the joint life
expectancies of the Participant and his designated Beneficiary) in accordance
with Regulations. For Plan Years beginning prior to December 31, 1996, a
Participant's "required beginning date" means April 1 of the calendar year
following the calendar year in which the Participant attains age 70 1/2. For
Plan Years beginning after December 31, 1996, a Participant's "required
beginning date" means April 1 of the calendar year following the later of (i)
the calendar year in which the Participant attains age 70 1/2, or (ii) the
calendar year in which the Participant retires. However, part (ii) of the
preceding sentence shall not apply to any Participant that is a "five percent
owner" (as defined in Code ss. 416) for the Plan Year ending in the calendar
year in which such Participant attains age 70 1/2.
(2) Distributions to a Participant and his Beneficiaries shall only
be made in accordance with the incidental death benefit requirements of Code ss.
401(a)(9)(G) and the Regulations thereunder.
(h) All annuity contracts under this Plan shall be non-transferable
when distributed. Furthermore, the terms of any annuity contract purchased and
distributed to a Participant or spouse shall comply with all of the requirements
of the Plan.
(i) If a distribution is one to which Code ss.ss. 401(a)(11) and 417 do
not apply, such distribution may commence less than thirty (30) days after the
notice required under Regulation ss. 1.411(a)-11(c) is given, provided that: (1)
the Administrator clearly informs the Participant that the Participant has a
right to a period of at least thirty (30) days after receiving the notice to
consider the decision of whether or not to elect a distribution and, if
applicable, a particular distribution option, and (2) the Participant, after
receiving the notice, affirmatively elects a distribution.
(j) In no event shall a distribution required by this Article VI be
distributed later than 180 days after the Anniversary Date for the Plan Year in
which such distribution is to be made. However, unless otherwise elected in
writing by the Former Participant (such election may not result in a death
benefit that is more than incidental), a distribution shall begin not later than
the 60th day after the close of the Plan Year in which the latest of the
following events occurs.
(i) The date on which the Participant attains his Normal
Retirement Age;
(ii) The 10th anniversary of the year in which the Participant
commenced participation in the Plan; or
(iii) The date the Participant terminates his service with the
Employer.
57
6.7 DISTRIBUTION OF BENEFITS UPON DEATH
(a)(i) Participant's ESOP Account. Unless otherwise elected as
provided in Section 6.2(d), a Participant who dies before the distribution of
his Participant's ESOP Account has commenced pursuant to Section 6.6 above, and
who has a surviving spouse, shall have the value of his Participant's ESOP
Account paid to his surviving spouse.
(ii) The Other Accounts. With respect to the Participant's
Deferral Account, Participant's Matching Account, Participant's Profit Sharing
Account and Participant's Rollover Account (which for purposes of this Section
6.7 shall be referred to as the "Other Accounts"), unless elected as provided
herein and Section 6.2(d) above, a Participant who dies before the distribution
of such Other Accounts have commenced pursuant to Section 6.6 above, and who has
a surviving spouse, shall have the value of such Other Accounts paid in the form
of a preretirement survivor annuity to the Participant's surviving spouse. For
purposes of this Section, a preretirement survivor annuity is an annuity which
is purchasable with such Other Accounts of the Participant and is payable for
the life of the surviving spouse.
A married Participant, with the written consent of his spouse, may elect
not to have his Other Accounts paid in the form of a preretirement survivor
annuity or may elect to name a Beneficiary other than his surviving spouse. In
order to make such election, the procedures of Code ss. 417, and the Regulations
thereunder, shall be applied, which generally shall require that:
(A) The Plan Administrator shall provide the Participant and his
spouse a written explanation of the preretirement survivor
annuity.
(B) Such explanation shall be given during the "applicable
period" as defined in Code ss. 417(a)(3)(B)(ii), and the
Regulations thereunder.
(C) Such election may be made only after the first day of the
Plan Year in which the Participant attains age 35, except that
in the case of a Terminated Participant, such election may be
made any time after the Terminated Participant's separation from
service with the Employer.
(D) The spouse's consent to such election is in writing and
witnessed by a notary public, designates a Beneficiary or form
of benefit which may not be changed (but may be revoked) without
spousal consent (unless the prior spousal consent expressly
permitted
58
future designations or elections by the Participant without
spousal consent), and the spousal consent acknowledges the
effect of such election.
(b) In the event a Participant has commenced distribution of his
Aggregate Account prior to death, distribution of the Participant's Aggregate
Account shall continue in the form or forms, and at least as rapidly, as prior
to the Participant's death.
(c) Except as provided in paragraph (b) above and except to the extent
a preretirement survivor annuity is required by paragraph (a)(ii) above, in the
event a Beneficiary is entitled to a death benefit in accordance with Section
6.2, the Administrator, pursuant to the election of the Beneficiary, shall
direct the Trustee to distribute to the Beneficiary, the deceased Participant's
Aggregate Account, in one of the methods of distribution specified in Section
6.6 above (giving effect to the separate forms of distribution for the "ESOP
Account" and "Other Accounts").
(d) The deceased Participant's Aggregate Account may not be paid
without the Beneficiary's consent if the value of such Aggregate Account
exceeds, or has ever exceeded, $3,500 at the time of any prior distribution. If
the value of the Participant's Aggregate Account does not exceed $3,500 and has
never exceeded $3,500 at the time of any prior distribution, the Administrator
may immediately distribute such Aggregate Account (in a single lump sum) without
such Beneficiary's consent. No such distribution may be made under this Section
unless the Administrator first complies with the tax and distribution reporting
and disclosure provisions of the Code and Regulations.
(e) The Beneficiary shall not have the right to demand Employer
securities allocated to the deceased Participant's "Other Accounts" or with
respect to any amount allocated to the Participant's Qualified Directed
Investment Account.
6.8 HOW ESOP BENEFITS WILL BE DISTRIBUTED
(a) Distribution of a Participant's ESOP Account may be made in cash or
Company Stock or both (as determined by the Administrator), provided, however,
that if a Participant or Beneficiary so demands, such benefit (other than
Company Stock sold and reinvested pursuant to Section 3.12) shall be distributed
only in the form of Company Stock. Prior to making a distribution of benefits,
the Administrator shall advise the Participant or his Beneficiary, in writing,
of the right to demand that benefits be distributed solely in Company Stock.
(b) If a Participant or Beneficiary demands that benefits be
distributed solely in Company Stock, distribution of a Participant's ESOP
Account will be made entirely in whole shares or other units of Company Stock.
59
Any balance in a Participant's ESOP Investment Account will be applied to
acquire for distribution the maximum number of whole shares or other units of
Company Stock at the then fair market value. Any fractional unit value
unexpended will be distributed in cash. If Company Stock is not available for
purchase by the Trustee, then the Trustee shall hold such balance until Company
Stock is acquired and then make such distribution, subject to this Article VI.
(c) The Trustee will make distributions from the Trust only on
instructions from the Administrator.
6.9 IN SERVICE DISTRIBUTION
(a) At such time as a Participant (but not a Former Participant or
Terminated Participant) becomes 100% Vested, such Participant may request once
each Plan Year a distribution not to exceed five percent (5%) (ten percent (10%)
for Participants with ten (10) or more Years of Service) of such Participant's
Company Stock Account, determined as of the Anniversary Date or Valuation Date
immediately preceding such request. For those Participants (but not Former
Participants or Terminated Participants) that are not 100% Vested, such
Participant may request once each Plan Year a distribution not to exceed five
percent (5%) of the Vested portion of the Participant's Company Stock Account,
determined as of the Anniversary Date or Valuation Date immediately preceding
such request, that has been allocated to the Participant's Company Stock Account
at least two (2) years as of the date of such distribution. Such Participant
shall continue to participate in the Plan provided the Participant continues to
meet the eligibility requirements of Article II.
(b) In service distributions pursuant to this Section shall be made in
one lump payment, in cash or in kind (as determined by the Administrator), but
the provisions of Sections 6.8 and 6.18 shall apply to in service distributions
permitted by this Section 6.9.
(c) Requests for in service distributions under this Section 6.9 shall
be made by the Participant to the Administrator on a form to be supplied by the
Administrator. The Administrator is authorized to, and shall, promulgate
procedures from time to time which govern in service distributions, including
the times of the Plan Year during which in service distributions may be
requested.
(d) This Section 6.9 shall be effective as soon as administratively
practicable after July 1, 1997.
6.10 TIME OF SEGREGATION OR DISTRIBUTION
Notwithstanding any other provision of this Agreement to the contrary,
whenever the Trustee is to make a distribution or to commence a series of
payments, the distribution or series of payments may be made or begun as soon
60
after the Participant's or Beneficiary's request as is practicable, but unless
otherwise consented to in writing by the Participant or Beneficiary, in no event
shall distribution be made or begun later than 180 days after the Anniversary
Date following such request. However, unless otherwise elected in writing by the
Former Participant (such election may not result in a death benefit that is more
than incidental), a "distribution" shall begin not later than the 60th day after
the close of the Plan Year in which the latest of the following events occurs:
(a) The date on which the Participant attains his Normal Retirement
Age;
(b) The 10th anniversary of the year in which the Participant commenced
participation in the Plan; or
(c) The date the Participant terminates his service with the Employer.
6.11 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may, in his sole discretion, direct that such distribution be paid
to the legal guardian, or, if none, to a parent of such Beneficiary or a
responsible adult with whom the Beneficiary maintains his residence, or to the
custodian for such Beneficiary under the Uniform Gift to Minors Act or Gift to
Minors Act, if such is permitted by the laws of the state in which said minor
Beneficiary resides. Such payment to the legal guardian or parent of a minor
Beneficiary shall fully discharge the Trustee, Employer, Administrator and Plan
from further liability on account thereof.
6.12 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the expiration of five years
after it shall become payable, remain unpaid solely by reason of the inability
of the Administrator, after sending a registered letter, return receipt
requested, to the last known address, and after further diligent effort, to
ascertain the whereabouts of such Participant or his beneficiary, the amount so
distributable shall be forfeited and shall be used to reduce the cost of the
Plan. In the event a Participant or Beneficiary is located subsequent to his
benefit being forfeited, such benefit shall be restored.
6.13 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS
All rights and benefits, including elections, provided to a Participant in
this Plan shall be subject to the rights afforded to any "alternate payee" under
a "qualified domestic relations order" as that term is defined in Code ss.
414(p).
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6.14 DISTRIBUTION OF DEFERRAL ACCOUNT UPON HARDSHIP
(a) The Plan Administrator may direct the Trustee to distribute a
portion of a Participant's Deferral Account (not to exceed the Participant's
Deferral Account valued as of the next preceding Anniversary Date or Valuation
Date) in the event of an immediate and heavy financial need. Such hardship
distribution shall be made only within the "deemed hardship distribution
standards" published by the Internal Revenue Service in Regulations ss.
1.401(k)-1(d)(2)(iv).
(b) The determination of whether an immediate and heavy financial need
exists shall be made by the Administrator based upon all relevant facts and
circumstances. A hardship withdrawal shall be authorized only if the
distribution is to be used for one of the following purposes:
(1) The payment of unreimbursed medical expenses incurred by the
Participant, his spouse or his dependent (as defined in Code ss. 152) or the
payment of unreimbursed expenses necessary for these persons to obtain medical
care;
(2) Costs directly related to the purchase of a principal residence
by the Participant (excluding mortgage payments);
(3) The payment of tuition and related educational fees for the next
12 months of post-secondary education for the Participant, or his spouse or
dependent (as defined in Code ss. 152);
(4) The need to prevent the eviction from the Participant's
principal residence or foreclosure on the mortgage of the Participant's
principal residence.
(c) In order to obtain a hardship withdrawal, the Participant must
certify to the Administrator and agree that all of the following conditions are
satisfied:
(1) The distribution is not in excess of the amount of the
Participant's immediate and heavy financial need (which amount may include any
amounts necessary to pay any federal, state or local income taxes or penalties
reasonably anticipated to result from the distribution);
(2) The Participant has obtained all distributions, other than
hardship distributions, and all non-taxable loans currently available under all
plans maintained by the Employer; and
(3) The Participant's salary deferrals to the Plan "and all other
plans maintained by the Employer" (as that phrase is defined in Regulation ss.
1.401(k)-1(d)(2)(iv)(B)(4) will be suspended for at least 12 months, and his
62
maximum salary deferrals for the following taxable year shall be reduced
pursuant to Section 3.2(e).
(d) A distribution to satisfy an immediate or heavy financial need may
only be made if the Participant does not have other resources available to
satisfy such need. For this purpose, a Participant's resources shall include
property which is owned by him, his spouse or minor children. The determination
whether a Participant has other resources with which to satisfy the financial
need will be based upon all relevant facts and circumstances. The Participant
shall certify and provide such documentation as may be necessary to show that
the amount of the distribution is not in excess of the financial need and that
the need cannot be met by one of the following alternatives:
(1) Through reimbursement or compensation by insurance or otherwise;
(2) By selling or otherwise liquidating assets in a reasonable
manner, but only if doing so would not create an immediate and heavy financial
need;
(3) By stopping elective contributions to the Plan under Section
3.2;
(4) By borrowing money from a bank or other commercial lender on
terms that would be considered commercially reasonable; or
(5) By electing to receive any available distribution from the Plan.
6.15 DIRECT ROLLOVERS
Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this Article, a Distributee may
elect, at the time and in the manner prescribed by the Administrator, to have
any portion of an Eligible Rollover Distribution paid directly to an Eligible
Retirement Plan specified by the Distributee in a Direct Rollover. Nothing in
this Section 6.15 shall be construed to grant or Distribute any right to a
distribution other than those rights provided in this Article VI.
6.16 LOANS TO PARTICIPANTS
(a) The Administrator shall have the authority to administer the loan
program provided under the Plan. Such authority shall include, without
limitation, the authority to (i) approve or deny loan applications, (ii)
establish limitations on the amount or terms of a loan, (iii) determine the rate
63
of interest and the collateral for each loan, and (iv) call a loan into default
and take all actions necessary or appropriate to preserve Plan assets in the
event of such default.
(b) Loans shall be available to all Participants (but not Former
Participants or Terminated Participants) of the Plan provided they are Employees
of the Employer on the date the loan is made. Any Participant may request a loan
from the Plan in writing by delivering a written request to the Administrator on
a form prescribed by the Employer. The Administrator shall then approve or deny
such loan application within 30 days of the receipt thereof.
In the event the loan is approved, the Participant shall execute a
promissory note, security agreement, an authorization to withhold loan
repayments from the Participant's regular paycheck from the Employer, and such
other documents as shall be required by the Administrator.
Any loan that is approved shall be treated as a segregated, directed
investment under Article III (for purposes of crediting earnings) for the
benefit of only the borrowing Participant.
(c) Plan loans shall be approved if the following criteria are met by
the Participant requesting the loan:
(1) The sum of all the Participant's (and spouse's) monthly debt
payments (computed immediately after the Plan loan is made, and including
principal and interest payments on mortgage loans, car loans, credit cards and
other unsecured or secured debt obligations but excluding obligations paid off
with the proceeds of the Plan loan), plus the monthly amortization of the
Participant's Plan loan then being requested shall not exceed 45% of the
Participant's (and spouse's) gross monthly income (computed before any Internal
Revenue Code ss.ss. 401(k) or 125 salary deferrals). The Participant shall
certify this to the Administrator at the time the loan is requested.
(2) The loan does not exceed the maximum loan limitations in
paragraph (d) below.
(3) The Participant does not have any other loans outstanding from
the Plan at the time the Participant applies for the loan.
(4) The loan is repaid in level payments of principal and interest
over a period not to exceed five years, by payroll deduction from the
Participant's regular paychecks.
(5) The loan satisfies the provisions otherwise provided in this
section as to interest rate, collateral and documentation.
64
(6) The Participant agrees to pay (or have deducted) all fees and
documentary stamps associated with the loan, whether incurred at the time of the
loan or on an annual basis.
(d) The maximum dollar amount of any Plan loan to a Participant, when
added to plan loans from any other qualified plans maintained by the Employer,
shall not exceed the lesser of -
(1) $50,000, reduced by the excess (if any) of -
(i) the highest outstanding balance of loans from the Plan to
the Participant during the one year period ending on the day before the date of
the loan, over
(ii) the outstanding balance of loans from the Plan to the
Participant on the date of the loan; or
(2) One-half of the Participant's Vested Aggregate Account balance
(excluding the Participant's Company Stock Account).
The minimum dollar amount of any Plan loan to a Participant shall be
$1,000.
No loans shall be made from the Plan if the rate of interest determined
pursuant to paragraph (e) below would exceed the state usuary rate at the time
the loan would be made.
(e) Loans shall bear a reasonable rate of interest, which shall be
commensurate with interest rates charged by persons in the business of lending
money under similar circumstances. The Administrator (or its designee) shall
determine the interest rate for any loan based on the rate charged by one or
more commercial lenders for a similar loan, taking into account similar
collateral.
(f) All loans shall be evidenced by a promissory note executed by the
Participant in favor of the Trustee of the Plan. In addition, the loan shall be
secured by a grant by the Participant to the Trustee of a security interest in
50% of the Participant's Vested Aggregate Account balance in the Plan. Such
security interest shall be evidenced by a duly executed security agreement and,
if the Administrator requests, an executed and filed Form UCC-1 Financing
Statement. The Plan shall have a right to offset the amount of any loan,
including interest and collection costs, against any amount distributable to or
on behalf of the Participant or his Beneficiary.
(g) In the event the Participant fails to pay any principal or interest
when due, the Plan loan shall be considered in default 60 days after the date
such payment was due. Unless prohibited by the Code or Regulations, the
65
loan shall then be foreclosed, and the amount of the loan treated as a deemed,
in service distribution to the Participant of the entire amount of the unpaid
principal and accrued interest (plus collection costs).
(h) All loans shall be due and payable upon a Participant's termination
of employment with the Employer or Affiliated Employer.
(i) In the event a Participant defaults on the repayment of a Plan loan
as provided in paragraph (g) above or in the event a Plan loan becomes due and
payable upon a Participant's termination of employment, the Administrator shall
have the authority to determine the Participant accounts that will be reduced
and offset to satisfy such Plan loan, provided that the Administrator makes such
determination in a consistent and nondiscriminatory manner. In the event it is
necessary to reduce and offset all or any portion of the Participant's ESOP
Account to satisfy such Plan loan, then notwithstanding the deferred
distribution provisions of Section 6.4(b) that apply to the Participant's ESOP
Account, the Administrator may then treat the satisfaction of such Plan loan as
an immediate distribution of the corresponding portion of such Participant's
ESOP Account.
(j) In the event a Participant is married at the time a loan is made to
such Participant, the spouse of such Participant shall consent to such loan in
writing and in accordance with Code ss.ss.401(a)(11) and 417. Such consent shall
be obtained no earlier than the beginning of the ninety (90) day period that
ends on the date the loan is made.
6.17 PUT OPTION
(a) If Company Stock which was not acquired with the proceeds of an
Exempt Loan is distributed to a Participant and such Company Stock is not
readily tradeable on an established securities market, a Participant shall have
the right to require the Employer to repurchase the Company Stock distributed to
such Participant under a fair valuation formula. Such Stock shall be subject to
the provisions of paragraph (c) below.
(b) Company Stock which is acquired with the proceeds of an Exempt Loan
and which is not publicly traded when distributed, or if it is subject to a
trading limitation when distributed, must be subject to a put option. For
purposes of this paragraph, a "trading limitation" on Company Stock is a
restriction under any federal or state securities law or any regulation
thereunder, or an agreement (not prohibited by this Plan affecting the Company
Stock which would make the Company Stock not as freely tradeable as stock not
subject to such restriction.
(c) The put option shall be exercisable only by a Participant or Former
Participant, by the Participant's or Former Participant's donees, or by a person
(including an estate or its distributee) to whom the Company Stock passes by
reason of a Participant's or Former Participant's death. (Under this paragraph,
Participant or Former Participant means a Participant or Former Participant and
66
the Beneficiaries of the Participant or Former Participant under the Plan.) The
put option must permit a Participant or Former Participant to put the Company
Stock to the Employer. Under no circumstances may the put option bind the Plan.
However, the option shall grant the Plan an option to assume the rights and
obligations of the Employer at the time that the put option is exercised. If it
is known at the time a loan is made that federal or state law will be violated
by the Employer's honoring such put option, the put option must permit the
Company Stock to be put, in a manner consistent with such law, to a third party
(e.g., an affiliate of the Employer or a shareholder other than the Plan) that
has substantial net worth at the time the loan is made and whose net worth is
reasonably expected to remain substantial.
The put option shall commence as of the day following the date the Company
Stock is distributed to the Former Participant and end 60 days thereafter and if
not exercised within such 60-day period, an additional 60-day option shall
commence on the first day of the fifth month of the Plan Year next following the
date the Company Stock was distributed to the Former Participant (or such other
60-day period as provided in Regulations). However, in the case of Company Stock
that is publicly traded without restrictions when distributed but ceases to be
so traded within the option period described herein, the Employer must notify
each holder of such Company Stock in writing on or before the 10th day after the
date the Company Stock ceases to be so traded that for the remainder of the
applicable option period the Company Stock is subject to the put option. The
number of days between the 10th day and the date on which notice is actually
given, if later than the 10th day, must be added to the duration of the put
option. The notice must inform distributees of the term of the put options that
they are to hold. The terms must satisfy the requirements of this paragraph.
The put option shall be exercised by the holder notifying the Employer in
writing that the put option is being exercised. The notice shall state the name
and address of the holder and the number of shares to be sold. The period during
which a put option is exercisable does not include any time when a distributee
is unable to exercise it because the party bound by the put option is prohibited
from honoring it by applicable federal or state law. The price at which a put
option must be exercisable is the value of the Company Stock determined in
accordance with Article V. Payment under the put option involving a "total
distribution" shall be paid in substantially equal annual installments over a
period certain beginning not later than thirty days after the exercise of the
put option and not extending beyond five (5) years. The length of the term of
the payout shall be determined by the Administrator. The deferral of payment
shall be evidenced by a promissory note that is adequately secured and bears a
reasonable interest rate on the unpaid amounts. The first payment under the put
option involving installment distributions must be paid not later than thirty
(30) days after the exercise of the put option. Payment under a put option must
not be restricted by the provisions of a loan or any other arrangement,
67
including the terms of the Employer's articles of incorporation, unless so
required by applicable state law.
For purposes of this Section, "Total Distribution" means a distribution to
a Participant or his Beneficiary within one taxable year of the entire Vested
Participant's ESOP Account.
(d) An arrangement involving the Plan that creates a put option must
not provide for the issuance of put options other than as provided under this
Section. The Plan (and the Trust Fund) must not otherwise obligate itself to
acquire Company Stock from a particular holder thereof at an indefinite time
determined upon the happening of an event such as the death of the holder.
6.18 NONTERMINABLE PROTECTIONS AND RIGHTS
No Company Stock, other than that described in Section 6.17, acquired with
the proceeds of a loan described in Section 5.5 hereof, may be subject to a put,
call, or other option, or buy-sell or similar arrangement when held by and when
distributed from the Trust Fund, whether or not the Plan is then an ESOP. The
protections and rights shall continue to exist under the terms of this Plan so
long as any Company Stock acquired with the proceeds of a loan described in
Section 5.5 hereof is held by the Trust Fund or by any Participant, Former
Participant or other person for whose benefit such protections and rights have
been created, and neither the repayment of such loan nor the failure of the Plan
to be an ESOP, nor an amendment of the Plan shall cause a termination of said
protections and rights.
ARTICLE VII
TOP HEAVY RULES
7.1 DEFINITIONS
For purposes of this Article VII, and this Agreement, the following
capitalized terms shall have the following meanings:
(a) "Aggregation Group" means either a Required Aggregation Group or a
Permissive Aggregation Group as hereinafter defined.
Only those plans of the Employer in which the Determination Dates fall
within the same calendar year shall be aggregated in order to determine whether
such plans are Top Heavy Plans.
An Aggregation Group shall include any terminated qualified retirement plan
of the Employer that was maintained by the Employer within the last five year
period ending on the Determination Date.
68
(b) "Determination Date" means the last day of the preceding Plan Year.
(c) "Five Percent Owner" means any person who owns (or is considered as
owning within the meaning of Code ss. 318) more than 5% of the outstanding stock
of the Employer or stock possessing more than 5% of the total combined voting
power of all stock of the Employer or, in the case of an unincorporated
business, any person who owns more than 5% of the capital or profits interest in
the Employer. In determining percentage ownership hereunder, employers that
would otherwise be aggregated under Code ss.ss. 414(b), (c), (m), or (o) shall
be treated as separate employers.
(d) "Key Employee" means those Employees defined in Code ss. 416(i) and
the Regulations thereunder. Generally, the term includes any Employee or former
Employee (and his Beneficiaries) who, at any time during the Plan Year or any of
the preceding four Plan Years, is:
(1) An officer of the Employer (as that term is defined within the
meaning of the Regulations under Code ss. 416) having Compensation in excess of
50% of the amount in effect under Code ss. 415(b)(1)(A) for the Plan Year. For
purposes of this definition, no more than 50 Employees (or if less, the greater
of three Employees or ten percent of the Employees) shall be treated as
officers, and Employees described in Code ss. 414(q)(8) shall be excluded as
officers.
(2) One of the 10 Employees having Compensation greater than the
amount in effect under Code ss. 415(c)(1)(A), and owning (or considered as
owning within the meaning of Code ss. 318) both more than a one-half percent
interest in the Employer or Affiliated Employer, and one of the 10 largest
interests in the Employer or Affiliated Employer.
(3) A "Five Percent Owner" of the Employer.
(4) A "one percent owner" of the Employer having Compensation from
the Employer of more than $150,000 for the Plan Year. "One percent owner" means
any person who owns (or is considered as owning within the meaning of Code ss.
318) more than one percent of the outstanding stock of the Employer or stock
possessing more than one percent of the total combined voting power of all the
stock of the Employer. For purposes of this definition, the rules of subsections
(b), (c) and (m) of Code ss. 414 shall not apply in determining ownership.
However, in determining whether an individual has Compensation of more than
$150,000, Compensation from each employer required to be aggregated under Code
ss. 414(b), (c) and (m) shall be taken into account.
(e) "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
69
(f) "Permissive Aggregation Group" means an Aggregation Group, selected
by the Employer, that includes any plan not required to be included in the
Required Aggregation Group, provided the resulting group, taken as a whole,
would continue to satisfy the provisions of Code ss.ss. 401(a)(4) and 410.
In the case of a Permissive Aggregation Group, only a plan that is part of
the Required Aggregation Group will be considered a Top Heavy Plan if the
Permissive Aggregation Group is a Top Heavy Group. No plan in the Permissive
Aggregation Group will be considered a Top Heavy Plan if the Permissive
Aggregation Group is not a Top Heavy Group.
(g) "Required Aggregation Group" means an Aggregation Group which
includes a plan of the Employer in which a Key Employee is a Participant, and
each other plan of the Employer which enables any plan in which a Key Employee
participates to meet the requirements of Code ss.ss. 401(a)(4) or 410.
In the case of a Required Aggregation Group, each plan in the group will be
considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy
Group. No plan in the Required Aggregation Group will be considered a Top Heavy
Plan if the Required Aggregation Group is not a Top Heavy Group.
(h) "Super Top Heavy Plan" means a plan described in Section 7.3(b)
below.
(i) "Top Heavy Plan" means a plan described in Section 7.3(a) below.
(j) "Top Heavy Group" means an Aggregation Group in which, as of the
Determination Date, the sum of:
(1) The present value of accrued benefits of Key Employees under all
defined benefit pension plans included in the group; plus
(2) The aggregate accounts of Key Employees under all defined
contribution plans included in the group;
exceeds 60% of a similar sum determined for all Participants.
(k) "Top Heavy Plan Year" means that, for a particular Plan Year, the
Plan is a Top Heavy Plan.
7.2 TOP HEAVY PLAN REQUIREMENTS
(a) For any Top Heavy Plan Year, the Plan shall provide the following:
70
(1) Special vesting requirements of Codess.416(b) pursuant to
Section 7.5 below; and
(2) Special minimum contribution and allocation requirements of
Codess. 416(c) pursuant to Section 7.4 below.
7.3 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year in which, as
of the Determination Date, the sum of:
(i) the present value of accrued benefits of Key Employees, plus
(ii) the Participants' Aggregate Accounts (other than the
Participants' Rollover Accounts) of Key Employees under this Plan and the
aggregate accounts of Key Employees in all plans of an Aggregation Group,
exceeds 60% of the sum of:
(i) the present value of accrued benefits of all Key Employees
and Non-Key Employees, plus
(ii) the Participants' Aggregate Accounts (other than the
Participants' Rollover Accounts) of all Key Employees and Non-Key Employees
under this Plan and the aggregate accounts of all Key Employees and Non-Key
Employees in all plans of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year, but such
Participant was a Key Employee for any prior Plan Year, such Participant's
present value of accrued benefit and/or Participant's Aggregate Account and
aggregate account balance in other aggregate plans shall not be taken into
account for purposes of determining whether this Plan is a Top Heavy or Super
Top Heavy Plan (or whether any Aggregation Group which includes this Plan is a
Top Heavy Group). In addition, if a Participant or Former Participant has not
performed any services for any Employer maintaining the Plan at any time during
the five-year period ending on the Determination Date, the present value of
accrued benefit and/or Participant's Aggregate Account or other aggregate
account balance in other aggregate plans for such Participant or Former
Participant shall not be taken into account for the purposes of determining
whether this Plan is a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan Year in
which the provisions of paragraph (a) are met, substituting 90% for 60%.
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7.4 REQUIRED MINIMUM ALLOCATIONS
(a) Notwithstanding Section 3.4, for any Top Heavy Plan Year, the sum
of the Employer's Profit Sharing Contributions, ESOP Contributions and
Forfeitures allocated to the Participant's ESOP Account and Participant's Profit
Sharing Account of each Non-Key Employee shall be equal to 3% of such Non-Key
Employee's compensation (as defined for purposes of Code ss.416 (reduced by
contributions and forfeitures, if any, allocated to each Non-Key Employee in any
other defined contribution plan included with this Plan in a Required
Aggregation Group). However, if (i) the sum of the Employer's Profit Sharing
Contributions, ESOP Contributions, and Forfeitures allocated to the
Participant's ESOP Account and Participant's Profit Sharing Account of each Key
Employee does not equal or exceed 3% of such Key Employees' compensation, and
(ii) this Plan is not required to be included in an Aggregation Group to enable
a defined benefit plan to meet the requirements of Code ss.ss. 401(a)(4) and
410, then the sum of the Employer's Profit Sharing Contribution, ESOP
Contribution and Forfeitures allocated to the Participant's ESOP Account and
Participant's Profit Sharing Account of each Non-Key Employee shall be equal to
the largest percentage allocated to the Participant's ESOP Account and
Participant's Profit Sharing Account of any Key Employee. For purposes of this
Section 7.4, compensation shall include compensation for the entire Plan Year,
even compensation paid prior to the Participant's Plan entry date provided in
Article II.
(b) Notwithstanding any provision of this Plan to the contrary, a
Non-Key Employee who has not separated from service with the Employer as of the
last day of the Plan Year shall receive the required minimum allocation provided
by Section 7.4(a) even if the Non-Key Employee, for such Plan Year, (i) has not
been credited with 1,000 Hours of Service, (ii) earned Compensation below a
stated amount, or (iii) has failed to make any mandatory or elective
contributions.
(c) For purposes of determining the "largest percentage allocated to
the Participant's ESOP Account and Participant's Profit Sharing Account," of a
Key Employee, the total amount of a Key Employee's Compensation which has been
deferred into the Plan pursuant to Section 3.2 shall be included as an amount
allocated to such Key Employee's Profit Sharing Account for that Plan Year.
7.5 TOP HEAVY VESTING SCHEDULE
Notwithstanding the vesting schedule in Section 6.4(e), for any Top
Heavy Plan Year, the Vested portion of any Participant's ESOP Account,
Participant's Matching Account and Participant's Profit Sharing Account shall be
a percentage of the total amount credited to such accounts determined on the
basis of the Participant's number of Years of Service according to the following
schedule:
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Years of Service Vesting Schedule Percentage
---------------- ---------------------------
Less than 1 0%
1 15%
2 30%
3 45%
4 60%
5 80%
6 or more 100%
ARTICLE VIII
ADMINISTRATION
8.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove the Trustee,
Administrator and Investment Advisory Committee from time to time as it deems
necessary for the proper administration of the Plan and to assure that the Plan
is being operated for the exclusive benefit of the Participants, Former
Participants and their Beneficiaries in accordance with the terms of this Plan,
the Code, and the Act.
(b) The Employer shall establish a "funding policy and method" (i.e.,
it shall determine whether the Plan has a short run need for liquidity (e.g., to
pay benefits) or whether liquidity is a long run goal and investment growth (and
stability of same) is a more current need) or shall appoint a qualified person
to do so. However, the Employer or its delegate shall communicate such needs and
goals to the Trustee, who shall coordinate such Plan needs with its investment
policy. The communication of such "funding policy and method" shall not
constitute a directive to the Trustee as to investment of the Trust Funds. Such
"funding policy and method" shall be consistent with the objectives of this Plan
and with the requirements of Title I of the Act.
(c) The Employer may, in its discretion, appoint an Investment Advisory
Committee that shall have the authority to designate, monitor and change the
investment options made available to Participants, Former Participant's and
Beneficiaries pursuant to Section 3.13. Furthermore, the Employer may, in its
discretion, appoint an Investment Manager to manage all or a designated portion
of the assets of the Plan. In such event, the Trustee shall follow the directive
of the Investment Manager in investing the assets of the Plan, provided that
such direction is made in accordance with the terms and objectives of this Plan
and are not contrary to the Act.
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8.2 ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer may appoint one or more Administrators and one or more members
of an Investment Advisory Committee. Any person, including but not limited to,
the Employees of the Employer, shall be eligible to serve as an Administrator or
on a committee designated as the Administrator, or on the Investment Advisory
Committee.
Any Administrator, member of any administrative committee, or member of an
Investment Advisory Committee may resign by delivering his written resignation
to the Employer, or be removed by the Employer by delivery of written notice of
removal, to take effect at a date specified therein, or upon delivery to the
individual if no date is specified. The Employer, upon the resignation or
removal of an Administrator or committee member, shall promptly designate in
writing a successor to this position.
If the Employer does not appoint an Administrator or Investment Advisory
Committee, or if the committee is without members, the Employer shall function
as the Administrator.
8.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
In the event a committee is appointed by the Employer to serve as
Administrator or Investment Advisory Committee, the members of the committee may
allocate the responsibilities of the Administrator or Investment Advisory
Committee among themselves, in which event the members of the committee shall
notify the Employer and the Trustee in writing of such action and specify the
responsibilities of each member. The Trustee thereafter shall accept and rely
upon any instruction by the appropriate Administrator or committee member until
such time as the Employer, Administrators or committee file with the Trustee a
written revocation of such designation.
8.4 POWERS, DUTIES AND RESPONSIBILITIES
The primary responsibility of the Administrator is to administer the Plan
for the exclusive benefit of the Participants and their Beneficiaries, subject
to the specific terms of the Plan, the Act and the Code. The Administrator shall
administer the Plan in accordance with its terms and shall have the
discretionary power to determine all questions arising in connection with the
administration, interpretation, and application of the Plan. Any such
determination by the Administrator shall be conclusive and binding upon all
persons. The Administrator, in its discretion, may establish procedures, correct
any defect, supply any information, or reconcile any inconsistency in such
manner and to such extent as shall be deemed necessary or advisable to carry out
the purpose of this Plan; provided, however, that any procedure, discretionary
act, discretionary interpretation or construction shall be done in a
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non-discriminatory manner based upon uniform principles consistently applied and
shall be consistent with the intent that the Plan shall continue to be deemed a
qualified plan under the terms of Code ss. 401(a), and shall comply with the
terms of the Act and all regulations issued pursuant thereto. The Administrator
shall have all powers necessary or appropriate to accomplish his duties under
this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) To determine, in its discretion, all questions relating to the
eligibility of Employees to participate or remain a Participant hereunder, based
upon information furnished by the Employer;
(b) To compute, certify, and direct the Trustee with respect to the
amount and kind of benefits to which any Participant shall be entitled
hereunder;
(c) To authorize and direct the Trustee with respect to all
non-discretionary or otherwise directed disbursements from the Trust;
(d) To maintain all necessary records for the administration of the
Plan;
(e) To interpret or construe, in its discretion, the provisions of the
Plan and to make and publish such rules for regulation of the Plan as are
consistent with the terms hereof;
(f) To determine the size and type of any contract on insurance to be
purchased from any insurer, and to designate the insurer from which such
contract of insurance shall be purchased;
(g) To compute and certify to the Employer and to the Trustee from time
to time the sums of money necessary or desirable to be contributed to the Trust
Fund;
(h) To consult with the Employer and the Trustee regarding the short
and long-term liquidity needs of the Plan in order for the Trustee to exercise
any investment discretion in a manner designed to accomplish specific
objectives;
(i) To assist any Participant regarding his rights, benefits, or
elections available under the Plan; and
(j) To prepare and implement a procedure to notify Eligible Employees
that they may elect to have a portion of their Compensation deferred or paid to
them in cash.
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8.5 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall keep
all other books of account, records, and other data that may be necessary for
proper administration of the Plan, and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
8.6 ANNUAL REPORT
The Administrator may, as soon as possible after each Anniversary Date, but
in any event no later than 210 days thereafter, furnish each Participant with a
written statement showing:
(a) The balance of his Aggregate Account as of the preceding
Anniversary Date.
(b) The amount of Employer contributions and Forfeitures allocated to
his Participant's Aggregate Account for the Plan Year.
(c) The adjustment to his Participant's Aggregate Account to reflect
his share of the income and expenses, gains or losses of the Trust Fund for the
Plan Year.
8.7 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the Administrator,
may appoint counsel, specialists, advisers, and other persons as the
Administrator or the Trustee deems necessary or desirable in connection with the
administration of this Plan.
8.8 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer shall
supply full and timely information to the Administrator on all matters relating
to the Compensation of all Participants, their Hours of Service, their Years of
Service, their retirement, death, disability, or termination of employment, and
such other pertinent facts as the Administrator may require; and the
Administrator shall advise the Trustee of such of the foregoing facts as may be
pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
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8.9 PAYMENT OF EXPENSES
All expenses of administration shall be paid out of the Trust Fund unless
paid by the Employer. Such expenses shall include any expenses incident to the
functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses shall constitute a liability of
the Trust Fund. However, the Employer may reimburse the Trust Fund for any
administration expense incurred. However, the Employer may, in its discretion,
and on a uniform nondiscriminatory basis, reimburse the Trust Fund only for the
portion of such Expenses allocable to Participants, and direct the Trustee that
the portion of expenses allocable to Former Participant's be paid by the Trust
Fund and debited to such Former Participant's Aggregate Account. Any
administration expense paid to the Trust Fund as a reimbursement shall not be
considered an Employer contribution.
8.10 MAJORITY ACTIONS
Except where there has been an allocation and delegation of administrative
authority pursuant to Section 7.3, if there shall be more than one
Administrator, or if the Administrator is a committee, the Administrators or
committee members, as the case may be, shall act by a majority of their number,
but may authorize one or more of them to sign all papers on their behalf.
8.11 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed with the Administrator on
forms supplied by the Employer. Written notice of the disposition of a claim
shall be furnished to the claimant within 90 days after the application is
filed. In the event the claim is denied, the reasons for the denial shall be
specifically set forth in the notice in language calculated to be understood by
the claimant, pertinent provisions of the Plan shall be cited, and, where
appropriate, an explanation as to how the claimant can perfect the claim will be
provided. In addition, the claimant shall be furnished with an explanation of
the Plan's claims review procedure.
8.12 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been
denied a benefit or has been determined to be ineligible to participate in the
Plan or remain a Participant in the Plan, by a decision of the Administrator
pursuant to Section 8.11, shall be entitled to request the Administrator to give
further consideration to his claim by filing with the Administrator (on a form
which may be obtained from the Administrator) a request for a hearing. Such
request, together with a written statement of the reasons why the claimant
believes his claim should be allowed, shall be filed with the Administrator no
later than 60 days after receipt of the written notification provided for in
Section 8.11. The Administrator shall then conduct a hearing within the next 60
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days, at which the claimant may be represented by an attorney or any other
representative of his choosing and at which the claimant shall have an
opportunity to present written and oral evidence and arguments in support of his
claim. At the hearing (or prior thereto, upon 5 business days written notice to
the Administrator) the claimant or his representative shall have an opportunity
to review all documents in the possession of the Administrator which are
pertinent to the claim at issue and its disallowance. Either the claimant or the
Administrator may cause a court reporter to attend the hearing and record the
proceedings. In such event, a complete written transcript of the proceedings
shall be furnished to both parties by the court reporter. The full expense of
such court reporter and such transcripts shall be borne by the party causing the
court reporter to attend the hearing. A final decision as to the allowance of
the claim shall be made by the Administrator within 60 days of receipt of the
appeal (unless there has been an extension of 60 days due to special
circumstances, provided the delay and the special circumstances occasioning it
are communicated in writing to the claimant within the 60-day period). The final
decision shall be written in a manner calculated to be understood by the
claimant and shall include specific reasons for the decision and specific
references to the pertinent Plan provisions on which the decision is based.
ARTICLE IX
AMENDMENT, TERMINATION, AND MERGERS
9.1 AMENDMENT
The Employer shall have the right at any time to amend this Agreement.
However, no such amendment shall authorize or permit any part of the Trust Fund
(other than such part as is required to pay taxes and administration expenses)
to be used for or diverted to purposes other than for the exclusive benefit of
the Participants or their Beneficiaries or estates; no such amendment shall
cause any reduction in the amount credited to the account of any Participant or
cause or permit any portion of the Trust Fund to revert to or become the
property of the Employer; and no such amendment which affects the rights, duties
or responsibilities of the Trustee and Administrator may be without the
Trustee's and Administrator's written consent. Any such amendment shall become
effective as provided therein upon its execution.
For the purposes of this Section, a Plan amendment which has the effect of
eliminating or reducing an early retirement benefit or eliminating an optional
form of benefit (as provided in Regulations) shall be treated as reducing the
amount credited to the account of a Participant.
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9.2 TERMINATION
The Employer shall have the right at any time to terminate the Plan (and
the other Employers and Affiliated Employers shall have the right to terminate
their participation in the Plan) by delivering to the Trustee and Administrator
written notice of such termination. The Plan shall also terminate upon complete
discontinuance of contributions (both elective or non-elective) by the Employer.
Upon any termination (full or partial), all amounts credited to any affected
Participants' Aggregate Account shall become 100% Vested and shall not
thereafter be subject to Forfeiture and all unallocated amounts shall be
allocated to the Aggregate Accounts of all Participants in accordance with the
provisions hereof. Upon such termination of the Plan or complete discontinuance
of contributions, the Employer, by written notice to the Trustee and
Administrator, may direct either:
(a) Complete distribution of the assets in the Trust Fund to the
Participants in cash or in kind, in the form provided in Section 6.6 as soon as
the Administrator deems it to be in the best interests of the Participants, but
in no event later than two years after such termination; or
(b) Continuation of the Trust created by this Agreement and the
distribution of benefits pursuant to Article VI at such time and in such manner
as though the Plan had not been terminated.
9.3 MERGER OR CONSOLIDATION
This Plan and Trust may be merged or consolidated with, or its assets
and/or liabilities may be transferred to any other plan and trust only if the
benefits which would be received by a Participant of this Plan, in the event of
a termination of the Plan immediately after such transfer, merger or
consolidation are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation.
ARTICLE X
MISCELLANEOUS
10.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the Employer
and any Participant or to be a consideration or an inducement for the employment
of any Participant or Employee. Nothing contained in this Plan shall be deemed
to give any Participant or Employee the right to be retained in the service of
the Employer or to interfere with the right of the Employer to discharge any
Participant or Employee at any time regardless of the effect which such
discharge shall have upon him as a Participant of this Plan.
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10.2 ALIENATION
(a) Subject to the exceptions provided below, no benefit which shall be
payable out of the Trust Fund to any person (including a Participant or his
Beneficiary) shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the
same shall be void, and no such benefit shall in any manner be liable for, or
subject to, the debts, contracts, liabilities, engagements, or torts of any such
person, nor shall it be subject to attachment or legal process for or against
such person, and the same shall not be recognized by the Trustee, except to such
extent as may be required by law.
(b) This provision shall not apply to the extent a Participant, Former
Participant or Beneficiary is indebted to the Plan, for any reason, under any
provision of this Agreement. At the time a distribution is to be made to or for
a Participant's, Former Participant's or Beneficiary's benefit, such proportion
of the amount distributed as shall equal such indebtedness shall be paid or
offset by the Trustee to the Trustee or the Administrator, at the direction of
the Administrator, to apply against, offset or discharge such indebtedness.
However, prior to making a payment, the Participant, Former Participant or
Beneficiary must be given written notice by the Administrator that such
indebtedness is to be paid in whole or part from his Participant's Aggregate
Account. If the Participant, Former Participant or Beneficiary does not agree
that the indebtedness is a valid claim against his Vested Participant's
Aggregate Account, he shall be entitled to a review of the validity of the claim
in accordance with procedures provided in Sections 8.11 and 8.12.
(c) This provision shall not apply to a "qualified domestic relations
order" defined in Code ss. 414(p), and those other domestic relations orders
permitted to be so treated by the Administrator under the provisions of the
Retirement Equity Act of 1984. The Administrator shall establish a written
procedure to determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders. Further, to the extent
provided under a "qualified domestic relations order", a former spouse of a
Participant shall be treated as the spouse or surviving spouse for all purposes
under this Plan.
10.3 CONSTRUCTION OF AGREEMENT
This Plan and Trust shall be construed and enforced according to the Act,
the Code and the laws of the State of Florida, to the extent not preempted by
the Act or the Code. Any such claim shall be brought exclusively in the Federal
District Court for the Middle District of Florida, Orlando Division.
10.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
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in all cases where they would so apply, and whenever any words are used herein
in the singular or plural form, they shall be construed as though they were also
used in the other form in all cases where they would so apply.
10.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the Plan
established hereunder to which the Trustee or the Administrator may be a party,
and such claim, suit, or proceeding is resolved in favor of that Trustee or
Administrator, they shall be entitled to be reimbursed from the Trust Fund for
any and all costs, attorney's fees, and other expenses pertaining thereto
incurred by them for which they shall have become liable.
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS OR FORFEITURE FOR CAUSE
(a) Except as provided below and otherwise specifically permitted by
law, it shall be impossible by operation of the Plan, by termination thereof, by
power of revocation or amendment, by the happening of any contingency, by
collateral arrangement or by any other means, for any part of the corpus or
income of any Trust Fund maintained pursuant to the Plan, or any funds
contributed thereto, to be used for, or diverted to, purposes other than the
exclusive benefit of Participants, Former Participants, or their Beneficiaries.
(b) No portion of a participant's Vested Participant's Aggregate
Account shall be forfeited for cause. However, see Section 3.1 for permitted
reversions of all or a portion of the Trust Fund to the Employer.
10.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted by
the Act and regulations thereunder, shall be bonded in an amount not less than
10% of the amount of the funds such Fiduciary handles; provided, however, that
the minimum bond shall be $1,000 and the maximum bond $500,000. The amount of
funds handled shall be determined at the beginning of each Plan Year by the
amount of funds handled by such person, group or class to be covered and their
predecessors, if any, during the preceding Plan Year, or if there is no
preceding Plan Year, then by the amount of the funds to be handled during the
then current Plan Year. The bond shall provide protection to the Plan against
any loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in
connivance with others. The surety shall be a corporate surety company (as such
term is used in ss. 412(a)(2) of the Act), and the bond shall be in a form
approved by the Secretary of Labor. Notwithstanding anything in this Agreement
to the contrary, the cost of such bonds shall be an expense of and may, at the
election of the Administrator, be paid from the Trust Fund or by the Employer.
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10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall be
responsible for the validity of any contract of insurance issued hereunder or
for the failure on the part of the insurer to make payments provided by any such
contract of insurance, or for the action of any person which may delay payment
or render a contract of insurance null and void or unenforceable in whole or in
part.
10.9 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, Former Participant, his legal
representative, Beneficiary, or to any guardian, parent or committee appointed
for such Participant, Former Participant or Beneficiary in accordance with the
provisions of this Agreement, shall, to the extent thereof, be in full
satisfaction of all claims hereunder against the Trustee, Administrator and the
Employer, any of whom may require such Participant, Former Participant,
Beneficiary, legal representative, guardian, parent or committee, as a condition
precedent to such payment, to execute a receipt and release thereof in such form
as shall be determined by the Trustee, Administrator or Employer.
10.10 ACTION BY THE EMPLOYER
Whenever the Employer, under the terms of this Agreement, is permitted or
required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted authority.
10.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (a) the Employer, (b) the
Administrator, (c) the Trustee, and (d) any Investment Manager appointed
hereunder. The named Fiduciaries shall have only those specific powers, duties,
responsibilities, and obligations as are specifically given them under this
Agreement. In general, the Employer shall have the sole responsibility for
making the contributions provided for under Section 3.1; the sole authority to
appoint and remove the Trustee, the Administrator, and any Investment Manager
which may be provided for under this Agreement; to formulate the Plan's "funding
policy and method"; and to amend or terminate, in whole or in part, this
Agreement. The Administrator shall have the sole responsibility for the
administration of this Agreement, which responsibility is specifically described
in this Agreement. The Trustee shall have the sole responsibility of management
of the assets held under the Trust, except those assets, the management of which
has been assigned to an Investment Manager, who shall be solely responsible for
the management of the assets assigned to it, all as specifically provided in
this Agreement. Each named Fiduciary warrants that any directions given,
information furnished, or action taken by it shall be in accordance with the
provisions of this Agreement, authorizing or providing for such direction,
information or action. Furthermore, each named Fiduciary may rely upon any such
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direction, information or action of another named Fiduciary as being proper
under this Agreement, and is not required under this Agreement to inquire into
the propriety of any such direction, information or action. It is intended under
this Agreement that each named Fiduciary shall be responsible for the proper
exercise of its own powers, duties, responsibilities and obligations under this
Agreement. No named Fiduciary shall guarantee the Trust Fund in any manner
against investment loss or depreciation in asset value. Any person or group may
serve in more than one Fiduciary capacity.
10.12 HEADINGS
The headings and subheadings of this Agreement have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
10.13 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a uniform,
non-discriminatory manner.
IN WITNESS WHEREOF, this Agreement has been executed the day and year first
above written.
EMPLOYER:
SAWTEK INC.
By:_________________________________