UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended September 30, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
Commission File Number 000-28276
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SAWTEK INC.
(Exact name of registrant as specified in its charter)
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Florida 59-1864440
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization) 32703
1818 S. Highway 441, Apopka, Florida (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (407) 886-8860
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0005 Par Value
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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of October 31, 1997 was:
Common Stock, $.0005 par value: $326,162,748
There were 20,771,805 shares of the registrant's Common Stock outstanding as of
October 31, 1997.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement of the registrant for the
registrant's Annual Meeting of the Shareholders for the fiscal year ended
September 30, 1997, which definitive proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the
registrant's fiscal year end of September 30, 1997, are incorporated by
reference into Part III.
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TABLE OF CONTENTS
PART I
Page
Item 1. Business..................................................... 3-18
Item 2. Properties................................................... 18
Item 3. Legal Proceedings............................................ 18
Item 4. Submission of Matters to a Vote of Security Holders.......... 18
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters. ....................................... 18-19
Item 6. Selected Financial Data...................................... 19-20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 20-26
Item 8. Financial Statements and Supplementary Data.................. 26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................... 26
PART III
Item 10. Directors and Executive Officers of the Registrant........... 27-28
Item 11. Executive Compensation....................................... 29
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 29
Item 13. Certain Relationships and Related Transactions............... 29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 29
Exhibit Index................................................ 29-33
Signatures................................................... 34
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PART I.
Except for the historical information contained herein, the discussion
in this Form 10-K contains certain forward-looking statements that involve risks
and uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Form 10-K
should be read as being applicable to all related forward-looking statements
wherever they appear in this Form 10-K. The Company's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere in this Form 10-K.
ITEM 1. BUSINESS
Sawtek designs, develops, manufactures and markets a broad range of
electronic signal processing components based on surface acoustic wave ("SAW")
technology. The Company's primary products are custom-designed, high performance
bandpass filters, resonators, delay lines, oscillators and SAW-based subsystems.
These products are used in a variety of microwave and RF systems, such as Code
Division Multiple Access ("CDMA") and Global System for Mobile communications
("GSM")-based digital wireless systems, digital microwave radios, WLAN, cable
television equipment and various defense and satellite systems. The Company's
products offer key advantages such as lower distortion, reduced size and weight,
high reliability and precise frequency control compared to products based on
alternative technologies and address rapidly growing needs in
telecommunications, data communications, video transmission, military and space
systems and other markets. The Company's proprietary CAD and analysis software
tools support rapid and precise SAW device design and simulation, enabling
Sawtek and its customers to achieve timely new product development. The
Company's commercial customer base accounts for approximately 89% of net sales
and includes major telecommunications equipment producers such as Ericsson,
LGIC, Lucent Technologies, Motorola, Nokia, and Qualcomm.
Industry Background
- -------------------
Electronic systems which transmit or receive voice, data or video must
contain various signal processing components such as bandpass filters,
resonators, delay lines and oscillators. These components modify and condition
the desired signals while rejecting unwanted signals which cause distortion and
interference. The frequency at which these systems transmit and receive
information is referred to as the microwave or RF frequency. However, before the
information can be used, the signal must generally be converted to a lower
intermediate frequency ("IF") and finally to the lowest system frequency,
commonly referred to as baseband. While the microwave and RF frequencies at
which voice, data and video systems operate are generally dictated by regulatory
bodies such as the FCC, system designers have considerable flexibility in
selecting one or more IF frequencies which suit the requirements of a specific
application and design approach. Consequently, IF components, particularly
filters, are developed specifically for each customer and application, even
though they frequently must be produced in large quantities. The performance
demands placed on these components by increasingly complex systems have changed
dramatically over the past few years, particularly in wireless applications.
The wireless communications industry is experiencing significant
worldwide growth. Cost reductions and technological improvements in such
wireless communications products as cellular, PCS, global satellite telephones
and wireless data systems are contributing to this growth. Wireless
communications systems can offer the functional advantages of wired systems
without the costly and time consuming development of an extensive wired
infrastructure, which is of particular importance in developing parts of the
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world. Rapidly emerging digital telecommunications standards and technology will
provide the performance improvements necessary to address overcrowding of
existing cellular systems and to provide increased functionality. Unless
carriers adopt the emerging digital standards, they will be forced to build new
cellular base station sites and continue to suffer from dropped calls due to the
overcrowding problem. These standards include CDMA, an approach being
commercialized by Qualcomm in the United States and worldwide, and GSM, adopted
throughout Europe and many other countries. These new approaches are being
utilized to provide cellular and PCS services as well as wireless local loop
("WLL") networks. As demands for wireless communications subscriber services
grow, service providers are offering digital handheld products and expanding the
associated infrastructure. These factors, coupled with regulatory changes in the
United States and abroad, as well as advances in wireless communications
technology, are leading to substantial worldwide growth in existing systems and
the emergence of new markets and applications.
As the wireless telecommunications industry has expanded, previously
allocated frequency bands have become increasingly congested, and the need to
precisely control transmission frequencies and to filter unwanted signals
without distortion has become critically important. In response to this crowding
of existing frequency bands, regulatory agencies have allocated new blocks of
spectrum at higher frequencies and more stringently regulated allowable signal
bandwidths. Systems operating at these higher microwave and RF frequencies
require higher frequency IF components to simplify the overall system
architecture, thereby reducing cost, complexity and power consumption. To make
more efficient use of the crowded frequency bands, the spacing between adjacent
signal channels must be reduced, placing the desired signal very close to
unwanted interfering signals. Highly selective IF filters are required to pass
the desired signal without distortion, while rejecting interfering signals from
adjacent channels and other sources.
Telecommunications systems, including cellular and PCS, are rapidly
evolving from traditional analog to more efficient digital modulation techniques
to improve system performance and capacity. These digital approaches call for a
wider range of bandwidths, higher frequencies and more precise bandwidth
control. Furthermore, for highly bandwidth-efficient digital transmission
systems to operate properly, all frequency components of the signal must pass
through the system with essentially the same time delay or severe distortion may
result.
The development of RF integrated circuits, coupled with surface mount
packaging ("SMP") technology, has facilitated a significant reduction in the
size of portable wireless products. These developments have, in turn, driven the
demand for rugged, miniature, surface mount IF signal processing components,
particularly for use in handheld applications such as cellular telephones.
Traditional signal processing technologies include lumped element
("LC"), ceramic and bulk acoustic wave ("BAW") crystal filters, resonators and
oscillators. While these basic approaches have been improved to address changing
demands, the improvements have been largely incremental and evolutionary, rather
than revolutionary. It is generally difficult to build traditional LC filters
with the high selectivity and precision required by many new systems. In
addition, most LC filters tend to drift in frequency and degrade in performance
with changes in operating temperature. Conventional BAW crystal filters are
difficult to build in the higher IF frequency ranges required for many emerging
communications applications because the crystal elements of these filters must
be made increasingly thinner, resulting in a device that is both delicate and
difficult to manufacture. Many conventional types of filters, including both BAW
crystal and LC, which are suitable for filtering analog signals, may produce
significant distortion when used to filter digital signals. Another inherent
limitation of these traditional filter technologies is the inability to
adequately reduce their physical size to suit many emerging applications.
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The SAW solution to signal processing relies on the propagation and
interaction of acoustic waves on the surface of a piezoelectric crystal. SAW
technology offers a number of advantages over competing technologies, including
precise frequency control and selectivity, reduced size and weight, high
reliability, environmental stability and the ability to pass RF signals without
significant distortion. Perhaps the most significant benefit inherent in SAW
technology is the relative ease in producing large quantities of high precision
components that are comparatively small in size. SAW devices are routinely
manufactured for higher IF frequency ranges required for emerging systems. The
range of signal bandwidths that can be accommodated with SAW technology is quite
large, permitting SAW components to address almost all viable applications.
As the use of wireless communications systems increases and new
applications develop, there is a need for large quantities of IF signal
processing components which can meet demanding performance, size and reliability
requirements. SAW technology is an enabling solution, possessing all of these
attributes, with applications in nearly all wireless communications systems.
Markets and Applications
---------------------------
SAW devices may be utilized in most applications which transmit or
receive microwave or RF signals. Sawtek markets and sells bandpass filters,
resonators, delay lines, oscillators and SAW-based subsystems to both domestic
and international original equipment manufacturers ("OEMs") that integrate these
products into receivers, transmitters and other equipment for commercial,
industrial, military and space applications. Sawtek provides products to the
following markets: telecommunications, data communications, video transmission,
military and space systems and other markets.
Telecommunications
------------------
Telecommunications applications represent a majority of Sawtek's net
sales. The Company's telecommunications product offerings consist primarily of
IF bandpass filters for CDMA and GSM base station equipment and CDMA subscriber
handsets. Additional applications include base station repeaters and global
satellite systems. The Company offers over 75 custom SAW components to serve
these market applications.
Cellular. In cellular applications, calls are placed through subscriber
handsets by establishing a connection with a base station via RF channels in the
900 MHz frequency range. The Company supplies IF bandpass filters for CDMA and
GSM-based cellular base stations and for certain subscriber handset
applications.
PCS. PCS systems are enhanced cellular networks which operate in a
frequency band of 1,800 to 2,000 MHz and provide a broad range of
telecommunications services. The Company supplies IF bandpass filters for CDMA
and GSM-based PCS base station equipment, and bandpass filters for CDMA
subscriber handsets.
Wireless PBX. Wireless PBX, a more sophisticated form of cordless
telephony, is becoming increasingly popular in business environments for
intra-office communications. The Company supplies bandpass filters to both base
station and subscriber handset manufacturers of wireless PBX systems.
Satellite. A number of satellite telecommunications systems have been
proposed by major communications companies and consortia. The Company supplies
satellite and ground-based SAW components for several of these developing
systems. For some time, Sawtek has been a leading producer of high reliability,
space qualified SAW components and is well positioned for these applications.
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Data Communications
-------------------
The data communications market encompasses a number of applications
involving the transmission and reception of data through wired, wireless or
satellite networks. As the usage of these networks increases, OEMs are pursuing
broader bandwidths, faster data rates and improved data integrity. OEMs
typically specify custom SAW filters based on these requirements and as a
result, the Company designs unique products for each OEM. As international
standards are adopted to meet these requirements, the Company will support both
standard and custom applications. These applications include digital radio,
wireless local area networks, handheld data terminals and global positioning
systems.
Video Transmission
------------------
OEM products utilizing relatively low frequency SAW filter designs for
cable television ("CATV") head-end equipment are purchased worldwide by cable
operating companies. Sawtek manufactures over 30 custom SAW devices to serve the
various standards required by the worldwide video transmission market. Emerging
technologies within the video transmission market include high definition
television ("HDTV") and interactive television. The Company has designed custom
products for both of these applications and is involved in limited production of
devices for interactive television.
Military and Space
------------------
Sawtek has been a provider to the military and space systems markets
since the Company's inception in 1979. Sawtek's components can be found in major
applications that include electronic warfare, defense communications, military
and commercial space systems and radar and surveillance.
Other Markets
-------------
The Company designs and produces SAW components for other markets,
including commercial avionics, test equipment and identification and security
systems. Commercial avionics applications include collision avoidance
transponders and radar for line-of-flight weather information. Sawtek's products
are utilized in various test equipment applications for circuit design and
system performance analysis, such as signal generators, spectrum analyzers and
cellular telephone system test equipment. In the identification and security
system industry, the Company's products enable OEMs to provide passive SAW RF
identification labels (or tags) for a variety of applications, such as toll road
vehicle identification and personnel monitoring. The Company also markets three
families of standard SAW filters and offers these products for sale through
distribution networks in North America and Europe.
Sawtek has a diversified customer base with four customers that each
accounted for over 10% of net sales in 1997. They are in alphabetical order:
Ericsson, Lucent, Motorola and Qualcomm. The Company's top 10 customers
accounted for approximately 68% of net sales in 1996 and 76% of net sales for
1997. The loss of any of these customers could have a material adverse effect on
the Company's business, operating results and financial condition. There is no
assurance that the Company will obtain future business from these customers.
Products
- --------
The Company has produced more than 1,500 unique SAW products at
frequencies ranging from 10 MHz to nearly 3 GHz. Products are organized into six
product categories: bandpass filters, resonators, delay lines, oscillators,
SAW-based subsystems and SAW chemical sensor elements. While some product
standardization exists, the vast majority of the Company's products are custom
developed for an individual application or customer, for which a non-recurring
engineering ("NRE") fee is generally charged.
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Bandpass Filters
----------------
Sawtek currently offers three types of SAW bandpass filters:
bi-directional transversal, low loss transversal and coupled resonator filters.
Bi-directional Transversal Filters. This class of filters represents
the most widely used application of SAW technology, and the Company offers over
800 products of this type. Because these filters operate over a fairly wide and
useful frequency range (10 MHz to 2.5 GHz) and a relatively large range of
possible fractional bandwidths (0.1% to 67% of the center frequency), they are
the filter component of choice in many modern communications systems. The
largest emerging market for this product is in support of cellular and PCS
infrastructure and handheld subscriber applications. Numerous bi-directional
filter products, supplied in low profile surface mount packages, have been
produced for high volume subscriber applications such as CDMA-based cellular and
PCS, WLL, WLAN and handheld data terminals.
Low Loss Transversal Filters. Sawtek offers 180 high performance, low
loss transversal filters for use in both infrastructure and subscriber
applications in CDMA and GSM-based digital cellular systems, wireless PBX,
wireless handheld data terminals and WLANs.
Coupled Resonator Filters. The Company offers over 70 coupled resonator
filter products which include in-line coupled, waveguide coupled and combined
mode resonator filters. The Company currently supplies filters of this type for
use in GSM, PCS and numerous other commercial and military telecommunications
systems.
Resonators
----------
The Company currently offers two types of resonators: SAW and surface
transverse wave ("STW"). More than 100 resonator products, operating from 100
MHz to 1.5 GHz, are available and are generally used as stable, high-Q frequency
control elements that determine the operating frequencies of oscillators. The
Company generally chooses to offer these products for use in high performance
commercial, military and space applications, where the demand for more stringent
electrical requirements is not served by high volume SAW resonator
manufacturers. In addition to offering these products as individual components,
Sawtek's resonators are also used by the Company in the manufacture of its high
performance oscillator products.
Delay Lines
-----------
Sawtek currently offers more than 190 SAW delay line products,
consisting of non-dispersive, dispersive and multi-tap delay line
configurations. Sawtek's delay line products are primarily used in military
communications and electronic warfare applications, such as pulse expansion and
compression radar. However, they also find uses in commercial applications, such
as commercial avionics collision avoidance transponders, RF identification tag
systems and wireless handheld data terminal products. All SAW delay lines make
use of the fact that a surface acoustic wave travels 100,000 times more slowly
than an electromagnetic wave. This permits SAW delay lines to be much smaller
for a given signal delay than those of most competing technologies.
Oscillators
-----------
Sawtek currently offers over 100 fixed frequency and voltage controlled
oscillators based on both SAW and STW resonator technologies. Oscillators are
used to generate a pure RF tone or signal. This signal often determines,
directly or through frequency multiplication, the final operating frequency of
the system in which it is used. Oscillators, in conjunction with additional
circuitry, are also used in converting or mixing RF signals from one frequency
to another. The Company's oscillators are used in high performance commercial
and military applications such as instrumentation, avionics and electronic
warfare.
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SAW-based Subsystems
--------------------
The Company's most complex and highly integrated products are SAW-based
subsystems. In general, these subsystems consist of key SAW components,
surrounded by additional circuitry, that provide a higher level of system
functionality than that provided by the SAW devices alone. These products are
highly specialized and are custom developed for specific applications. Sawtek's
subsystem products are largely used in military and space applications and
include channelized filter banks, switched filter and delay line modules and
pulse expansion and compression subsystems.
SAW Chemical Sensor Elements
----------------------------
SAW chemical vapor sensors have been under development at research
institutions for many years, and have been successfully demonstrated by
government, university and industrial laboratories in the United States and
overseas. Sawtek has been a leading supplier of SAW resonators and delay lines
used in these sensor development programs for over 12 years, with more than 20
products available.
New Product Development
- -----------------------
Sawtek has identified SAW chemical sensors and subsystems as a
strategically promising technology for new product development. Substantial
market opportunities exist in applications that include in-situ groundwater
contamination analysis, process control, incipient fire detection, electronic
noses, soil gas analysis, dry cleaning monitors, fugitive emission monitors,
analysis of gases in bulk chemical storage containers, OSHA workplace health and
safety monitoring and respirator alarm systems, and chemical warfare agent
detection. The Company believes there is currently no widely available
technology which meets all of the cost, performance and applications
requirements for most of these areas. Thus, there is a need for a cost-effective
technology that can be customized for specific applications. SAW chemical sensor
systems have the potential for costing a fraction of currently available
transportable analytical vapor testing equipment, while providing a suitable
level of chemical selectivity and sensitivity, in an instrument that is
handheld. These sensor systems could also be fitted with sampling attachments
for sensing volatile organic compounds ("VOCs") in soil and water.
A majority of Sawtek's sensor development work is being conducted as
part of a Technology Reinvestment Program ("TRP") project which received a
cost-shared financial award (DE-FC07-95ID13343) in the 1994 TRP competition.
Sawtek is the lead company in this project, and is working cooperatively with
Sandia National Laboratories, Battelle Pacific Northwest Laboratories and
consortium members, General Atomics and Perkin-Elmer. To date, Sawtek scientists
have made fundamental improvements over prior art in three major technical areas
necessary for product development, namely temperature compensation, polymer
development and metrology. No commercial sales of SAW chemical sensor systems
have been made by the Company to date and there is no assurance that the Company
will be successful in developing sensing products for commercial applications.
Technology
- ----------
SAW Technology. A simple SAW filter has two transducers which consist
of interdigital arrays of thin metal electrodes photolithographically defined on
a highly polished piezoelectric wafer. A piezoelectric material is one in which
there exists a reciprocal, linear relationship between the electric field in the
material and the strain in the material. When a signal of the proper frequency
is applied across the interdigital transducers ("IDTs"), the alternating
electrode voltages cause the surface of the device to expand and contract
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due to the varying electric fields induced in the piezoelectric material. This
causes the generation of a mechanical (or acoustic) wave propagating at the
surface of the device. Reciprocally, the acoustic wave generates an
electrostatic wave with potentials at the surface of the device which can be
detected by an IDT. The operating frequency of the device is determined by the
electrode spacing and the material's surface acoustic wave velocity. This
relationship places physical limitations on the frequency of operation of
practical SAW devices due to limitations in photolithographic resolution. The
configuration of the IDTs and properties of the substrate material determine the
signal processing function and response characteristics of the device.
The appeal of SAW devices as preferred signal processing components is
based on the inherent advantages of the technology. SAW devices can provide
complex signal processing functions in a single, compact device. One example of
this is the outstanding bandpass filter characteristics which can routinely be
achieved using SAW technology. Comparable performance utilizing LC filter
technology would require numerous components and could occupy many square inches
of PC board space. Because surface acoustic waves propagate 100,000 times slower
than electromagnetic waves, the realization of relatively long electrical delays
on devices of limited dimensions is possible. Additional performance advantages
of SAW technology, which vary based on the application, include small size,
linear phase, high selectivity, excellent rejection and temperature stability.
The ruggedness and reliability of SAW devices are characteristic of the physical
device structure. Because device operating frequencies are determined by
photolithographic processes, SAW devices do not require complicated tuning
procedures, nor do they become detuned in the field. The semiconductor
microfabrication techniques used in manufacturing SAW components allow for the
volume production of economical and reproducible devices. The outstanding
reproducibility of these devices makes them ideal for military electronic
warfare applications such as channelized filter banks for spectral analysis.
Small size and ruggedness make SAW devices useful for cellular communications
and related applications. Finally, the relative radiation hardness of SAW
devices makes them ideal for space-based applications.
Computer Aided Design and Analysis Software. Sawtek's versatile and
user-friendly proprietary software fully supports the design and simulation of a
broad range of SAW device structures, allowing Sawtek's design engineers to
select the optimum SAW device type for a particular application with respect to
performance, size and cost.
Manufacturing
- -------------
The manufacturing techniques utilized by the Company to produce its
products are very similar to those used by the integrated circuit industry. In
general, SAW devices are more straightforward to manufacture than most
integrated circuits but involve certain highly complex and precise processes
that are unique. While the Company controls a substantial portion of the
manufacturing process, some activities are outsourced. The primary raw materials
used to manufacture Sawtek's products include piezoelectric wafers and metal or
ceramic packages used to house and protect the SAW die. Manufacturing scheduling
and control is achieved through the use of a computer based manufacturing
resource planning ("MRP II") system. The Company segregates the manufacturing
process into two functional areas: wafer fabrication and assembly.
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Wafer Fabrication. The wafer fabrication process involves the
deposition of a very thin, uniform coating of aluminum onto piezoelectric
wafers. These metallized wafers are coated with a light sensitive material known
as photoresist. The wafer is exposed to light through a master glass plate, or
photomask, which contains multiple images of the SAW devices to be produced. The
image from the photomask is replicated on the wafer through a photolithographic
develop and etch process. Each device on the wafer is referred to as a SAW die
and each wafer may contain from two to 600 or more die, depending upon the
design and performance of the final product. All of the Company's fabrication
processes are conducted at the Company's principal facility in Orlando, Florida.
Assembly. In assembly, the wafer is cut into the individual SAW die
with high precision, diamond wheel dicing saws and placed in metal or ceramic
packages. The SAW die and associated components, if any, are attached to the
base of the package using specialized adhesives. Electrical connections are made
between the SAW die and the pins, pads or leads of the package using either
manual or automatic wirebonding equipment. The packages are hermetically sealed
using specialized welding equipment in a dry nitrogen atmosphere to ensure the
long term reliability of the device. After sealing, the units are tested for
hermeticity and labeled with a laser marking system. Finally, the units are
tested with automated network analyzers to ensure that the devices conform to
the desired electrical specifications.
In 1996, the Company established a subsidiary in Costa Rica for the
production of SAW components. In 1997, the Costa Rican subsidiary accounted for
approximately 34% of net sales.
The Company has built a new SMP production facility in Orlando, Florida
to automate, in large part, the assembly process of SMP products. Utilizing
robotic assembly equipment, the Company has automated the functions of SAW die
attach, wire bond, package seal, hermetic leak test, electrical test and package
marking.
Sales and Marketing
- -------------------
Due to OEM requirements for custom devices, the Company uses a
team-based sales approach to develop relationships at multiple levels of the
customer's organization, including management, engineering and purchasing. The
Company utilizes 15 domestic and 10 international independent sales
representatives to identify opportunities which are then managed by the
Company's internal sales force. Direct sales are handled by the Company's sales
and marketing personnel and management. The Company also utilizes two
distributors to generate additional sales for the Company's standard product
families. Once an opportunity is identified, members of the Company's
engineering design team and sales team coordinate close technical collaboration
with the customer during the design and qualification phase of their program.
The Company's executive officers are actively involved in all aspects of the
sales and marketing process working closely with the senior management of its
customers.
Foreign and Domestic Operations and Export Sales
- ------------------------------------------------
See Notes 10 and 11 to Consolidated Financial Statements at page F-16.
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Competition
- -----------
The markets for Sawtek's products are characterized by price
competition, rapid technological change, product obsolescence and heightened
domestic and international competition. Historically, the NRE investment
required to produce a SAW design and technical incompatibility issues between
various SAW suppliers has led many SAW customers to single source their
requirements. In each of the markets for Sawtek's products, the Company competes
with large international firms that have substantially greater financial,
technical, sales, marketing, distribution and other resources than the Company.
In addition, the Company may face competition from companies that currently
produce SAW devices for their internal requirements, as well as from a number of
the Company's customers that have the potential to develop an internal supply
capability for SAW devices. The following North American companies compete with
the Company to a greater or lesser degree depending on the strengths and product
focuses of each company: Andersen Laboratories, Phonon and RF Monolithics.
Competition from European companies principally includes Siemens Matsushita
Components and Thomson. The Company anticipates that it will experience
increasing competition from Pacific Rim companies as it expands into handheld
and other high volume subscriber applications. The Company expects competition
to increase from both established and emerging competitors as well as from
internal capabilities developed by certain customers. Additional competition
could have a material adverse effect on the Company's business, results of
operations and financial condition through price reductions, loss of market
share and delays in the timing of customers' orders.
The Company's ability to compete effectively in its target markets
depends on a variety of factors both within and outside of the Company's
control, including timing and success of new product introductions by the
Company and its competitors, availability of manufacturing capacity, the rate at
which customers incorporate the Company's components into their products, the
Company's ability to respond to price competition, 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 the Company will be able to compete successfully in the future.
Research and Development
- ------------------------
Sawtek's research and development efforts are primarily aimed at
discovering new and innovative SAW device structures and SAW-based technologies
that uniquely address market needs in those areas selected as strategic by the
Company. The goal of the Company's research and development group is to develop
the technological tools necessary to meet emerging market requirements.
Sawtek currently employs 21 scientists, technicians and consultants in
its research and development efforts. In addition to its staff and consultants,
Sawtek is actively involved in cooperative research with outside organizations,
including individuals, research groups, universities, institutes and national
laboratories. This approach allows Sawtek's research and development group to
benefit from the ideas and talents of a group of scientists more than twice as
large as Sawtek's internal staff, and to maintain a highly creative, stimulating
intellectual environment for its scientists.
Research and development expenses were $3.8 million in 1997 and $2.0
million for 1996. The Company anticipates that research and development expenses
will continue to increase in total dollars as personnel and programs are added.
A significant portion of the Company's development activities is conducted in
connection with the design and development of custom devices, which is paid for
by customers and classified as NRE items. The revenue generated from these items
is included in net sales and the cost is reflected in cost of sales rather than
in research and development expenses.
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Proprietary Rights
- ------------------
Sawtek relies on a combination of patents, copyrights and trade secrets
to establish and protect its proprietary rights. Sawtek owns eight U.S. patents
(which expire from 2003 to 2013), relating to SAW device, oscillator and
packaging technologies. Sawtek also owns a substantial body of proprietary
techniques and trade secrets. Sawtek recognizes the benefits associated with
developing a portfolio of corporate intellectual property, particularly during
the new product development process, and is aggressively pursuing patents on
several technologies. Over the past two years, 10 patent applications were
filed. There can be no assurance that patents will issue from any of the pending
applications, or that any claims allowed from existing or pending patents will
be sufficiently broad to protect the Company's technology.
Sawtek also seeks to protect its trade secrets and proprietary
technology, in part, through confidentiality agreements with employees,
consultants and other parties. There can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known to
or independently developed by others. In addition, the laws of some foreign
countries do not offer protection of the Company's proprietary rights to the
same extent as the laws of the United States.
Backlog
- -------
Sawtek's backlog as of September 30, 1997 was approximately $27.4
million compared to the backlog at September 30, 1996 of $27.8 million. The
Company has reduced customer delivery times from over 15 weeks 18 months ago to
approximately eight to 12 weeks through its capacity expansion efforts.
Customers are now placing orders based on this reduced lead time resulting in a
slightly lower backlog compared to last year. The Company includes in its
backlog only customer orders and certain purchase agreements with firmly
scheduled deliveries within the subsequent 12 months. Of the $27.4 million
backlog at September 30, 1997, the Company could potentially ship all of this
backlog by the end of fiscal 1998. The Company's backlog is used in the MRP II
scheduling system to plan and schedule all work orders. The Company's backlog is
not necessarily indicative of future product sales, and the Company may be
materially adversely affected by a delay or cancellation of a small number of
purchase orders. Backlog cancellations are negotiated with each customer in
writing and form a part of the contract with the customer.
Most of the orders from the Company's largest customers allow the
customer to cancel the order with a certain amount of required notice; and, from
time to time, the Company has experienced cancellations of orders in backlog.
This notice is negotiated with each customer and is generally related to the
manufacturing cycle time of the product which the customer ordered, typically 60
to 90 days. If there is any work in process at the time of cancellation, the
customer may be required to pay customary termination charges. If customers
over-order to secure delivery dates and eventually cancel orders the customer
may be subject to price renegotiation as a result of the lower quantity of units
taken.
Employees
- ---------
As of September 30, 1997, the Company had a total of 555 employees,
including 390 in manufacturing and operations; 86 in research, development and
engineering; 26 in quality assurance; 19 in sales and marketing; and 34 in
administration. With the exception of 98 employees located in San Jose, Costa
Rica, all of the employees of the Company are based at the Company's
headquarters and two other sites in Orlando, Florida. The Company believes its
future performance will depend in a large part on its ability to attract and
retain highly skilled employees. None of the Company's employees is represented
by a labor union, and the Company has not experienced any work stoppages. The
Company considers its employee relations to be good.
12
<PAGE>
RISK FACTORS AND UNCERTAINTIES
There are forward looking statements in this report. Any statement
relating to plans, intentions, expectations or other forward looking expression
is a forward looking statement. The Company may make other forward looking
statements either orally or in writing in the future. The following "Risk
Factors and Uncertainties" are intended to be cautionary statements identifying
important factors that could cause actual results to differ materially from
those in the forward looking statements.
Dependence on Continuing Demand for Wireless Communications Services
and CDMA Technology. Approximately 62% of the Company's net sales for 1996 and
approximately 72% of net sales for 1997 were derived from sales of SAW devices
for applications in wireless communications systems. Any economic, technological
or other force that causes a reduction in demand for wireless services may cause
a reduction in the need for performance upgrades to existing base stations and
in the installation of new base stations, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
Approximately 59% of the Company's net sales for fiscal 1996 and approximately
56% of net sales for the fiscal 1997 were derived from base station
applications. As base stations are installed and upgraded, domestically and
internationally, the market for SAW devices installed in such base stations may
ultimately become saturated. The life of SAW devices is typically in excess of
20 years, and a market for replacement devices for base stations may not
develop.
Sales of products for CDMA-based systems, including base stations and
subscriber handset phones, accounted for approximately 24% of net sales in
fiscal 1996 and approximately 50% of net sales for 1997. CDMA technology has
recently been introduced in the marketplace and there can be no assurance that
unforeseen complications will not arise in the scale-up and operation of
CDMA-based systems that could materially delay or limit the commercial use or
acceptance of CDMA technology. Such delay or limitation would have a material
adverse effect on the Company's business, operating results and financial
condition.
There is a trend toward lower average selling prices for base station
filters due to competitive pricing pressures and to the installation of more
"micro" base stations which use less expensive, lower performance SAW filters.
The Company is uncertain whether an increase in the number of base station
filters sold in the future will offset the decrease in the average selling price
for these filters so as to maintain or increase revenues from the sale of base
station filters. The Company believes that its sales of SAW filters for
subscriber handsets in the CDMA market will increase significantly in fiscal
year 1998. Handset filters typically produce lower gross margins than the gross
margins produced by base station filters.
Dependence on a Limited Number of Customers. Historically, a limited
number of customers have accounted for a significant portion of the Company's
net sales. In fiscal 1996 and fiscal 1995, sales to the Company's top 10
customers accounted for approximately 68% and 60% respectively, of net sales. In
1996, the Company's top three customers accounted for approximately 24%, 11% and
8% of net sales. For 1997, sales to the top 10 customers accounted for 76% of
net sales with the top four customers accounting for approximately 14%, 12%, 11%
and 11% of net sales. The Company expects that sales of its products to a
limited number of customers will continue to account for a high percentage of
its net sales in the foreseeable future. In addition, a substantial portion of
the Company's products are designed to address the needs of individual
customers. Accordingly, the Company's future success depends largely upon the
decisions of the Company's current customers to continue to purchase products
from the Company, as well as the decisions of prospective customers to develop
and market systems that incorporate the Company's products.
13
<PAGE>
Adverse developments relating to the wireless communications market
involving one or more of the Company's large customers, including litigation
among such customers, could have an adverse effect on the market price of the
Company's Common Stock even if the actual impact of such developments would be
immaterial to the Company's results of operations and financial condition.
Fluctuations in Quarterly Results; Backlog. The Company's quarterly
operating results have fluctuated in the past and are expected to fluctuate in
the future as a result of a variety of factors. There are a number of operating
factors that may cause fluctuations in quarterly results, one of which is
product mix, which is determined by different customer requirements. If the
product mix changes, the average selling price and gross margin may be lower.
Other factors that may affect quarterly results are delays in production caused
by the installation of new equipment, the level of orders that are received and
can be shipped in any quarter, price competition, fluctuations in manufacturing
yields, availability of manufacturing capacity, market acceptance of product,
increased direct labor and overhead, delays in receiving equipment from
suppliers, customer over-ordering followed by order cancellations, and
cancellation or rescheduling of orders for any reason.
Purchase orders for the Company's products may be terminated by the
Company's customers with prior notice, typically 60 to 90 days. Such orders may
be large and intended to satisfy customers' long-term needs. Accordingly, the
Company's backlog is not necessarily indicative of future product sales, and the
Company may be materially adversely affected by a delay or cancellation of a
small number of purchase orders. In addition, the Company's expense levels are
based in significant part on the Company's expectations of future product sales
and therefore are relatively fixed in the short term. If net sales are below
expectations, operating results would be materially adversely affected.
Consequently, the Company's results of operations for any quarter are not
necessarily indicative of results for any future period. Furthermore, the
Company's results of operations may be subject to economic downturns in the
electronics industry. Due to the foregoing factors, it is likely that in some
future quarter the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the price of the Common
Stock would likely be materially adversely affected.
Dependence on New Products; Technological Change. Future growth of the
Company's business is dependent on the Company's ability to develop new or
improved SAW devices on a timely basis. The Company's product development
resources are limited, requiring the Company to allocate such resources among a
limited number of product development projects. Failure by the Company to
allocate its product development resources to products that meet market needs
could have a material adverse effect on the Company's future growth. The success
of new products may also depend on timely completion of new product designs,
quality of new products and market acceptance of customer products.
The markets for products offered by the Company are characterized by
rapidly changing technology and evolving industry standards. If technology
supported by the Company's products becomes obsolete or fails to gain widespread
commercial acceptance, the Company's business may be materially adversely
affected. Accordingly, the Company believes that continued significant
expenditures for research and development will be required. In the past, the
Company has depended on customer funded non-recurring engineering charges
("NRE") for a significant portion of its product development expenditures. There
can be no assurance that such customer funding will continue in the future,
which may require the Company either to reduce the scope of its product
development or allocate increased internal resources for such purposes. If the
Company is unable to design, develop and introduce competitive products on a
timely basis, its future financial condition and operating results could be
materially adversely affected. Competing technologies, including digital
filtering technology, could develop which could replace or reduce the use of SAW
technology for certain applications. Any development of a cost effective, new
technology that replaces SAW filtering technology could have a material adverse
effect on the Company's business, financial condition and results of operations.
14
<PAGE>
Risks Associated with Costa Rica Operations. The Company bears
significant manufacturing risks associated with its operations in San Jose,
Costa Rica. During 1997 shipments from Costa Rica accounted for approximately
34% of consolidated net sales. Operating a production facility in Costa Rica
carries unknown risks of disruption resulting from government intervention,
wars, currency devaluation, labor disputes, earthquakes and other events. Any
such disruptions could have a material adverse effect on the Company's business,
results of operations and financial condition.
Competition. The markets for the Company's products are intensely
competitive and are characterized by price competition, rapid technological
change, product obsolescence and heightened domestic and international
competition. In each of the markets for the Company's products, the Company
competes with large international companies that have substantially greater
financial, technical, sales, marketing, distribution and other resources than
the Company. In addition, the Company may face competition from companies that
currently manufacture SAW devices for their own internal requirements, as well
as from a number of the Company's customers that have the potential to develop
an internal supply capability for SAW devices. The Company expects competition
to increase from both established and emerging competitors, as well as from
internal capabilities developed by certain customers. The Company also believes
that a significant source of competition may come from alternative technological
approaches. The Company's ability to compete effectively in its target markets
depends on a variety of factors both within and outside of the Company's
control, including timing and success of new product introductions by the
Company and its competitors, availability of manufacturing capacity, the rate at
which customers incorporate the Company's components into their products, the
Company's ability to respond to price decreases, 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 the Company will be able to compete successfully in the future.
Risks Associated with International Operations. The Company's
international sales account for approximately 44%, 54% and 49% of net sales for
fiscal 1997, 1996 and 1995, respectively. Ericsson, based in Sweden, was the
Company's second largest customer in fiscal 1997, accounting for approximately
12% of net sales. The sale of products in foreign countries involves risks
associated with currency exchange rate fluctuations and restrictions,
export-import regulations, customs matters, longer payment cycles, foreign
collection problems and political and transportation risks. The Company's
international sales are generally denominated in U.S. dollars. However, the
Company may be required in the future, due to competition, to denominate sales
in the foreign currencies of certain countries. As a result, fluctuations in
currency exchange rates may (in the future) have a significant effect on the
Company's sales, even in the absence of an increase or decrease of unit sales to
foreign customers. A strong U.S. dollar could have a material adverse effect on
the Company's ability to compete internationally. The Company has not, to date,
engaged in hedging a portion of its foreign exchange risk. If, however, any of
the Company's future international sales are denominated in foreign currencies,
the Company may find it necessary to engage in rate hedging activities with
respect to certain exchange rate risks. There can be no assurance that the
Company will engage in such exchange rate hedging or that any such activities
will successfully protect against such risks. In addition, foreign sales involve
uncertainties arising from local business practices and cultural considerations,
and risks associated with international trade transactions. For a portion of
foreign sales, the Company depends upon independent sales representatives who
are not subject to the Company's control and are generally free to terminate
their relationships with the Company on 30 days notice.
15
<PAGE>
Limited Sources of Supply. The Company has a limited number of
suppliers for certain critical raw materials, components and equipment used by
the Company in manufacturing SAW devices. While historically the Company has not
experienced difficulty in obtaining needed supplies and equipment, synthetic
crystal material and wafer fabrication equipment could potentially be difficult
to obtain. The synthetic quartz material used by the Company, and purchased from
third parties, may require up to six months to grow. Currently, few wafer
producers have the expertise and capacity necessary to satisfy the Company's
wafer requirements. A failure by the Company to anticipate its needs for high
quality quartz could result in a shortage of quartz material available to the
Company. If the Company is unable to satisfy its requirements for quartz or
other raw materials or to obtain and maintain appropriate fabrication equipment,
the Company's business, financial condition and results of operations would be
materially adversely affected. There can be no assurance that the Company will
be able to secure adequate supplies of materials.
Manufacturing Risks. The Company's manufacture of SAW devices involves
processes that may have reduced yields from time to time, the causes of which
are often difficult to determine. While reduced yields have not been a
significant factor in limiting production capacity in the past, a material and
continuing reduction in yields at any stage of the manufacturing process would
have a material adverse effect on the Company's ability to meet its quoted
delivery times and cost of production, which would have a material adverse
effect on the operations of the Company.
Dependence on Key Managerial and Technical Personnel. The Company's
success depends to a significant extent on the performance of a number of key
management and technical personnel, the loss of one or more of whom could have a
material adverse effect on the Company. The Company's success will also depend
in part on its ability to attract and retain qualified professional, technical,
production, managerial and marketing personnel. Competition for such personnel
in the SAW industry is intense. There can be no assurance that the Company will
be successful in attracting and retaining the personnel it requires to develop
new and enhanced products and to conduct its operations successfully.
Intellectual Property and Proprietary Rights. Sawtek relies on a
combination of patents, copyrights and trade secrets to establish and protect
its proprietary rights. There can be no assurance that patents will issue from
any of its pending applications or that any claims allowed from existing or
pending patents will be sufficiently broad to protect the Company's technology.
In addition, there can be no assurance that any patents issued to Sawtek will
not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection to the Company. Litigation may be
necessary to enforce Sawtek's 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 the Company's business, results of operations and financial
condition regardless of the final outcome of the litigation. The Company is not
currently engaged in any patent infringement suits nor has it threatened or been
threatened with any such suits in recent years. Despite Sawtek's efforts to
maintain and safeguard its proprietary rights, there can be no assurances that
the Company will be successful in doing so or that the Company's competitors
will not independently develop or patent technologies that are substantially
equivalent or superior to Sawtek's technologies.
16
<PAGE>
The SAW industry is characterized by uncertain and conflicting
intellectual property claims. Sawtek has in the past and may in the future
become aware of the intellectual property rights of others that it may be
infringing, although it does not believe that it is infringing any third party
proprietary rights at this time. To the extent that it deemed necessary, Sawtek
has licensed the right to use certain technology patented by others in certain
of its products. There can be no assurance that Sawtek will not in the future be
notified that it is infringing other patent and/or intellectual property rights
of third parties. In the event of such infringement, there can be no assurance
that a license to the technology in question could be obtained on commercially
reasonable terms, if at all, that litigation will not occur or that the outcome
of such litigation will not be adverse to Sawtek. The failure to obtain
necessary licenses or other rights, the occurrence of litigation arising out of
such claims or an adverse outcome from such litigation could have a material
adverse effect on Sawtek's business. In any event, patent litigation is
expensive, and Sawtek's operating results could be materially adversely affected
by any such litigation, regardless of its outcome.
Environmental and Other Governmental Regulations. The Company is
subject to a variety of federal, state and local laws, rules and regulations
related to the discharge and disposal of toxic, volatile and other toxic
hazardous chemicals used in its manufacturing processes. The failure to comply
with present or future regulations could result in fines being imposed on the
Company, suspension of production or a cessation of operations. Such regulations
could require the Company to acquire significant equipment or to incur
substantial expenses in order to comply with environmental regulations. Any past
or future failure by the Company to control the use of, or to restrict
adequately the discharge of, toxic hazardous substances could subject the
Company to future liabilities and could have a material adverse effect on the
Company's business, results of operations and financial condition.
In addition, the increasing demand for wireless communications has
exerted pressure on regulatory bodies worldwide to adopt new standards for such
products and services, generally following extensive investigation of and
deliberation over competing technologies. 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 the Company's customers, which in turn may have a material adverse
effect on the sale of products by the Company to such customers.
Volatility of Stock Price. There has been significant volatility in the
market price of the Company's Common Stock, as well as in the market price of
securities of technology-based companies. Factors such as announcements of new
products by the Company or its competitors, variations in the quarterly
operating results of the Company and its customers and competitors, the gain or
loss of significant contracts, announcements of technological innovations or
acquisitions by the Company or its competitors, changes in analysts' financial
estimates of the Company's performance, governmental regulatory action, other
developments or disputes with respect to proprietary rights, general trends in
the industry, or general economic or stock market conditions unrelated to the
Company's operating performance may have a significant impact on the market
price of the Common Stock.
Certain Anti-Takeover Provisions. 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, or of discouraging a third party from
attempting to acquire, control of the Company. Such provisions could limit or
depress the price that certain investors might be willing to pay in the future
for shares of Common Stock. The Company is also authorized to issue preferred
stock with rights senior to the Common Stock, without the necessity of
shareholder approval and with such rights, preferences and privileges as the
Company's Board of Directors may determine. Although the Company has no present
plans to issue these shares of preferred stock, such issuance, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company.
17
<PAGE>
Absence of Dividends. The Company has historically not paid dividends
on its Common Stock. Because the Company believes it will require additional
capital in the future, the Company currently intends to retain its earnings and
does not anticipate paying cash dividends on its Common Stock in the foreseeable
future.
ITEM 2. PROPERTIES
The Company's principal administrative, engineering and manufacturing
facilities are located in three buildings aggregating approximately 86,000
square feet in Orlando, Florida, consisting of one 65,000 square foot facility
owned by the Company and two leased facilities. The Company anticipates vacating
one 16,000 square foot leased facility at the expiration of the lease term in
fiscal 1998 to coincide with the completion of its 28,000 square foot expansion
to its main facility. The Company also has a production facility in San Jose,
Costa Rica located in a 31,690 square foot Company-owned facility. The Company
has spent approximately $3.3 million to upgrade this building. The Company is
building a 28,000 square foot expansion to its Orlando facility to be used
primarily for research and development, sales and administrative purposes. Upon
completion of these facilities, the Company believes its facilities will be
adequate to meet its current needs and that suitable additional or alternative
space will be available, as needed, on commercially reasonable terms. The
Company's Orlando facility is encumbered by an Industrial Development Revenue
Bond maturing in 2010.
Federal, state and local laws and regulations pertaining to the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, have not had and are not expected to have a
material effect on capital expenditures, earnings or the competitive position of
the Company.
ITEM 3. LEGAL PROCEEDINGS
There were no material legal proceedings either by or against the
Company during fiscal 1997 or ongoing as of the date of this Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 1997.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The shares of the Company are quoted on the Nasdaq National Market
under the symbol "SAWS." The Company went public on May 1, 1996 and accordingly,
no public price data is available prior to this date. The following table sets
forth the high and low sales price per share of the Common Stock of the Company
as reported by the Nasdaq National Market for the periods indicated:
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal Year Ended September 30, 1996
3rd Quarter . . . . . . . . . . . . . . . $39.75 $16.50*
4th Quarter . . . . . . . . . . . . . . . 35.75 21.50
Fiscal Year Ended September 30, 1997
1st Quarter . . . . . . . . . . . . . . . 42.75 23.75
2nd Quarter . . . . . . . . . . . . . . . 46.50 28.00
3rd Quarter . . . . . . . . . . . . . . . 37.75 24.00
4th Quarter . . . . . . . . . . . . . . . 49.875 32.75
</TABLE>
18
<PAGE>
*The Company sold shares in its May 1, 1996 initial public offering at
$13.00 per share; however, the first trade was at $16.50 which was the lowest
quoted price of Sawtek shares in fiscal 1996.
The last reported sale price of the Common Stock on the Nasdaq
National Market on September 30, 1997 was $46.25 per share.
As of October 31, 1997 there were 20,771,805 shares of the Company's
Common Stock outstanding held by approximately 96 shareholders of record. Many
shareholders hold their shares in "street name." The Company believes it has
more than 3,000 beneficial owners of its Common Stock.
Historically, the Company has not paid dividends on its Common Stock.
Because the Company believes it may require additional capital in the future,
the Company currently intends to retain its earnings and does not anticipate
paying cash dividends on its Common Stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data of the Company
and its subsidiaries as of and for each of the five years ended September 30,
1997. The historical consolidated financial data has been derived from the
historical financial statements of the Company, which financial statements have
been audited by Ernst & Young LLP, independent auditors, as indicated in their
report included elsewhere herein. These data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements appearing
elsewhere in this document.
Consolidated Statements of Income Data:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $82,769 $57,664 $31,317 $19,139 $14,428
Cost of sales 36,849 27,262 13,084 8,815 7,174
------ ------ ------ ----- -----
Gross profit 45,920 30,402 18,233 10,324 7,254
Operating expenses:
Selling expenses 5,064 3,947 3,139 2,689 2,600
General and administrative expenses 5,406 5,791 3,440 3,283 1,408
ESOP compensation expense 196 12,925 782 610 499
Research and development expenses 3,756 1,954 1,669 1,116 831
------ ------ ------ ------ ------
Total operating expenses 14,422 24,617 9,030 7,698 5,338
------ ------ ------ ------ ------
Operating income 31,498 5,785 9,203 2,626 1,916
Interest expense 197 245 435 302 416
Other income (2,026) (634) (291) (55) (51)
------ ------ ------ ------ ------
Income before income taxes 33,327 6,174 9,059 2,379 1,551
Income taxes 12,568 6,514 3,390 894 576
------ ------ ------ ------ ------
Net income (loss) $20,759 $ (340) $ 5,669 $ 1,485 $ 975
====== ====== ====== ====== ======
Net income (loss) per share (1) $ 0.97 $ (0.02) $ 0.34 $ 0.08 $ 0.05
====== ====== ====== ====== ======
Shares used in per share calculations 21,476 19,246 16,529 18,142 19,248
====== ====== ====== ====== ======
- -----------------------------
<FN>
(1) Computed on the basis described in Notes to Consolidated Financial Statements.
</FN>
</TABLE>
19
<PAGE>
Consolidated Balance Sheet Data:
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents, and
short-term investments $ 58,064 $ 27,743 $ 2,819 $ 2,675 $ 1,709
Working capital 68,787 35,799 7,100 5,055 4,122
Total assets 119,572 74,594 23,124 11,250 10,784
Long-term debt, less current maturities 2,638 3,786 6,805 4,147 3,787
Total shareholders' equity 98,460 61,625 (20,605) (5,660) (1,098)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company maintains its records on a fiscal year ending on September
30 of each year and all references to a year refer to the fiscal year ending on
that date.
Overview
- --------
The Company was incorporated in January 1979 to design, develop,
manufacture and market a broad range of electronic components based on SAW
technology and used in telecommunications, data communications, video
transmission, military and space systems and other applications. The Company's
focus has been on the high-end performance spectrum of the market, and its
primary products are SAW bandpass filters, resonators, delay lines, oscillators
and SAW-based subsystems. The Company's products were initially concentrated in
the military and space systems market, with over half of net sales in 1992
attributable to this market segment. Since then, the Company made a strategic
decision to target commercial markets, which accounted for approximately 89% of
its net sales in 1997. The Company has also witnessed significant growth in its
international markets over the last five years. International sales represented
less than 20% of net sales in 1992, 54% of net sales in 1996 and approximately
44% of net sales in 1997.
The Company derives revenue from high-volume commercial production
components, military/industrial production components and engineering services
and products. Non-recurring engineering revenue is included in engineering
services and products and relates to the design and development of custom
devices and delivery of one or more prototype parts. In all cases, revenue is
recognized when the parts or services have been completed and units, including
prototypes, have been shipped.
Net sales increased 84% from 1995 to 1996, and 44% from 1996 to 1997.
The growth in net sales is attributable to growth in the wireless communications
market to which the Company supplies SAW bandpass filters for cellular telephone
base stations and handheld subscriber telephones. The Company has a broad
product line of SAW filters and other components with average selling prices
ranging from $3 to $300. The Company is committed to substantially increasing
its ability to service the wireless communications market and has recently
expanded its operations in both Florida and in San Jose, Costa Rica. The
manufacturing expansion in Orlando is complete and production in the new wafer
fabrication and assembly areas has begun. The Company began operations in Costa
Rica in 1996 and on June 28, 1996, the Company purchased a 31,690 square-foot
facility for approximately $1.3 million and spent $3.3 million to upgrade the
facility for SAW manufacturing. The facility, which will be used to increase the
Company's production capabilities, became operational in July 1997.
20
<PAGE>
For 1997, net sales to the Company's top 10 customers accounted for
approximately 76% of net sales with the top four customers accounting for
approximately 48% of net sales. The Company expects that sales of its products
to a limited number of customers will continue to account for a high percentage
of its net sales in the foreseeable future.
There is a trend toward lower average selling prices for base station
filters due to competitive pricing pressures and to the installation of more
"micro" base stations which use less expensive, lower performance SAW filters.
The Company is uncertain whether an increase in the number of base station
filters sold in the future will offset the decrease in the average selling price
for these filters so as to maintain or increase revenues from the sale of base
station filters. The Company believes that its sales of SAW filters for
subscriber handsets in the CDMA market will increase significantly in fiscal
year 1998. Handset filters typically produce lower gross margins than the gross
margins produced by base station filters.
In 1991, the Company established an Employee Stock Ownership Plan
("ESOP"). At that time, the Company borrowed $4.0 million from its commercial
bank and loaned it to the ESOP to finance the purchase of 8,888,880 shares of
the Company's Common Stock. These ESOP shares are accounted for in accordance
with the American Institute of Certified Public Accountants (AICPA) Statement of
Position ("SOP") 76-3, which uses cost as the basis for valuing shares as they
are released and allocated to participants' accounts. In 1994, the Company
borrowed an additional $1.7 million and loaned it to the ESOP to enable it to
purchase 1,610,600 shares of Common Stock. In 1996, the 1994 loan was repaid
resulting in the allocation of the related shares to participants' accounts.
These shares are accounted for in accordance with the AICPA's SOP 93-6, which
uses market value as the basis of valuing shares. The impact of this was a
charge to ESOP compensation expense of $12.9 million reflected in the financial
results for 1996. Of the $12.9 million, $11.3 million was a one-time, non-cash
charge (amounting to $0.59 per share). The Company does not anticipate
contributing additional shares of Common Stock beyond those that already have
been placed in trust for the ESOP.
Results of Operations
The following table sets forth, for the periods indicated, the
percentage relationship of certain items from the Company's statements of income
to net sales:
<TABLE>
<CAPTION>
Percentage of Net Sales
Year Ended September 30,
----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of sales . . . . . . . . . . . . . . . . . 44.5 47.3 41.8
----- ----- -----
Gross margin . . . . . . . . . . . . . . . . . 55.5 52.7 58.2
Operating expenses:
Selling expenses . . . . . . . . . . . . . . 6.1 6.8 10.0
General and administrative expenses . . . . . 6.6 10.0 11.0
ESOP compensation expense . . . . . . . . . . 0.2 22.4 2.5
Research and development expenses . . . . . . 4.5 3.4 5.3
----- ----- -----
Total operating expenses . . . . . 17.4 42.6 28.8
----- ----- -----
Operating income . . . . . . . . . . . . . . . 38.1 10.1 29.4
Interest expense . . . . . . . . . . . . . . . 0.2 0.4 1.4
Other income . . . . . . . . . . . . . . . . . (2.4) (1.0) (1.0)
----- ----- -----
Income before income taxes . . . . . . . . . . 40.3 10.7 29.0
Income taxes . . . . . . . . . . . . . . . . . 15.2 11.3 10.9
----- ----- -----
Net income (loss) . . . . . . . . . . . . . . . 25.1% (0.6)% 18.1%
===== ===== =====
</TABLE>
21
<PAGE>
Comparison of Years Ended September 30, 1996 and 1997
- -----------------------------------------------------
Net Sales. Net sales increased 44% from $57.7 million in 1996 to $82.8
million in 1997. The increase was a result of increased product shipments to the
wireless communications market, specifically sales of high volume filters for
base station applications and subscriber handsets based on CDMA technology for
the telecommunications industry. International sales increased by $5.2 million
in 1997 compared to 1996 principally due to increased product shipments to
Korea. Sales for military and space systems decreased from 15% of net sales in
1996 to 12% of net sales in 1997 due to the increase in overall net sales. The
dollar volume of military sales, however, actually increased from $8.7 million
to $9.7 million from 1996 to 1997.
Gross margin. Gross margin increased from 52.7% in 1996 to 55.5% in
1997 primarily due to improved yields, lower manufacturing costs associated with
the Costa Rican operation and economies of scale with the increased volume. As
the Company shifts its product mix to high volume production, it is anticipated
that gross margins will decline as these components are more susceptible to
pricing pressure.
Selling expenses. Selling expenses increased 28% from $4.0 million in
1996 to $5.1 million in 1997, and decreased as a percentage of net sales at 6.1%
in 1997 compared to 6.8% in 1996. The Company anticipates that selling expenses
will increase as new employees are added to support its sales and marketing
effort in 1998 and as commission expenses are incurred, but should remain
somewhat constant as a percentage of net sales.
General and administrative expenses. General and administrative
expenses decreased 6.0% from $5.8 million in 1996 to $5.4 million in 1997, and
decreased as a percentage of net sales from 10.0% to 6.6% for the same periods.
The net decrease in expenses was primarily due to higher expenses incurred in
1996 for start-up costs for the Costa Rica operation and compensatory stock
option expense.
ESOP compensation expense. ESOP compensation expense decreased from
$12.9 million in 1996 to $196,000 in 1997. This decrease of $12.7 million is a
result of the release and allocation of all ESOP shares acquired in 1994 to
participants' accounts based on their compensation earned in the first seven
months of 1996. These shares are accounted for in accordance with SOP 93-6 which
uses market value as the basis of valuing shares as they are committed to be
released. In the fourth quarter of FY97, the Company restructured its loan with
the ESOP providing for a repayment and allocation of shares over a seven-year
period ending in 2003. As a result, the remaining unearned ESOP compensation
expense at September 30, 1997 of $1,170,870 will be spread over this period. The
Company recorded ESOP compensation expense of $196,000 for the full fiscal year
of 1997 and a credit of $391,000 for the fourth quarter due to the loan
restructuring that was undertaken in that quarter.
Research and Development Expenses. Research and development expenses
increased 92% from $2.0 million in 1996 to $3.8 million in 1997. These expenses
increased due to additional personnel and expanded research and development
efforts. The Company anticipates that research and development expenses will
continue to increase in total dollars as personnel and programs are added. A
significant portion of the Company's development activities are conducted in
connection with the design and development of custom devices, which are paid for
by customers and are classified as NRE items. The revenue generated from these
items is included in net sales and the cost is reflected in cost of sales rather
than in research and development expenses.
Interest expense. Interest expense decreased from $245,000 in 1996 to
$197,000 in 1997 due to repayment of debt.
22
<PAGE>
Other income. Other income represents interest income and non-operating
expenses. Other income increased as the Company recorded increased interest
income earned on its cash balances during 1997.
Income tax expense. The provision for income taxes as a percentage of
income before income taxes was 37.7% for 1997. In 1996, the Company incurred a
non-deductible charge for ESOP compensation expense of approximately $12.9
million. Had it not been for this charge, the tax provision would have been
approximately 37% for this period. The Company expects that its effective tax
rate will decline to approximately 36% to 37% in fiscal 1998.
Comparison of years ended September 30, 1995 and 1996
- -----------------------------------------------------
Net sales. Net sales increased 84% from $31.3 million in 1995 to $57.7
million in 1996. The increase was a result of increased product shipments to the
wireless communication market, specifically sales of high volume filters for
base station applications for the telecommunication industry. Sales of high
volume commercial production components were up over 129% in 1996 compared to
1995. International sales increased from approximately 49% in 1995 to 54% of net
sales for 1996.
Gross margin. Gross margin declined from 58.2% of net sales in 1995 to
52.7% in 1996 primarily due to a shift in the product mix to high volume
production components, which typically have lower unit prices and somewhat lower
gross margins. Throughout 1996, the Company added additional equipment and
increased indirect labor, supplies, depreciation and other fixed overhead
expenses in anticipation of higher sales volume. This additional fixed overhead
cost was not fully absorbed by the sales level in 1996, which further reduced
the gross margin.
Selling expenses. Selling expenses increased in 1996 compared to 1995,
but decreased as a percentage of net sales. The decrease as a percentage of net
sales was a result of the Company's expanding net sales with substantially the
same level of sales and marketing personnel in 1996 as in 1995. As a result,
most of the selling expenses remained relatively constant with commission
expenses paid to outside sales representatives as the only component that
increased significantly with the higher sales level.
General and administrative expenses. General and administrative
expenses increased from $3.4 million in 1995 to $5.8 million in 1996 due to
start-up costs for the new Costa Rica operations, one-time executive bonuses
granted in 1996 and costs for compensatory stock options.
ESOP compensation expense. ESOP compensation expense increased from
$782,000 in 1995 to $12.9 million in 1996. This increase of $12.1 million is a
result of the allocation of all ESOP shares acquired in 1994 to participants'
accounts. These shares are accounted for in accordance with SOP 93-6 which uses
market value as the basis of valuing shares as they are allocated. The shares
were acquired at a cost of $1.03 per share compared to an average market value
of $8.03 during the period of allocation in 1996. The charge for ESOP shares
allocated in 1995 is based on SOP 76-3 which uses the cost basis of the shares.
All remaining ESOP shares are accounted for in accordance with SOP 76-3.
Research and development expenses. Research and development expenses
increased from $1.7 million in 1995, to $2.0 million in 1996, but decreased as a
percentage of net sales from 5.3% to 3.4% for the same period. These expenses
increased due to additional personnel and expanded research and development
efforts, but increased at a slower rate than the sales increase. A significant
portion of the Company's development activities is conducted in connection with
the design and development of custom devices, which is paid for by customers and
classified as NRE items. The revenue generated from these items is included in
net sales and the cost is reflected in cost of sales rather than in research and
development expenses.
23
<PAGE>
Interest expense. Interest expense decreased in 1996 compared to 1995
due to repayment of debt and interest capitalized of approximately $380,000 as
part of the facilities expansion program in 1996.
Other income. Other income, primarily interest income, increased in
1996 due to interest earned on the remaining proceeds of the Company's initial
public offering.
Income tax expense. The provision for income taxes as a percentage of
income before income taxes was 37.4% for 1995. In 1996, the Company incurred a
non-deductible charge for ESOP compensation expense of $11.3 million. Had it not
been for this charge, the tax provision would have been approximately 37.3% for
1996.
Liquidity and Capital Resources
- -------------------------------
The Company has financed its operations to date through cash generated
from operations, bank borrowings, lease financing, the private sale of
securities, its May 1, 1996 initial public offering and the July 1, 1997
follow-on public offering. The Company requires capital principally for
equipment, expansion of its primary facility, financing of growth in accounts
receivable and inventory, investment in product development activities and new
technologies, expansion of its operation in Costa Rica and potential
acquisitions of new technologies or compatible companies. For 1997, the Company
generated net cash from operating activities of $35.3 million consisting
primarily of net income of $20.8 million, $3.9 million of depreciation and
amortization, $7.7 million of increases in deferred taxes, $2.6 million of
increases in accounts payable and accrued liabilities and a $3.9 million
increase in taxes payable, partially offset by increases in accounts receivable
and inventory of $4.3 million. Cash flow from operations was $13.6 million and
$6.8 million in 1996 and 1995, respectively.
The Company has a credit line agreement totaling $15.0 million from
SunTrust Bank, Central Florida, N.A. renewable annually. There was no balance
outstanding on this credit line at September 30, 1997.
The Company made capital expenditures of $14.4 million during 1997
compared to $24.3 million and $5.6 million in 1996 and 1995, respectively. The
Company is in the process of expanding its Orlando, Florida facilities and
intends to make various capital expenditures for production and test equipment
and furniture and fixtures. In addition, the Company intends to make various
capital expenditures for its San Jose, Costa Rica operation. The Company plans
to spend approximately $14.0 million in 1998 on capital equipment and
facilities.
The Company believes that its present cash position, together with its
credit facility and funds expected to be generated from operations will be
sufficient to meet its working capital and other cash requirements through 1998.
Thereafter, the Company may require additional equity or debt financing to
address its working capital needs or to provide funding for capital
expenditures. There can be no assurance that events in the future will not
require the Company to seek additional capital sooner or, if so required, that
it will be available on terms acceptable to the Company, if at all.
24
<PAGE>
Foreign Operations and Export Sales
- -----------------------------------
The Company established a subsidiary in Costa Rica in 1996, began
operations in the second quarter and commenced shipments in the third quarter of
1996. As of September 30, 1997, the Company had a net investment of
approximately $10 million in this operation and recorded net sales of
approximately $28.4 million with an operating profit of approximately $13.4
million for 1997. The functional currency for the Costa Rican subsidiary is the
U.S. dollar as sales, 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, the Company established a "foreign sales corporation" pursuant
to the applicable provisions in the Internal Revenue Code to take advantage of
income tax reductions on export sales. Through September 30, 1997, the cost to
operate this subsidiary was less than $10,000, and it has less than $10,000 in
identifiable assets.
International sales are denominated in U.S. dollars and represented
44%, 54% and 49% of net sales for the years ended September 30, 1997, 1996 and
1995, respectively. Sales to European markets accounted for 23%, 38%, and 36%
for these same periods, respectively. The remaining international sales relate
primarily to Asian and Canadian markets. See Notes to Consolidated Financial
Statements.
Recently Issued Accounting Standards
- ------------------------------------
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share,
which is effective for financial statements issued for periods ending after
December 15, 1997. This pronouncement establishes standards for computing and
presenting earnings per share ("EPS") for entities with publicly-held common
stock or potential common stock. SFAS 128 simplifies the standards for computing
EPS and makes them comparable to international EPS standards. Early application
of this statement is not permitted.
In February 1997, the FASB issued SFAS Statement No. 129, Disclosure of
Information about Capital Structure, which is applicable to all companies.
Capital structure disclosures required by Statement 129 include liquidation
preferences of preferred stock, information about the pertinent rights and
privileges of the outstanding equity securities, and the redemption amounts for
all issues of capital stock that are redeemable at fixed or determinable prices
on fixed or determinable dates. Statement 129 is effective for financial
statements for periods ending after December 15, 1997.
In June, 1997, the FASB issued SFAS Statement No. 130, Reporting
Comprehensive Income, which establishes standards for the reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. According to the FASB, the proposal was developed in
response to financial statement users' concerns about the increasing number of
items that bypass the income statement, such as changes in value of
available-for-sale securities and foreign currency translation adjustments, and
the effort required to analyze them (even though they are separately disclosed
in a statement of shareholders' equity). The standard does not address when
transactions are recorded, how they are measured in the financial statements, or
whether they should be included in net income or other comprehensive income. The
statement is effective for fiscal years beginning after December 15, 1997.
In June, 1997, the FASB issued SFAS Statement No. 131, Disclosures
About Segments of an Enterprise and Related Information, which significantly
changes the way public companies report segment information in annual financial
statements and also requires those companies to report selected segment
information in interim financial reports to shareholders. Statement No. 131 is
effective for periods beginning after December 15, 1997.
25
<PAGE>
The Company intends to adopt the provisions of these standards in 1998
and does not expect their application to have a material impact on the financial
statements of the Company.
Impact of Inflation on the Company
- ----------------------------------
Management does not believe that inflation has had a material impact on
operating costs and earnings of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements, which appears on page
F-1 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
26
<PAGE>
Index to Consolidated Financial Statements
- ------------------------------------------
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Income (Loss)................................... F-4
Consolidated Statements of Shareholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
Financial Statement Schedules
- -----------------------------
All required information is included in the Notes to Consolidated
Financial Statements.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Shareholders
Sawtek Inc. and subsidiaries
We have audited the accompanying consolidated balance sheets of Sawtek
Inc. and subsidiaries as of September 30, 1997 and 1996, and the related
consolidated statements of income (loss), shareholders' equity and cash flows
for each of the three years in the period ended September 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Sawtek Inc. and
subsidiaries at September 30, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted accounting principles.
Orlando, Florida ERNST & YOUNG LLP
October 24, 1997
<PAGE>
<TABLE>
Sawtek Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except per share data)
ASSETS
<CAPTION>
September 30,
------------------
1997 1996
---- ----
<S> <C> <C>
Current Assets:
Cash, cash equivalents, and short-term investments $ 58,064 $ 27,743
Accounts receivable net of allowance for doubtful accounts and returns of $684 at
September 30, 1997 and $654 at September 30, 1996 11,895 7,938
Inventories 6,877 6,509
Deferred income taxes 1,234 1,266
Other current assets 579 528
------- -------
Total current assets 78,649 43,984
Other assets 122 186
Property, plant and equipment, net 40,801 30,424
------- -------
Total assets $119,572 $ 74,594
======= =======
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30,
------------------
1997 1996
---- ----
<S> <C> <C>
Current Liabilities:
Accounts payable $ 2,667 $ 1,801
Accrued wages and benefits 3,290 2,825
Other accrued liabilities 2,588 1,352
Current maturities of long-term debt 1,249 1,363
Income taxes payable 68 844
------ ------
Total current liabilities 9,862 8,185
Long-term debt, less current maturities 2,638 3,786
Deferred income taxes 8,612 998
Shareholders' Equity:
Common Stock; $.0005 par value;120,000,000 authorized shares; issued and out-
standing shares 20,761,805 at September 30, 1997 and 19,854,102 at September 30, 1996 10 10
Capital surplus 68,880 53,000
Unearned ESOP compensation (1,171) (1,367)
Retained earnings 30,741 9,982
------- ------
Total shareholders' equity 98,460 61,625
------- ------
Total liabilities and shareholders' equity $119,572 $74,594
======= ======
See notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
Sawtek Inc. and Subsidiaries
Consolidated Statements of Income (Loss)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $ 82,769 $ 57,664 $ 31,317
Cost of sales 36,849 27,262 13,084
------- ------- -------
Gross profit 45,920 30,402 18,233
Operating expenses:
Selling expenses 5,064 3,947 3,139
General and administrative expenses 5,406 5,791 3,440
ESOP compensation expense 196 12,925 782
Research and development expenses 3,756 1,954 1,669
------- ------- -------
Total operating expenses 14,422 24,617 9,030
------- ------- -------
Operating income 31,498 5,785 9,203
Interest expense 197 245 435
Other income (2,026) (634) (291)
------- ------- -------
Income before taxes 33,327 6,174 9,059
Income taxes 12,568 6,514 3,390
------- ------- -------
Net income (loss) $ 20,759 $ (340) $ 5,669
======= ======= =======
Net income (loss) per share $ 0.97 $ (0.02) $ 0.34
======= ======= =======
Shares used in per share calculations 21,476 19,246 16,529
======= ======= =======
See notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
Sawtek Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(in thousands)
<CAPTION>
6% Cumulative
Preferred Stock Common Stock Unearned Retained
----------------- --------------- Capital ESOP Earnings
Shares Amount Shares Amount Surplus Compensation (deficit)
------ ------ ------ ------ ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1994 150 $ 300 5,342 $ 3 $ 705 $ (6,668)
Net income 5,669
Sale of Common Stock 330 52
Purchase of Common Stock (427) (101) (478)
Market value adjustment to redeemable
ESOP Common Stock (21,298)
Stock option compensation 1,229
Preferred stock dividends (18)
--- ---- ------ --- ----- ----- ------
Balance at September 30, 1995 150 300 5,245 3 1,885 (22,793)
Net loss (340)
Reclassification of redeemable ESOP
Common Stock in connection with
initial public offering 9,843 5 1,851 (3,023) 33,287
ESOP allocation 11,269 1,656
Sale of Common Stock in the initial
public offering 3,000 2 35,218
Sale of Common Stock other than in the
initial public offering 1,813 382
Purchase of Common Stock (56) (21) (145)
Compensatory stock option tax benefit 2,021
Stock option compensation 195
Preferred stock dividends (27)
Redemption of preferred stock (150) (300) 9 200
--- ---- ------ --- ------ ----- ------
Balance at September 30, 1996 -- -- 19,854 10 53,000 (1,367) 9,982
Net Income 20,759
Sale of Common Stock 908 10,627
Compensatory stock option tax benefit 4,700
Stock option compensation 553
ESOP allocation 196
--- ---- ------ --- ------ ----- -------
Balance at September 30, 1997 -- -- 20,762 $ 10 $68,880 ($1,171) $ 30,741
=== ==== ====== === ====== ===== =======
See notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
Sawtek Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
<CAPTION>
Year Ended September 30,
-----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 20,759 $ (340) $ 5,669
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 3,938 2,141 790
Deferred income taxes 7,646 402 (415)
ESOP allocation 196 12,925 782
Stock option compensation 553 195 1,229
Loss on sale of fixed assets 87
Changes in operating assets and liabilities:
Increase in assets:
Accounts receivable (3,957) (2,685) (2,434)
Inventories (368) (3,267) (1,494)
Other current assets (51) (399) (17)
Increase in liabilities:
Accounts payable 866 1,023 435
Accrued liabilities 1,701 1,409 1,522
Income taxes payable 3,923 2,151 709
------- ------- ------
Net cash provided by operating activities 35,293 13,555 6,776
Investing activities:
Purchase of property, plant and equipment (14,381) (24,347) (5,551)
Increase in Industrial Revenue Bond assets (48) (3,574)
Reduction in Industrial Revenue Bond assets 2,654 968
Industrial Revenue Bond acquisition costs (87)
Short-term investments (15,764)
Proceeds from sales of fixed assets 44
------- ------- ------
Net cash used in investing activities (30,101) (21,741) (8,244)
Financing activities:
Proceeds from long-term debt 8,200 3,500
Principal payments on long-term debt (1,262) (10,399) (1,409)
Sale of Common Stock 10,627 35,602 52
Purchase of Common Stock (166) (513)
Redemption of preferred stock (100)
Preferred stock dividends paid (27) (18)
------- ------- ------
Net cash provided by financing activities 9,365 33,110 1,612
------- ------- ------
Increase in cash and cash equivalents 14,557 24,924 144
Cash and cash equivalents at beginning of period 27,743 2,819 2,675
------- ------- ------
Cash and cash equivalents at end of period 42,300 27,743 2,819
Short-term investments 15,764
------- ------- ------
Cash, cash equivalents, and short-term investments $ 58,064 $ 27,743 $ 2,819
======= ======= ======
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
Sawtek Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Description of Business. Sawtek Inc. and subsidiaries (the "Company")
designs, develops, manufactures and markets a broad range of electronic signal
processing components based on surface acoustic wave ("SAW") technology. The
Company's primary products are custom-designed, high performance bandpass
filters, resonators, delay lines, oscillators and SAW-based subsystems. These
products are used in a variety of microwave and RF systems, such as Code
Division Multiple Access and Global System for Mobile communications-based
digital wireless systems, digital microwave radios, WLAN, cable television
equipment and various defense and satellite systems.
Initial Public Offering. The Company completed an initial public
offering ("IPO") in May 1996, whereby 3,000,000 shares of Common Stock, par
value $.0005 per share were issued and sold at $13 per share. The Company raised
a net amount of $35,220,000 which was used for debt repayment, capital
expenditures, working capital and other general corporate purposes.
Prior to the IPO, the Company effected a twenty-for-one stock split of
issued and outstanding common shares and increased the authorized number of
shares to 40,000,000 shares of Common Stock which was again increased to
120,000,000 shares in 1997. All share, per share, ESOP, and stock option
information in the accompanying financial statements has been restated to
reflect the split and change in authorized shares. Also, prior to the IPO the
Company redeemed the 6% cumulative preferred stock for $100,000 and 9,087 shares
of Common Stock.
Basis of Presentation. The consolidated financial statements include
the Company and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated. The Company's fiscal year ends
on September 30 of each year, but its fiscal quarters end on the Sunday nearest
the close of a quarter. For convenience, the accompanying financial statements
reflect the end of the fiscal quarter as the last day of that fiscal quarter.
Use of Estimates. The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Financial Instruments. The Company considers all liquid
interest-earning investments with a maturity of three months or less at the date
of purchase to be cash equivalents. Short-term investments generally mature
between three months and 18 months from the purchase date. All cash equivalents
and short-term investments are classified as held to maturity and are recorded
at cost, which approximates market.
Accounts Receivable. Potential credit losses are recognized as they are
identified and are reported as an increase to sales expenses. Concentrations of
credit risk with respect to the receivables are limited due to the large number
of customers, generally short payment terms and their dispersion across
geographic areas and markets.
F-7
<PAGE>
Inventories. Inventories are stated at the lower of cost (first-in,
first-out method) or market. Cost includes materials, direct labor and
manufacturing overhead. Market is defined principally as net realizable value.
Property, Plant and Equipment. Property, plant and equipment is valued
at cost less accumulated depreciation computed using the straight line method.
The estimated useful lives used in computing depreciation expense are
as follows:
Building and Improvements 10 - 30 years
Production and Test Equipment 4 - 8 years
Computer Equipment 4 - 8 years
Furniture and Fixtures 5 - 10 years
Expenditures for maintenance, repairs and renewals of minor items are
expensed as incurred. Major renewals and improvements are capitalized. Upon
disposition, the cost and related accumulated depreciation are removed from the
accounts and the resulting gain or loss is reflected in operations for the
period.
Intangibles. Various fees incurred in the acquisition of two Industrial
Revenue Bonds were capitalized and are being amortized using the interest method
over the lives of the agreements. Various fees incurred in the establishment of
an Employee Stock Ownership Plan were also capitalized and are being amortized
using the interest method over the lives of the related debt.
Earnings Per Share. Earnings per share ("EPS") is computed based on the
weighted-average number of Common Shares, common stock options (using the
treasury stock method) and all ESOP shares outstanding. In accordance with
Securities and Exchange Commission staff accounting bulletins, common and common
equivalent shares issued by the Company at prices below the public offering
price during the one year period prior to the filing date of the initial public
offering have been included in the calculation as if they were outstanding for
all periods prior to the offering (using the treasury stock method and the
initial public offering price).
Revenue Recognition. Revenues from production contracts are recorded
when the product is completed and shipped. Revenues from non-recurring
engineering ("NRE") are recognized when the parts or services have been
completed and units, including prototypes, have been shipped. Revenues from NRE
are less than 10% of total net sales for the periods reported.
Income Taxes. The provision for income taxes includes Federal and State
taxes currently payable and deferred taxes arising from temporary differences
between income for financial and tax reporting purposes. These temporary
differences result principally from the use of accelerated methods of
depreciation for tax purposes, earnings of the Costa Rican subsidiary not
currently subject to tax, the provisions for losses on inventories and accounts
receivable, and the accounting for stock compensation. Research and development
tax credits are applied as a reduction to the provision for income taxes in the
year in which they are utilized.
F-8
<PAGE>
ESOP Compensation Expense. ESOP shares acquired after December 31,
1992, are accounted for according to the provisions of Statement of Position
(SOP) 93-6 of the Accounting Standards Division of the American Institute of
Certified Public Accountants. This SOP requires that compensation expense be
measured using a fair market value basis when the shares are committed to be
released to the employees. The Company accounts for ESOP shares acquired prior
to January 1, 1993, in accordance with Statement of Position 76-3, which
requires compensation expense be measured using the cost basis of the shares
when the shares are committed to be released to employees.
Stock-Based Compensation. The Company accounts for compensation cost
related to employee stock options and other forms of employee stock-based
compensation plans other than the ESOP in accordance with the requirements of
Accounting Principles Board Opinion 25 ("APB 25"). APB 25 requires compensation
cost for stock-based compensation plans to be recognized based on the
difference, if any, between the fair market value of the stock on the date of
grant and the option exercise price. In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123 established a
fair value-based method of accounting for compensation cost related to stock
options and other forms of stock-based compensation plans. However, SFAS 123
allows an entity to continue to measure compensation costs using the principles
of APB 25 if certain pro forma disclosures are made. The Company adopted the
provisions of SFAS 123 on October 1, 1996, and has elected to continue to apply
the provisions of APB 25 and provide the pro forma disclosure provisions of SFAS
123.
SFAS No. 121, "Accounting for the Impairment of Long Lived Assets and
for Long Lived Assets to be Disposed Of." The Company adopted the provisions of
SFAS 121 as of October 1, 1996. This statement requires that long-lived assets
and certain intangibles to be held and used by the Company be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. The adoption of this
statement did not have a material impact on the financial statements of the
Company.
SFAS No. 128, "Earnings per Share." In February 1997, the FASB issued
SFAS No. 128, "Earnings per Share," which is effective for financial statements
issued for periods ending after December 15, 1997. This pronouncement
establishes standards for computing and presenting earnings per share (EPS) for
entities with publicly-held Common Stock or potential Common Stock. SFAS 128
simplifies the standards for computing EPS and makes them comparable to
international EPS standards. Early application of this statement is not
permitted.
SFAS No. 129, "Disclosure of Information about Capital Structure." In
February 1997, the FASB issued SFAS Statement No. 129, "Disclosure of
Information about Capital Structure," which is applicable to all companies.
Capital structure disclosures required by Statement 129 including liquidation
preferences of preferred stock, information about the pertinent rights and
privileges of the outstanding equity securities, and the redemption amounts for
all issues of capital stock that are redeemable at fixed or determinable prices
on fixed or determinable dates. Statement 129 is effective for financial
statements for periods ending after December 15, 1997.
F-9
<PAGE>
SFAS No. 130, "Reporting Comprehensive Income." In June 1997, the FASB
issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 becomes
effective for fiscal years beginning after December 15, 1997 and requires
reclassification of earlier financial statements for comparative purposes. SFAS
No. 130 requires that changes in the amounts of certain items, including foreign
currency translation adjustments and gains and losses on certain securities be
shown in the financial statements. SFAS No. 130 does not require a specific
format for the financial statement in which comprehensive income is reported,
but does require that an amount representing total comprehensive income be
reported in that statement.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Also in June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This Statement will
change the way public companies report information about segments of their
business in annual financial statements and requires them to report selected
segment information in their quarterly reports issued to stockholders. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports revenues,
and its major customers. The Statement is effective for fiscal years beginning
after December 15, 1997.
The Company intends to adopt the provisions of SFAS 128, 129, 130 and
131 in 1998 and does not expect their application to have a material impact on
the financial statements of the Company.
Reclassifications. Certain amounts in prior years have been
reclassified to conform to current year presentation.
Note 2 - Cash, Cash Equivalents, and Short-Term Investments
- -----------------------------------------------------------
Cash, cash equivalents, and short-term investments is composed of the
following:
<TABLE>
<CAPTION>
September 30,
--------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Cash and equivalents:
- --------------------
Cash $ 1,837 $ 604
Commercial paper 40,463 27,139
------ ------
Cash and equivalents 42,300 27,743
Short-term investments:
- ----------------------
Municipal securities 5,766
Certificates of deposit 4,998
Government agency securities 5,000
------
Short-term investments 15,764
------ ------
Cash, cash equivalents, and short-term investments $58,064 $27,743
====== ======
</TABLE>
F-10
<PAGE>
Note 3 - Allowance for Doubtful Accounts and Sales Returns
- ----------------------------------------------------------
The allowance for doubtful accounts and sales returns is composed of
the following:
<TABLE>
<CAPTION>
September 30,
----------------------------------------
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Balance, beginning of period $ 654 $ 277 $ 88
Provision for doubtful accounts and sales returns 821 820 364
Sales returns and uncollectible accounts written off (791) (443) (175)
---- ---- ----
Balance, end of period $ 684 $ 654 $ 277
==== ==== ====
</TABLE>
Note 4 - Inventories
- --------------------
Inventories are composed of the following:
<TABLE>
<CAPTION>
September 30,
--------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Raw material $ 2,911 $ 1,976
Work in process 2,246 2,341
Finished goods 1,720 2,192
------ ------
Total $ 6,877 $ 6,509
====== ======
</TABLE>
The allowance for obsolete and slow moving inventory is composed of the
following:
<TABLE>
<CAPTION>
September 30,
-------------------------------
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Balance, beginning of period $1,705 $ 887 $680
Charged to cost of sales 270 931 245
Disposal of inventory (40) (113) (38)
----- ----- ---
Balance, end of period $1,935 $1,705 $887
===== ===== ===
</TABLE>
F-11
<PAGE>
Note 5 - Property, Plant and Equipment
- --------------------------------------
Property, plant and equipment is composed of the following:
<TABLE>
<CAPTION>
September 30,
-------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Land and improvements $ 671 $ 671
Buildings 14,076 9,829
Production and test equipment 29,490 21,459
Computer equipment 2,977 2,734
Furniture and fixtures 1,833 1,533
Construction in progress 5,507 4,774
------ ------
54,554 41,000
Less accumulated depreciation 13,753 10,576
------ ------
Total $40,801 $30,424
====== ======
</TABLE>
Approximately $159,000, $380,000 and $82,000 of interest costs were
capitalized as part of property, plant and equipment in 1997, 1996 and 1995,
respectively.
Note 6 - Line of Credit
- -----------------------
The Company has a line of credit with a bank for working capital,
equipment purchases, plant expansion and other general business purposes of
$15,000,000 with interest at LIBOR plus 125 basis points. The line of credit is
unsecured and renewable annually. Covenants in connection with the line of
credit and with long-term debt agreements impose restrictions with respect to,
among other things, the maintenance of certain financial ratios, additional
indebtedness and disposition of assets. The Company was in compliance with the
covenants as of September 30, 1997 and 1996.
There were no borrowings against the line of credit at September 30,
1997. In 1996, the Company borrowed $7,000,000 and repaid all of this with a
portion of the proceeds from the IPO.
Note 7 - Long-Term Debt and Lease Obligations
- ---------------------------------------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
-------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Industrial Revenue Bond (a) $ 490 $ 593
ESOP Note (b) 780 1,367
Industrial Revenue Bond (c) 2,617 2,970
Term Loan (d) - 219
----- -----
3,887 5,149
Less Current Maturities 1,249 1,363
----- -----
$2,638 $3,786
===== =====
</TABLE>
F-12
<PAGE>
(a) In 1982, the Company obtained $1,800,000 in financing through the
Orange County Industrial Development Authority. The obligation is secured by
land and land improvements, the building and related equipment with a carrying
value of approximately $780,000 at September 30, 1997 and $823,000 at September
30, 1996. The obligation is payable in varying quarterly installments through
2001 plus interest at 68% of the prime rate.
(b) In 1991, the Company established an Employee Stock Ownership Plan
(ESOP). The Company borrowed $4,000,000 from a bank and loaned it to the ESOP.
The remaining obligation is payable to the bank in quarterly installments of
$195,521, plus interest at 7.16%, through September 1998.
(c) In 1995, the Company obtained $3,500,000 in financing through the
Orange County Industrial Development Authority. The obligation is secured by a
building expansion and related equipment with a carrying value of approximately
$7,505,000 at September 30, 1997 and $7,939,000 at September 30, 1996. The
obligation is payable in quarterly installments of $88,334 through March 2000,
thereafter in quarterly installments of $43,334 through March 2010, both plus
interest at LIBOR plus 150 basis points.
(d) The term loan was repaid in 1997.
The Company leases equipment under a noncancelable agreement that
expires in 1998. Rental expense was approximately $461,000, $481,000 and
$168,000 in 1997, 1996 and 1995, respectively.
Required future payments for long-term debt and operating leases are as
follows:
<TABLE>
<CAPTION>
Debt Leases
---- ------
(in thousands)
<C> <C> <C>
1998 $1,249 $317
1999 469 33
2000 379 7
2001 288 -
2002 202 -
Thereafter 1,300 -
----- ---
$3,887 $357
===== ===
</TABLE>
The Company made interest payments of approximately $313,000, $550,000
and $456,000 on long-term debt in 1997, 1996 and 1995, respectively.
The fair value of the Company's long-term debt approximates the
carrying amount.
F-13
<PAGE>
Note 8 - Income Taxes
- ---------------------
The income tax provision is composed of the following:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current:
Federal $ 4,549 $ 5,176 $3,263
State 373 936 542
------ ------ -----
4,922 6,112 3,805
Deferred:
Federal 6,554 343 (354)
State 1,092 59 (61)
------ ----- -----
7,646 402 (415)
------ ------ -----
Total Income Tax Provision $12,568 $ 6,514 $3,390
====== ====== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax effects
of significant temporary differences giving rise to year-end deferred tax
balances were as follows:
<TABLE>
<CAPTION>
September 30,
-------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Current:
Accruals not currently deductible $ 340 $ 475
Inventory costs capitalized for tax purposes 195 210
Inventory loss provision 699 581
------ ------
Deferred Tax Asset $ 1,234 $ 1,266
====== ======
Non-Current:
Stock option compensation not currently deductible $ 664 $ 568
Earnings of subsidiary not currently taxed (6,940) (328)
Excess tax over book depreciation (2,336) (1,238)
------ ------
Deferred Tax Liability $(8,612) $ (998)
====== ======
</TABLE>
F-14
<PAGE>
A reconciliation of statutory Federal income taxes to reported income
taxes is as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Income taxes computed at the Federal
statutory rate of 35% (34% in 1995) $11,664 $2,161 $3,080
State income taxes, net of Federal benefit 952 646 329
Non-deductible ESOP compensation expense 3,944
Other (48) (237) (19)
------ ----- -----
Total Income Tax Provision $12,568 $6,514 $3,390
====== ===== =====
</TABLE>
In 1997 and 1996, the Company's tax liability was reduced and its
capital surplus was increased by $4,700,000 and $2,021,000, respectively, as a
result of transactions involving stock options.
The Company made income tax payments of approximately $1,007,000,
$3,959,000 and $3,105,000 in 1997, 1996 and 1995, respectively.
The Company provides for deferred taxes on the non-repatriated earnings
of its subsidiary in Costa Rica. The subsidiary benefits from a complete
exemption from Costa Rican income taxes through 2003 and a 50% exemption
thereafter through 2007.
Note 9 - Employee Benefit Plans
- -------------------------------
In 1997, the Company merged the Sawtek Inc. Code Section 401(k) Profit
Sharing Plan into the Employee Stock Ownership Plan for Employees of Sawtek Inc.
and renamed the combined plan the Sawtek Inc.Employee Stock Ownership and 401(k)
Plan. The merged plan has two principal elements: i) a profit sharing and 401(k)
element and ii) an employee stock ownership ("ESOP")element.
Profit Sharing and 401(k) element. In 1981, the Company established a
profit sharing plan covering substantially all employees who work 500 hours or
more per year. A 401(k) feature was added to the plan in 1991 and a Company
matching feature was added effective October 1, 1997. There have been no profit
sharing contributions by the Company to the plan since 1990.
Employee Stock Ownership element. In 1991, the Company established an
Employee Stock Ownership Plan covering substantially all employees. The ESOP
purchased 3,376,640 shares of Common Stock from substantially all of the common
shareholders and 5,512,240 shares of Common Stock from the Company in 1991. The
transaction was financed from the proceeds of a $4,000,000 loan from the
Company. The Company accounts for these ESOP shares in accordance with Statement
of Position 76-3. As of September 30, 1997, 2,530,224 of these shares remain
unallocated. In 1994, the ESOP purchased an additional 1,610,600 shares of
Common Stock from the Company. The transaction was financed from the proceeds of
a $1,656,000 loan from the Company. In April 1996, the Company amended the ESOP
and allocated the ESOP's 1,610,600 shares of Common Stock of the Company
acquired in 1994 to employees for services rendered in the period October 1,
1995 to April 28, 1996. As these shares were accounted for in accordance with
SOP 93-6, which the Company adopted October 1, 1994, the Company recorded a
charge to operating income of approximately $12,925,000 for 1996. The effect of
the adoption of SOP 93-6 was to reduce net income by $11,269,000 ($0.59 per
share) for fiscal 1996.
F-15
<PAGE>
The Company restructured the remaining balance of its loan with the
ESOP in 1997 providing for a repayment of the loan and allocation of the related
shares through fiscal year 2003.
The Company made contributions of approximately $293,000, $1,783,000
and $1,095,000 to the ESOP in 1997, 1996 and 1995, respectively. Allocations to
participants' accounts were 506,207, 1,610,600 and 1,737,960 shares in 1997,
1996 and 1995, respectively.
Employee Stock Purchase Plan. In February 1996, the Board of Directors
approved an employee stock purchase plan and allotted 500,000 shares of Common
Stock to the plan. The plan enables eligible employees who have completed a
service requirement to purchase shares of Common Stock at a 15% discount from
the fair market value of the stock, up to a maximum of 10% of their
compensation. The plan commenced with the IPO.
Note 10 - Significant Customers
- -------------------------------
Sales to the United States government (both as a prime contractor and
on a subcontract basis), to foreign markets and to significant customers as a
percent of the Company's total revenues were as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. Government (Inclusive of Significant Customers) 11% 15% 17%
Foreign Markets (Inclusive of Significant Customers and European Market) 44% 54% 49%
European Market (Inclusive of Significant Customers) 23% 38% 36%
Significant Customer A 14% 8% 8%
Significant Customer B 12% 24% 23%
Significant Customer C 11% 11% 10%
Significant Customer D 11% 3% *
*Less than 1%
</TABLE>
Note 11 - Geographic Segments
- -----------------------------
Sales are reported in the geographic area where they originate.
Transfers from the U.S. to Costa Rica are made on a basis intended to reflect
the market price of the products. Prior to 1996, all sales, operating profit and
assets were attributable to the United States operation.
<TABLE>
<CAPTION>
Net Sales Operating Income Assets
---------------- ---------------- ----------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
United States $61,523 $54,203 $18,104 $4,680 $103,781 $72,697
Costa Rica 28,438 4,793 13,424 1,105 15,821 8,222
Eliminations (7,192) (1,332) (30) - (30) (6,325)
------ ------ ------ ----- ------- ------
Consolidated Results $82,769 $57,664 $31,498 $5,785 $119,572 $74,594
====== ====== ====== ===== ======= ======
</TABLE>
F-16
<PAGE>
All sales are denominated in U.S. dollars. The functional currency for
the Costa Rican operation is the U.S. dollar as sales, most material cost, and
equipment are U.S. dollar denominated. The impact of currency fluctuations of
the local Costa Rican currency are not considered significant and are not
hedged.
In 1996, the Company also established a "foreign sales corporation"
pursuant to the applicable provisions in the Internal Revenue Code to take
advantage of income tax reductions on export sales. For fiscal 1997, the cost to
operate this subsidiary was less than $10,000, and it has less than $10,000 in
identifiable assets.
Note 12 - Stock Options
- -----------------------
The Company has granted incentive stock options and non-qualified stock
options under the 1983 Stock Option Plan and the Second Stock Option Plan. The
Second Stock Option Plan was approved by the shareholders in 1996 with up to
2,000,000 shares of Common Stock available for options. Incentive options
granted are exercisable over a ten year period, generally in four equal annual
installments commencing one year after the date of grant. A majority of the
non-qualified options granted are exercisable from the date of grant over a ten
year period, while the remainder become exercisable in three or four equal
annual installments.
Information concerning options under this plan is as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Under Option Price Range of Options Exercise Price
------------------- ---------------------- ----------------
<S> <C> <C> <C>
Balance at October 1, 1994 2,557,600 $ 0.13 - $ 0.79 $ 0.27
Granted 1,012,980 $ 0.13 - $ 1.34 $ 0.82
Terminated (107,250) $ 0.51 - $ 0.74 $ 0.61
Exercised (330,230) $ 0.13 - $ 0.79 $ 0.16
---------
Balance at September 30, 1995 3,133,100 $ 0.13 - $ 1.34 $ 0.44
Granted 175,000 $ 3.55 - $24.75 $13.16
Terminated (8,140) $ 0.74 - $ 1.34 $ 1.12
Exercised (1,754,500) $ 0.13 - $ 1.34 $ 0.23
---------
Balance at September 30, 1996 1,545,460 $ 0.13 - $24.75 $ 2.13
Granted 249,500 $11.05 - $33.25 $25.47
Terminated (11,580) $ 0.74 - $24.75 $11.25
Exercised (568,250) $ 0.13 - $11.05 $ 0.98
---------
Balance at September 30, 1997 1,215,130 $ 0.13 - $33.25 $ 7.37
=========
Exercisable at September 30, 1997 390,631 $ 0.13 - $24.75 $ 2.42
=========
</TABLE>
The weighted-average contractual life of stock options outstanding as
of September 30, 1997 was 7.67 years.
F-17
<PAGE>
The following table summarizes information about fixed stock options
outstanding at September 30, 1997:
<TABLE>
<CAPTION>
Weighted-Avg. Number
Range of Number Remaining Weighted-Avg. Exercisable Weighted-Avg.
Exercise Prices Outstanding Contractual Life Exercise Price at Sept. 30, 1997 Exercise Price
--------------- ----------- ---------------- -------------- ----------------- --------------
<C> <C> <C> <C> <C> <C>
$0.13 - $ 1.34 814,630 7.08 $ 0.73 330,880 $ 0.53
$3.55 - $33.25 400,500 8.87 $21.94 59,751 $15.32
--------- -------
1,215,130 390,631
========= =======
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost was recognized to the extent the exercise
price of the stock options equaled the fair value. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income (loss) and income (loss)
per share would be the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
1997 1996
---- ----
(in thousands, except per share data)
<S> <C> <C>
Net income (loss)
As reported . . . . . . . . . . . $20,759 $ (340)
Pro forma . . . . . . . . . . . $19,697 $ (342)
Net income (loss) per share
As reported . . . . . . . . . . . $ 0.97 $(0.02)
Pro forma . . . . . . . . . . . $ 0.92 $(0.02)
</TABLE>
The weighted-average fair value of options granted during the year
ended September 30, 1997 and 1996 was $19.62 and $7.87, respectively, using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: 1997 --expected volatility of 74%, risk-free interest rate of
6.45%, no expected dividends and an expected life of 4.5 years; 1996 -expected
volatility of 76%, risk-free interest rate of 6.03%, no expected dividends and
an expected life of 4 years.
The pro forma net income (loss) reflects only options granted in 1997
and 1996. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income (loss)
amounts presented above because compensation cost is reflected over the option
vesting periods of up to 4 years and compensation cost for options granted prior
to October 1, 1995 is not considered.
F-18
<PAGE>
Note 13 - Quarterly Financial Information (unaudited)
- --------------------------------------------------------
Selected quarterly financial data is summarized below:
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------
Fiscal 1997 Fiscal 1996
--------------------------------------- ---------------------------------------
Sept.30, June 30, Mar.31, Dec.31, Sept.30, June 30, Mar.31, Dec.31,
1997 1997 1997 1996 1996 1996 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $23,055 $21,203 $20,009 $18,502 $18,000 $14,926 $13,929 $10,809
Cost of sales 10,645 9,213 8,313 8,678 8,672 6,986 6,512 5,092
------ ------ ------ ------ ------ ------ ------ ------
Gross profit 12,410 11,990 11,696 9,824 9,328 7,940 7,417 5,717
Operating expenses:
Selling expenses 1,516 1,152 1,150 1,246 1,202 1,174 797 774
General & administrative
expenses 1,194 1,292 1,786 1,134 1,633 1,509 1,581 1,068
ESOP compensation
expense (391) 195 196 196 1,846 5,539 5,540
Research and development
expenses 1,075 1,088 912 681 583 467 486 418
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses 3,394 3,727 4,044 3,257 3,418 4,996 8,403 7,800
------ ------ ------ ------ ------ ------ ------ ------
Operating income (loss) 9,016 8,263 7,652 6,567 5,910 2,944 (986) (2,083)
Interest expense net of
capitalized interest 45 41 70 41 (94) 114 87 138
Other (income) expense (661) (557) (453) (355) (374) (240) (26) 6
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes 9,632 8,779 8,035 6,881 6,378 3,070 (1,047) (2,227)
Income taxes 3,564 3,333 3,053 2,618 2,460 1,699 1,401 954
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) $ 6,068 $ 5,446 $ 4,982 $ 4,263 $ 3,918 $ 1,371 $(2,448) $(3,181)
====== ====== ====== ====== ====== ====== ====== ======
Net income (loss) per
share (1) $ 0.28 $ 0.25 $ 0.23 $ 0.20 $ 0.18 $ 0.07 $ (0.14) $ (0.18)
====== ====== ====== ====== ====== ====== ====== ======
Shares used in computation
of net income per share 21,776 21,401 21,368 21,358 21,286 20,286 18,140 17,272
<FN>
(1) Earnings per share for each quarter is calculated as a discrete period; the
sum of the four quarters may not equal the calculated full-year amount.
</FN>
</TABLE>
F-19
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
Management - Executive Officers and Directors
- ---------------------------------------------
The executive officers and directors of the Company and their ages as
of September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Steven P. Miller. . . . . . . . . . . . . . 49 Chairman, Chief Executive Officer and Director
Gary A. Monetti . . . . . . . . . . . . . . 38 President and Chief Operating Officer
Neal J. Tolar (1) . . . . . . . . . . . . . 56 Senior Vice President, Chief Technical Officer and Director
Thomas A. Shoquist (3) . . . . . . . . . . 50 Vice President - Quality
Raymond A. Link . . . . . . . . . . . . . . 43 Vice President - Finance and Chief Financial Officer
Robert C. Strandberg (1)(2) . . . . . . . . 40 Director
Bruce S. White (2) . . . . . . . . . . . . 64 Director
Willis C. Young (1)(2) . . . . . . . . . . 56 Director
- ---------------------
<FN>
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Mr. Shoquist retired from Sawtek Inc. on October 1, 1997.
</FN>
</TABLE>
Steven P. Miller co-founded the Company, has served as a Director since
1979, Chief Executive Officer since 1986, Chairman since February 1996 and
served as President from 1979 to April 1997. Prior to joining the Company, he
was manager of the SAW Device Engineering and Development Laboratory at Texas
Instruments Incorporated ("TI"), an electronics manufacturer. He joined TI in
1969. Mr. Miller has a B.S. degree in Electrical Engineering from the South
Dakota School of Mines and Technology.
Gary A. Monetti joined the Company in 1982, has served as President
since April 1997 and Chief Operating Officer since July 1995 and served as Vice
President-Operations from July 1995 to April 1997. He has served in various
positions, since 1982, at the Company, including Filter Design Engineer, Manager
of Filter Technology, Vice President-Sales and Marketing and Vice
President-Engineering. Mr. Monetti has an M.B.A. degree from Rollins College and
a B.S. degree in Electrical Engineering from the University of Illinois.
Neal J. Tolar co-founded the Company and has served as Senior Vice
President and Chief Technical Officer since June 1995 and a Director since 1979.
He served as Vice President-Operations and Engineering from 1979 to June 1995.
Prior to joining the Company, he was a member of the technical staff in the RF
Technology Group of the Corporate Research Laboratory at TI. He joined TI in
1967. Dr. Tolar has a Ph.D. in Ceramic Engineering from the University of Utah
and a B.S. degree in Ceramic Engineering from Mississippi State University.
27
<PAGE>
Raymond A. Link joined the Company in September 1995 as Vice
President-Finance and Chief Financial Officer. From 1987 to September 1995, Mr.
Link was Vice President-Finance and Chief Financial Officer of Hubbard
Construction Company, a heavy/highway construction company. Prior to joining
Hubbard Construction Company, Mr. Link was with Harris Corporation, an
electronics manufacturer, in various financial capacities from 1980 to 1987. Mr.
Link has an M.B.A. degree from the Wharton School at the University of
Pennsylvania and a B.S. degree in Accounting from the State University of New
York at Buffalo. He is a Certified Public Accountant.
Robert C. Strandberg has been a Director of the Company since October
1995. Mr. Strandberg is President and CEO of PSC Inc., a manufacturer of bar
code readers, since June 1997 and served as Executive Vice President from
November 1996 to June 1997. From May 1996 to October 1996, he was self-employed
as a business consultant. From September 1991 to April 1996, Mr. Strandberg was
the Chairman of the Board of Directors, President and Chief Executive Officer of
Datamax International Corporation, a manufacturer of bar code printers. From
1988 to 1991, he was Vice President-Finance of Datamax. From 1986 to 1988, he
worked for GTECH, a lottery management company, in the areas of finance and
strategic planning. Mr. Strandberg has an M.B.A. degree from Harvard Graduate
School of Business Administration and a B.S. degree in Operations Research and
Industrial Engineering from Cornell University.
Bruce S. White has been a Director of the Company since April 1996. Mr.
White has been a Corporate Vice President of AVNET Inc., a distributor of
electronic components, since January 1996 and the President of the Penstock
Division of AVNET Inc. since July 1994. From 1974 to July 1994, Mr. White was
the President and Chief Executive Officer of Penstock Inc., a company he founded
to distribute RF and microwave components. Penstock is a distributor of certain
products manufactured by Sawtek. In fiscal 1997, sales from Sawtek to Penstock
were approximately $1.4 million. Mr. White has a B.A. degree in Mathematics from
Colgate University and a B.S. and M.S. degree in Electrical Engineering from
Michigan State University.
Willis C. Young has been a Director of the Company since February 1996.
He has been a Senior Partner of the Atlanta office of BDO Seidman, LLP, an
international accounting and consulting firm, since January 1996. From April
1995 to December 1995, Mr. Young was the Chief Financial Officer for Hayes
Microcomputer Products, Inc., a manufacturer of modems and communication
equipment, where he was engaged to assist in the implementation of Hayes'
restructuring in bankruptcy. From 1965 to March 1995, Mr. Young held various
positions with BDO Seidman, LLP, and from 1988 to March 1995 he was a Vice
Chairman and a member of the Executive Committee. Mr. Young has a B.S. degree in
Accounting from Ferris State University. He is a Certified Public Accountant.
Members of the Company's Board of Directors are each elected for one
year terms at the annual shareholders meeting. Officers are elected at the first
Board of Directors meeting following the shareholders meeting at which directors
are elected and serve at the discretion of the Board of Directors.
There are no family relationships between any of the Company's
executive officers or directors.
28
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
The information required by this item is incorporated herein by
reference to the Company's proxy statement to be filed not later than 120 days
after the end of the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
The information required by this item is incorporated herein by
reference to the Company's proxy statement to be filed not later than 120 days
after the end of the fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
The information required by this item is incorporated herein by
reference to the Company's proxy statement to be filed not later than 120 days
after the end of the fiscal year.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K
- ------------------------------------------------------------------------
(A) The following documents are filed as part of this report:
1. Financial statements - see index to Consolidated Financial Statements on
page F-1 hereof.
2. Financial statement schedules: All schedules have been omitted
because they are inapplicable or not material, or the information
called for thereby is included in the Consolidated Financial Statements
and notes thereto.
3. Exhibits required by Item 601 of Regulation S-K:
(a) See Exhibit Index in (c) below.
(b) Reports on Form 8K: the Company did not file any report on Form 8K
during the quarter ended September 30, 1997.
(c) Exhibits:
3.1 Amended and Restated Articles of Incorporation of Sawtek Inc.
(incorporated by reference to Registration Statement on Form
S-8, File No. 333-10579).
3.2 1996 Bylaws of Sawtek Inc. (incorporated by reference to
Registration Statement on Form S-8, File No. 333-11523).
29
<PAGE>
4.1* Specimen stock certificate.
10.1 Sawtek Inc. 1983 Incentive Stock Option Plan (incorporated by
reference to Registration Statement on Form S-8, File No.
333-10579).
10.2 Sawtek Inc. Second Stock Option Plan (incorporated by
reference to Registration Statement on Form S-8, File No.
333-11523).
10.3 Sawtek Inc. Employee Stock Purchase Plan (incorporated by
reference to Registration Statement on Form S-8, File No.
333-11701).
10.4* Incentive Stock Option Agreement, dated December 12, 1994,
between the Company and Ronald M. Hays.
10.5* Incentive Stock Option Agreement, dated December 19, 1994,
between the Company and Neal J. Tolar.
10.6* Stock Option Agreement, dated December 19, 1994, between the
Company and Steven P. Miller.
10.7 Employee Stock Ownership Plan and Trust Agreement for
Employees of Sawtek Inc. (the "ESOP") (incorporated by
reference to Registration Statement on Form S-8, File No.
333-08281).
10.8* Sawtek Inc. 1994 Stockholders Agreement.
10.9* Restructuring Agreement, dated January 11, 1991, by and
between the Company, certain shareholders of the Company and
the ESOP.
10.10* Agreement with respect to Stock Options, dated June 29, 1994,
between the Company and the ESOP.
10.11* Second ESOP Loan Agreement, dated June 29, 1994.
10.12* Second Amendment to ESOP Loan Agreement, dated June 29, 1994.
10.13* Commercial Lease, dated March 1, 1994, between the Company as
Tenant and Piezo Technology, Inc. as Landlord.
10.14* Lease, dated August 2, 1995, between the Company as Tenant
and Dr. Phillips, Inc. as Landlord.
10.15* Lease Agreement dated November 19, 1995, between Sawtek, S.A.
as Lessee and Centro de Ciencia y Tecnolgia Ultrapark, S.A.
as Lessor.
10.16* Master Lease Agreement, dated as of March 21, 1995, between
the Company as Lessee and General Electric Capital
Corporation, as Lessor.
30
<PAGE>
10.17* Company Loan Agreement dated January 11, 1991, between the
Company and Sun Bank, National Association ("Sun Bank").
10.18* Company Note, dated January 11, 1991.
10.19* Security Agreement dated January 11, 1991, between the
Company and Sun Bank.
10.20* Company Pledge Agreement dated January 11, 1991.
10.21* Mortgage and Security Agreement, dated January 9, 1991, by
and between the Company, the Orange County Industrial
Development Authority ("OCIDA"), and Sun Bank.
10.22* Fourth Amendment to Installment Sales and Security Agreement,
dated January 8, 1991, by and between the Company, OCIDA, and
Sun Bank.
10.23* ESOP Pledge Agreement, dated January 11, 1991, by and between
the Company, ESOP, and Southeast Bank, National Association
("Southeast").
10.24* ESOP Loan Agreement, dated January 11, 1991, by and between
the Company and Southeast.
10.25* ESOP Note dated January 11, 1991.
10.26* Amended and Restated Loan and Security Agreement, dated
November 15, 1995, between the Company and SunTrust Bank,
Central Florida, National Association ("SunTrust").
10.27* Increase Promissory Note dated November 10, 1995.
10.28* Renewal, Increase and Consolidation Promissory Note, dated
November 10, 1995.
10.29* Promissory Demand Note, dated November 10, 1995.
10.30* Fifth Amendment to Installment Sale and Security Agreement,
dated as of March 1, 1995, between the Company, Sun Bank and
OCIDA.
10.31* Fourth Supplemental Trust Indenture, dated as of March 1,
1995, between the Company, Sun Bank and OCIDA.
10.32* Construction Loan Agreement, dated as of March 1, 1995,
between the Company and Sun Bank.
31
<PAGE>
10.33* Eighth Amendment to Loan and Security Agreement, Fourth
Amendment to Company Loan Agreement and First Amendment to
Second Company Loan Agreement, dated as of March 11, 1995,
between the Company and Sun Bank.
10.34* Bond Purchase Agreement dated as of December 1, 1981, between
OCIDA and the Company.
10.35* Installment Sale and Security Agreement, dated as of December
1, 1981, between OCIDA and the Company and accepted by the
Guarantors.
10.36* Guaranty Agreement dated as of December 1, 1981, among the
Guarantors and OCIDA.
10.37* Trust Indenture dated as of December 1, 1981, between OCIDA
and the Trustee and accepted by the Company and the
Guarantors.
10.38* Sawtek Inc. Code ss.401(k) Profit Sharing Plan and Trust
Agreement, dated February 15, 1995.
10.39 Letter from SunTrust Bank, Central Florida, N.A. for renewal
and repricing of unsecured line of credit for Sawtek Inc.
dated September 27, 1996 (incorporated by reference to Form
10-K filed November 4, 1996).
10.40 First Amendment to Amended and Restated Loan and Security
Agreement dated December 9, 1996 between the Company and
SunTrust Bank, Central Florida, N.A. (incorporated by
reference to Form 10-Q filed January 21, 1997).
10.41 First Amendment to Fourth Supplemental Trust Indenture dated
November 19, 1996 by and among the Company, SunTrust Bank,
Central Florida, N.A., and the Orange County Industrial
Development Authority (incorporated by reference to Form 10-Q
filed April 21, 1997).
10.42# Amendment to Employee Stock Ownership Plan and Trust
Agreement for Employees of Sawtek Inc.
10.43 Modification of ESOP Loan Agreement dated as of September 26,
1997 between the Company and Marine Midland Bank.
10.44 Modification of ESOP Pledge Agreement dated as of September
26, 1997 between the Company and Marine Midland Bank.
10.45 Renewal ESOP Note dated as of September 26, 1997.
32
<PAGE>
10.46 Implementation Agreement dated September 26, 1997 between the
Company and Marine Midland Bank that forms a part of the
Sawtek Inc. Employee Stock Ownership and 401(k) Plan and
Trust.
10.47 Sawtek Inc. Employee Stock Ownership and 401(k) Plan dated as
of July 16, 1997.
10.48 Sawtek Inc. Employee Stock Ownership and 401(k) Trust
Agreement dated July 16, 1997 between the Company and Marine
Midland Bank.
11.1 Statement regarding computation of per share earnings.
21.1* List of subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
24.1 Power of attorney. Reference is made to page 34.
27.0 Financial Data Schedule.
* Incorporated by reference to Registration Statement on
Form S-1, File No. 333-1860.
# Incorporated by reference to Registration Statement on
Form S-3, File No. 333-26747.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 12th day of
November, 1997.
SAWTEK INC.
By:/s/Steven P. Miller
Steven P. Miller
Chairman and Chief Executive Officer
By:/s/Raymond A. Link
Raymond A. Link
Vice President Finance and
Chief Financial Officer
By:/s/Ronald A. Stribling
Ronald A. Stribling
Controller and Chief Accounting Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears on the following page constitutes and appoints Steven P. Miller and or
Raymond A. Link to sign any amendments to this Report on Form 10-K, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that the said attorney-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 12th day of November, 1997.
/s/Neal J. Tolar /s/Steven P. Miller
Neal J. Tolar Steven P. Miller
Senior Vice President and Director Chairman, CEO and Director
/s/Robert C. Strandberg /s/Willis C. Young
Robert C. Strandberg Willis C. Young
Director Director
/s/Bruce S. White
Bruce S. White
Director
34
<PAGE>
EXHIBIT 11.1
<TABLE>
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
as reported on Form 10-K
(in thousands, except per share data)
<CAPTION>
Three months ended Year ended
September 30, September 30,
------------------ ------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Primary Earnings Per Share:
Weighted average number of shares of Common Stock outstanding 20,740 19,854 20,376 17,197 13,738
Net effect of dilutive stock options based on the Treasury stock
method using the average fair market value in effect
for the period 1,008 1,432 1,079 2,012 2,638
------ ------ ------ ------ ------
Total shares outstanding for primary EPS 21,748 21,286 21,455 19,209 16,376
====== ====== ====== ====== ======
Fully Diluted Earnings Per Share:
Weighted average number of shares of Common Stock outstanding 20,740 19,854 20,376 17,197 13,738
Net effect of dilutive stock options based on the Treasury
stock method using the higher of the fair market value at
the end of the period or the average during the period 1,036 1,432 1,100 2,049 2,791
------ ------ ------ ------ ------
Total shares outstanding for fully diluted EPS 21,776 21,286 21,476 19,246 16,529
====== ====== ====== ====== ======
Net income (loss) $ 6,068 $ 3,918 $20,759 ($340) $ 5,669
Less preferred stock dividends 27 18
------ ------ ------ ------ ------
Net income (loss) applicable to common shareholders $ 6,068 $ 3,918 $20,759 ($367) $ 5,651
====== ====== ====== ====== ======
Earnings (loss) per share:
Primary $ 0.28 $ 0.18 $ 0.97 ($0.02) $ 0.35
Fully diluted $ 0.28 $ 0.18 $ 0.97 ($0.02) $ 0.34
</TABLE>
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the following Registration
Statements of our report dated October 24, 1997, with respect to the
consolidated financial statements of Sawtek Inc. included in its Annual Report
(Form 10-K) for the year ended September 30, 1997.
<TABLE>
<CAPTION>
Registration
Statement
Number Description
- ------------ ------------------------------------------------------------
<C> <C>
333-11701 Form S-8 re: Sawtek Inc. Employee Stock Purchase Plan
333-11523 Form S-8 re: Sawtek Inc. Second Stock Option Plan
333-10579 Form S-8 re: Sawtek Inc. Amended and Restated 1983 Incentive
Stock Option Plan
333-08281 Form S-8 re: Sawtek Inc. Employee Stock Ownership and 401(k)
Plan, formerly known as the Employee Stock Ownership Plan
for Employees of Sawtek Inc.
</TABLE>
/s/Ernst & Young, LLP
Ernst & Young LLP
Orlando, Florida
November 7, 1997
<PAGE>
EXHIBIT 10.43
MODIFICATION OF
ESOP LOAN AGREEMENT
DATED AS OF
JANUARY 11, 1991
MODIFICATION DATED AS OF SEPTEMBER 26, 1997
SAWTEK INC. EMPLOYEE STOCK OWNERSHIP
AND 401(k) PLAN AND TRUST
<PAGE>
MODIFICATION OF
ESOP LOAN AGREEMENT
This MODIFICATION OF ESOP LOAN AGREEMENT (the "Agreement") is made and
entered into on September 26, 1997 in Apopka, Orange County, Florida between
SAWTEK INC., a Florida corporation (the "Company") and MARINE MIDLAND BANK, as
successor trustee (the "Trustee") of the SAWTEK INC. EMPLOYEE STOCK OWNERSHIP
AND 401(k) PLAN AND TRUST (the "KSOP" and the "Trust") (formerly known as the
Employee Stock Ownership Plan and Trust for Employees of Sawtek Inc. (the
"ESOP")).
BACKGROUND INFORMATION
A. Effective October 1, 1990, the Company established the ESOP for the
benefit of its participants and beneficiaries. The ESOP was amended and
restated, and combined with the Company's 401(k) profit sharing plan, on July
16, 1997, to become the KSOP.
B. On January 11, 1991, the Company and certain shareholders thereof
sold common stock of the Company (the "Shares") to the Trust.
C. In order to finance the acquisition of the Shares, the Trust entered
into an exempt loan (the "1991 Exempt Loan") with the Company in the principal
amount of $4,000,000, as evidenced by the ESOP Loan Agreement dated as of
January 11, 1991 (the "1991 Loan Agreement").
D. The Trust acquired 8,888,880 Shares (as adjusted to reflect a 1996,
20 for 1 stock split) in conjunction with the 1991 Loan Agreement and placed
such Shares in a suspense account within the ESOP for release in accordance with
the ESOP Pledge Agreement dated as of January 11, 1991 (the "1991 Pledge
Agreement") and applicable ERISA regulations.
E. As of the date of this Agreement, the Trust remains indebted to the
Company from the 1991 ESOP Loan in the principal amount of $1,366,392.35, and
there remains 3,036,431 of Shares in the suspense account of the KSOP for
allocation to the participants and beneficiaries of the KSOP.
F. Effective May 5, 1997, Marine Midland Bank was appointed successor
trustee of the Trust, replacing Steven P. Miller, Neal Jay Tolar, Willis C.
Young, and Robert C. Strandberg as co-trustees of the Trust. At the time of the
1991 Loan Agreement, Southeast Bank, N.A. was the trustee of the Trust.
G. As stated and memorialized in the Implementation Agreement dated
September 26, 1997 (the "Implementation Agreement"), the Company and the Trustee
have agreed to extend the amortization of the 1991 ESOP Loan in exchange for the
additional consideration to be provided by the Company to the KSOP and Trust in
accordance with the Implementation Agreement. The Company and the Trustee have
agreed that the ESOP Loan, as modified herein, continues to be primarily for the
benefit of the participants and beneficiaries of the KSOP.
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have
the following meanings:
"Agreement" means this modification of the ESOP Loan Agreement dated as
of January 11, 1991 between the Company and the Trustee.
"Business Day" means any day except a Saturday, Sunday or other day on
which banks in Orlando, Florida are authorized or required by law to close.
"Company" means Sawtek Inc., a Florida corporation that sponsors the
KSOP.
"Code" means the Internal Revenue Code of 1986, as amended or replaced
from time to time.
"Disqualified Person" means a disqualified person in relation to the
KSOP as defined in Code Section 4975(e)(2).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended or replaced from time to time.
"ESOP" means the Employee Stock Ownership Plan and Trust for Employees
of Sawtek, Inc. prior to its amendment and restatement as of July 16, 1997.
"Event of Default" means the events of default provided in Article VI
of this Agreement.
"Implementation Agreement" means the agreement between the Company and
the Trustee of even date herewith that provides the overall agreement between
the Company and the Trustee with respect to the modification of the 1991 ESOP
Loan Agreement and 1991 ESOP Pledge Agreement.
"KSOP" means the Sawtek Inc. Employee Stock Ownership and 401(k) Plan
and Trust dated as of July 16, 1997.
"Modified ESOP Loan Documents" means collectively this Agreement, the
Modified ESOP Pledge Agreement and Renewal ESOP Note.
"Modified ESOP Pledge Agreement" means the 1991 ESOP Pledge Agreement,
as modified September 26, 1997.
"1991 ESOP Loan" means the $4,000,000 loan by the Company to the Trust
on January 11, 1991, as evidenced by the 1991 ESOP Note.
"1991 ESOP Loan Agreement" means the ESOP Loan Agreement between the
Trustee and the Company dated as of January 11, 1991.
"1991 ESOP Loan Documents" means collectively the 1991 ESOP Loan
Agreement, 1991 ESOP Note and 1991 ESOP Pledge Agreement.
"1991 ESOP Note" means the Trust's ESOP Note in the principal amount of
$4,000,000 dated as of January 11, 1991.
<PAGE>
"1991 ESOP Pledge Agreement" means the ESOP Pledge Agreement between
the Trustee and the Company dated as of January 11, 1991.
"Party in Interest" means a party in interest in relation to the KSOP
as defined in ERISA Section (3)(14).
"Renewal ESOP Note" means the renewal of the 1991 ESOP Note in the
principal amount of $1,366,392.35, dated as of September 26, 1997.
"Shares" means the shares of common stock of the Company acquired by
the Trust.
"Trust" means the Sawtek Inc. Employee Stock Ownership and 401(k) Trust
dated as of July 16, 1997.
"Trustee" means Marine Midland Bank, as Trustee of the Trust, and any
successor thereto.
"Unallocated Shares" means Shares being held in suspense in the Trust,
pending allocation to participants pursuant to the terms of the KSOP.
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principals. In the event of ambiguities or changes
in GAAP, the more conservative principal or interpretation shall be used.
ARTICLE II
THE LOAN
SECTION 2.01. Commitment to Extend Loan. On the terms and subject to
the conditions of this Agreement, the Company and the Trustee hereby agree that
the amortization of the repayment of the 1991 ESOP Loan shall be extended to
September 30, 2003. Furthermore, the Company and the Trustee acknowledge and
agree that as of the date of this Agreement, the unpaid principal balance of the
1991 ESOP Loan from the Company to the Trust is $1,366,392.35, and 3,036,431
Shares remain in the suspense account of the KSOP and Trust pending release and
allocation to the participants and beneficiaries of the KSOP.
SECTION 2.02. Effect on Agreements. Nothing in this Agreement or the
Modified ESOP Loan Documents is intended to modify or affect the January 11,
1991 loan from SunBank, N.A. (now known as SunTrust Bank, Central Florida, N.A.)
to the Company. Furthermore, nothing in this Agreement shall be interpreted or
construed to affect the rights and obligations of the Company and the Trust
under the 1991 ESOP Loan Agreement, 1991 ESOP Note and 1991 ESOP Pledge
Agreement prior to the date of this Agreement. As of the date of the Agreement,
the rights and obligations of the Company and the Trust under the 1991 ESOP
Note, 1991 ESOP Loan Agreement and 1991 ESOP Pledge Agreement shall be as
provided in this Agreement, the Renewal ESOP Note and Modified Pledge Agreement.
<PAGE>
SECTION 2.03. ESOP Note: Payment of Principal and Interest. The
continuing obligation of the Trust to repay the 1991 ESOP Loan shall be
evidenced by the Renewal ESOP Note. The Renewal ESOP Note shall be payable in
seven (7) equal, annual installments of principal plus accrued interest, payable
each year on September 30, with the first installment due on September 30, 1997,
and the final installment due on September 30, 2003. The annual principal
payment shall be $195,198.91. The Renewal ESOP Note shall be without recourse to
the Trust, except that the Company shall have rights to the Shares to the extent
permitted by Code Section 4975 and as provided in the Modified ESOP Pledge
Agreement.
SECTION 2.04. Interest Rate. Interest shall accrue from the date hereof
on the outstanding principal amount of the Renewal ESOP Note at the fixed,
annual rate of seven and sixteen one-hundredths percent (7.16%).
SECTION 2.05. Prepayments. The Trust may, without premium or penalty,
prepay the Renewal ESOP Note in whole or in part, at any time, upon payment of
the principal amount being prepaid together with accrued interest thereon to the
date of prepayment. Any prepayment of the Modified ESOP Note shall be applied to
the principal installments thereof in the inverse order of their maturities.
SECTION 2.06. General Provisions as to Payments.
(a) The Trust shall make each payment of principal and interest
hereunder under the Renewal ESOP Note not later than 11:00 a.m. (Orlando,
Florida time) on the date when due in lawful money of the United States of
America to the Company at its address referred to in the signature section of
this Agreement in immediately available funds. Whenever any payment of principal
of, or interest on, the Renewal ESOP Note is due on a day which is not a
Business Day, the date for payment thereof shall be extended to the next
succeeding Business Day.
(b) Interest shall be computed on the basis of a year of 360 days and
paid for the actual number of days elapsed (including the first day but
excluding the last day). If the due date for any payment of principal is
extended by operation of law or otherwise, interest thereon shall be payable for
such extended time.
SECTION 2.07. Special Limitations. Notwithstanding any other provision
in the Modified ESOP Loan Documents, the obligations of the Trust and the rights
of the Company under the Modified ESOP Loan Documents are subject to and limited
by any specific limitations that may now or in the future be explicitly required
by law to qualify the 1991 ESOP Loan (as modified herein) for an exemption from
any prohibition relating to transactions with an employee stock ownership plan
by a "disqualified person" or "party in interest" under Code Section 4975 or
ERISA Sections 406 and 408, respectively, or any similar or successor provision
of applicable law, but only to the extent, and for so long as, such prohibitions
specifically would be applicable to the 1991 ESOP Loan (as modified herein), and
no exemption is available for such limitations. The Trustee shall comply with
any reasonable request from the Company for assistance in establishing the
inapplicability of such a prohibition or the qualification for such an
exemption.
SECTION 2.08. Maximum Interest Rate.
(a) Nothing contained in this Agreement or the Renewal ESOP Note shall
require the Trust to pay interest at a rate exceeding the maximum rate permitted
by applicable law.
(b) If the amount of interest payable to the Company on any interest
payment date in respect of the immediately preceding interest computation
period, computed pursuant to Section 2.06, would exceed the maximum amount
permitted by such applicable law to be charged by the Company, the amount of
interest payable on such interest payment date automatically shall be reduced to
such maximum permissible amount.
<PAGE>
ARTICLE III
CONDITIONS TO MODIFICATION
SECTION 3.01. Conditions. The modification of the 1991 ESOP Loan shall
be subject to the satisfaction of the following conditions:
(a) execution by the Company and the Trustee of this Agreement;
(b) execution by the Trustee of the Renewal ESOP Note;
(c) execution by the Company and the Trustee of the Modified ESOP
Pledge Agreement;
(d) execution by the Company and the Trustee of the Implementation
Agreement; and
(e) the fact that all of the representations and warranties of the
Trust contained in any of the Modified ESOP Loan Documents shall be true and
correct on and as of the date of such modification in all material respects.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Trustee represents and warrants, on behalf of the Trust, to and
with the Company the following:
SECTION 4.01. Authorization: Assuming that the Company (i) submits the
KSOP and Trust to the Internal Revenue Service with an application for a
favorable determination letter that the KSOP meets the requirements of Code
Sections 401(a) and 4975(e)(7), (ii) obtains a favorable determination letter
from the Internal Revenue Service on such application, and (iii) promptly adopts
any amendments to the KSOP and Trust that are required by the Internal Revenue
Service as a condition to the issuance of its favorable determination letter:
(a) To the best knowledge of the Trustee, the execution, delivery and
performance by the Trustee of the Modified ESOP Loan Documents, continued
holding, pledge and the potential sale of Unallocated Shares and other
collateral as contemplated thereby, and the administration of the KSOP pursuant
to the terms of the KSOP and Trust documents, do not contravene, or constitute a
default under, the KSOP or Trust instruments, or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Trustee, and will
not result in the creation or imposition of any lien on any asset of the Trust
except as specifically provided in the Modified ESOP Pledge Agreement, or result
in a violation of, or create any liability under, ERISA or the Code.
(b) To the best knowledge of the Trustee, the transactions contemplated
hereby do not constitute prohibited transactions under the Code or ERISA. The
Trust forming a part of the KSOP has been duly constituted in accordance with
valid and binding trust instruments, is validly existing and is qualified under
Code Sections 401(a) and 501(a).
SECTION 4.02. Binding Effect. Each of the Modified ESOP Loan Documents
constitutes a valid and binding agreement of the Trust, and the Renewal ESOP
Note, when executed and delivered in accordance with this Agreement, will
continue to be a valid and binding obligation of the Trust.
SECTION 4.03. Debt. The Trust has no debt other than debt incurred
pursuant to this Agreement and the 1991 ESOP Loan Agreement.
SECTION 4.04. Litigation. To the best knowledge of the Trustee, there
is no action, suit or proceeding pending against, threatened against or
affecting the KSOP or Trust before any court or arbitrator or any governmental
body, agency or official in which there is a reasonable possibility of an
adverse decision which would adversely affect the KSOP and Trust, taken as a
whole, or the ability of the Trust to perform its obligations under this
Agreement, or which in any manner questions the validity of any of the Modified
ESOP Loan Documents.
<PAGE>
ARTICLE V
COVENANTS
The Trustee agrees that, so long as any amount payable under the
Renewal ESOP Note remains unpaid or any obligation of the Trust to the Company
remains unperformed or unfulfilled:
SECTION 5.01. Plan Documents and Information. The Trustee will deliver
to the Company:
(a) any consent, acknowledgment or other document that reasonably may
be requested by the Company in order to establish the qualified and exempt
status of the KSOP and Trust and the Renewal ESOP Loan; and
(b) from time to time such additional information in the Trustee's
possession regarding the status or financial position of the KSOP and Trust,
including copies of all documents and correspondence relating to the KSOP and
Trust or the transactions contemplated hereby, to or from the Internal Revenue
Service, the U.S. Department of Labor or any other competent authority, as the
Company may reasonably request.
SECTION 5.02. Benefit to Participants. The Trustee has engaged,
consulted with and has relied and will rely upon the advice of such advisers as
it deems appropriate, and based upon said investigations and advice, the Trustee
has determined and will determine that the modification of the 1991 ESOP Loan,
together with the Implementation Agreement, is primarily for the benefit of the
KSOP' s participants and beneficiaries as contemplated by United States
Department of Labor Regulations Section 2550.408b-3 and Treasury Regulation
Section 54.4975-7. The terms of the Modified ESOP Loan Documents are at least as
favorable to the KSOP and Trust as the terms of a comparable loan resulting from
arm's length negotiating between independent parties and the interest rate on
the Renewal ESOP Note is not in excess of a reasonable rate of interest.
SECTION 5.03. Relating to Company. The Company shall make contributions
to the KSOP and Trust at such times, in such amounts, and within the limits
specified in the applicable provisions of the Code, as may be necessary to
enable the KSOP and Trust to meet all of its debt and other obligations as
provided in the Modified ESOP Loan Documents. The Company shall take any and all
actions necessary or appropriate to maintain the tax qualified status of the
KSOP and Trust under the Internal Revenue Code.
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the following events
shall have occurred and be continuing:
(a) the failure or omission of the Trust to pay when due any
installment of principal or interest on the Renewal ESOP Note (but only to the
extent the Company is in compliance with its covenants contained in Section
5.03);
(b) the Trust shall fail to observe or perform any covenant contained
in Section 5.02 of this Agreement;
(c) the Trust shall fail to observe or perform any covenant contained
in any of the Modified ESOP Loan Documents;
(d) any representation, warranty, certification or statement made by
the Trust in any of the Modified ESOP Loan Documents is false in a material way;
or,
(e) an event of default shall occur under any of the Modified ESOP Loan
Documents;
then, and in every such event, the Company may take any action permitted to be
taken upon the occurrence of an Event of Default under this Agreement, the
Modified ESOP Pledge Agreement or any of the other Modified ESOP Loan Documents.
<PAGE>
Notwithstanding anything contained herein to the contrary, if an Event
of Default shall occur and be continuing, the Company shall have no rights to
assets of the KSOP and Trust other than (a) contributions (other than
contributions of employer securities) that are made by the Company to enable the
KSOP and Trust to meet its obligations hereunder and earnings attributable to
the investment of such contributions; and (b) those Shares that are pledged to
the Company pursuant to the Modified ESOP Pledge Agreement; provided, however,
that (i) the value of the Trust assets transferred in satisfaction of the
Renewal KSOP Loan shall not exceed the amount in default; and (ii) the KSOP
assets shall be transferred to the Company only to the extent of the failure of
the Trust to meet the payment schedule of the Modified ESOP Loan.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, fax, or similar
writing) and shall be given to such party at its address or fax number set forth
on the signature pages hereof or such other address or fax number as such party
may hereafter specify for the purpose by notice to the Trustee and the Company.
Each such notice, request or other communication shall be effective (i) if given
by fax, when such fax is transmitted to the fax number specified in this Section
and the appropriate answer back is received, (ii) if given by mail, 72 hours
after such communication is deposited in the mails with first class postage
prepaid, addressed as aforesaid or (iii) if given by any other means, when
delivered at the address specified in this Section.
SECTION 7.02. Survival. All representations and warranties made by the
Trust in any of the Modified ESOP Loan Documents, or in any document delivered
in connection herewith or therewith shall survive the execution of this
Agreement and the Modified ESOP Loan Documents.
SECTION 7.03. Amendments and Waivers. Any provision of any of the
Modified ESOP Loan Documents may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the Company and the Trustee.
SECTION 7.04. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns (including any successor trustees of the
KSOP), except that the KSOP and Trust may not assign or otherwise transfer any
of its rights under this Agreement. The Company may at any time sell, assign,
transfer, pledge, grant security interests or participations in, or otherwise
dispose of, its rights under any of the Modified ESOP Loan Documents, in whole
or in part.
SECTION 7.05. Florida Law. To the extent not superseded by federal law,
each of the Modified ESOP Loan Documents shall be construed in accordance with
and governed by the law of the State of Florida.
SECTION 7.06. Counterparts: Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
<PAGE>
SECTION 7.07. No Waivers. The obligations of the KSOP and Trust
hereunder shall not in any way be modified or limited by reference to any other
ESOP loan document, instrument or agreement. All of the rights of the Company
hereunder are separate from and in addition to any rights that it may have under
the terms of the Renewal ESOP Note, the Modified ESOP Pledge Agreement or
otherwise. No failure or delay by the Company in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law or otherwise. No failure or delay by the Company in exercising
any right, power or privilege under or in respect of any of the Modified ESOP
Loan Documents shall affect the rights, powers or privileges hereunder or shall
operate as a limitation or waiver thereof.
SECTION 7.08. Term of the Agreement. The term of this Agreement shall
be until the payment in full of all principal and interest on the Renewal ESOP
Note and all sums payable to the Company pursuant to this Agreement, whichever
is earlier.
SECTION 7.09. Severability. If any provision of this Agreement shall be
held to be invalid, illegal or unenforceable under any applicable law, the
validity, legality and enforceability of the remaining provisions hereof shall
not be affected or impaired thereby.
SECTION 7.10. Titles and Contents. The Section headings and table of
contents are inserted for convenience of reference only and are not a part of
this Agreement and shall not be used to limit, expand or otherwise interpret or
construe the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Modified ESOP
Loan Agreement to be duly executed by their respective authorized officers as of
the day and year first above written.
COMPANY:
SAWTEK INC.
By:/s/Raymond A. Link
Raymond A. Link
Vice President Finance
Chief Financial Officer
1818 South Highway 441
Apopka, Florida 32703
(407) 886-7061 (Fax)
TRUSTEE:
MARINE MIDLAND BANK, AS TRUSTEE OF THE SAWTEK INC. EMPLOYEE STOCK OWNERSHIP AND
401(k) PLAN AND TRUST
By:/s/Stephen J. Hartman, Jr.
Stephen J. Hartman, Jr.
Senior Vice President
Marine Midland Bank
140 Broadway
New York, New York 10005
(212) 503-6780 (Fax)
<PAGE>
CONSENT TO LOAN MODIFICATION
In accordance with Section 7.03 of the ESOP Loan Agreement between
Sawtek Inc. and the Trustees of the Sawtek Inc. Employee Stock Ownership Plan
and Trust dated January 11, 1991 (the "Agreement"), SunTrust Bank, Central
Florida, N.A. (referred to as the "Bank" in such Agreement) hereby consents to
the modification of the Agreement in substantially the form attached hereto as
Exhibit A. Such modification is effective September 26, 1996, and amends the
repayment schedule and interest rate provided in the Agreement.
Nothing in this Consent shall be construed to alter or amend the
Company Loan Agreement by and between Sawtek Inc. and SunBank, National
Association (now known as SunTrust Bank, Central Florida, N.A.) dated January
11, 1991, and any and all documents and instruments related thereto.
Dated: October 1, 1997 SunTrust Bank, Central Florida, N.A.
By: /s/Douglas A. Woodman
Douglas A. Woodman
Vice President
<PAGE>
EXHIBIT 10.44
MODIFICATION OF
ESOP PLEDGE AGREEMENT
DATED AS OF
JANUARY 11, 1991
MODIFICATION DATED AS OF SEPTEMBER 26, 1997
SAWTEK INC. EMPLOYEE STOCK OWNERSHIP
AND 401(k) PLAN AND TRUST
<PAGE>
MODIFICATION OF
ESOP PLEDGE AGREEMENT
This MODIFICATION OF ESOP PLEDGE AGREEMENT (the "Agreement") is made
and entered into on September 26, 1997 in Apopka, Orange County, Florida between
SAWTEK INC., a Florida corporation (the "Company") and MARINE MIDLAND BANK, as
successor trustee (the "Trustee") of the SAWTEK INC. EMPLOYEE STOCK OWNERSHIP
AND 401(k) PLAN AND TRUST (the "KSOP" and the "Trust") (formerly known as the
Employee Stock Ownership Plan and Trust for Employees of Sawtek Inc. (the
"ESOP").
BACKGROUND
A. Effective October 1, 1990, the Company established the ESOP for the
benefit of its participants and beneficiaries. The ESOP was amended and
restated, and combined with the Company's 401(k) profit sharing plan, on July
16, 1997, to become the KSOP.
B. On January 11, 1991, the Company and certain shareholders thereof
sold common stock of the Company (the "Shares") to the Trust.
C. In order to finance the acquisition of the Shares, the Trust entered
into an exempt loan (the "1991 Exempt Loan") with the Company in the principal
amount of $4,000,000, as evidenced by the ESOP Loan Agreement dated as of
January 11, 1991 (the "1991 Loan Agreement").
D. The Trust acquired 8,888,880 Shares (as adjusted to reflect a 1996,
20 for 1 stock split) in conjunction with the 1991 Loan Agreement and placed
such Shares in a suspense account within the ESOP for release in accordance with
the ESOP Pledge Agreement dated as of January 11, 1991 (the "1991 Pledge
Agreement"), the KSOP document and applicable ERISA regulations.
E. As of the date of this Agreement, the Trust remains indebted to the
Company from the 1991 ESOP Loan in the principal amount of $1,366,392.35, and
there remains 3,036,431 shares in the suspense account of the KSOP for
allocation to the participants and beneficiaries of the KSOP.
F. Of the 3,036,431 shares, 1,298,462 shares are scheduled to be
released from the 1991 Pledge Agreement by September 30, 1997, and the remaining
1,737,969 shares by September 30, 1998.
G. Effective May 5, 1997, Marine Midland Bank was appointed successor
trustee of the Trust, replacing Steven P. Miller, Neal Jay Tolar, Willis C.
Young, and Robert C. Strandberg as co-trustees of the Trust. At the time of the
1991 Loan Agreement, Southeast Bank, N.A. was the trustee of the Trust.
H. As stated and memorialized in the Implementation Agreement dated
September 26, 1997 (the "Implementation Agreement"), the Company and the Trustee
have agreed to extend the amortization of the 1991 ESOP Loan in exchange for the
additional consideration to be provided by the Company to the KSOP and Trust in
accordance with the Implementation Agreement. The Company and the Trustee have
agreed that the 1991 ESOP Loan, as amended by the Modified ESOP Loan Agreement,
the Renewal ESOP Note and this Agreement, continues to be primarily for the
benefit of the participants and beneficiaries of the KSOP.
<PAGE>
AGREEMENT
1. DEFINITIONS. As used in this Agreement, the following terms and
phrases shall have the meanings set forth below:
"Administrator" shall mean the Company, unless a person or committee
of persons is designated by the Company pursuant to Article VII of the KSOP
document to administer the KSOP on behalf of the Company. Until such time as the
Board of Directors of the Company provides otherwise, the President and Chief
Financial Officer of the Company have been appointed to administer the KSOP on
behalf of the Company.
"Agreement" shall mean this modification of the ESOP Pledge Agreement
dated as of January 11, 1991, between the Company and the Trustee.
"Blank Stock Power" shall mean a blank stock power executed by the
Trust and delivered to the Company for each Stock Certificate representing
Common Stock.
"Collateral" shall mean, until its release pursuant to Section 11
below, (i) all Common Stock acquired by the Trust with the loan proceeds from
the 1991 ESOP Loan; (ii) all earnings attributable to such Common Stock,
including stock dividends, stock splits, warrants, options and stock purchase
rights; and (iii) all other property at any time and from time to time
distributed by the Company in respect of, in exchange for, or in substitution of
such Common Stock.
"Common Stock" shall mean the 8,888,880 (as adjusted for the 1996, 20
for 1 stock split) shares of common stock of the Company originally pledged by
the Trust to the Company as Collateral for the 1991 ESOP Loan. As of the date of
this Agreement, 3,036,431 shares of such Common Stock remain pledged by the
Trust to the Company.
"Company" shall mean Sawtek Inc. and its successors.
"Company Loan" shall mean the loan by SunTrust Bank, Central Florida,
N.A. to the Company under the Company Loan Agreement.
"Company Loan Agreement" shall mean the $4,000,000 loan agreement
between the Company and SunTrust Bank, Central Florida, N.A. dated January 11,
1991, as amended, changed, modified, and renewed from time to time.
"Company Loan Documents" shall mean collectively the Company Loan
Agreement, Company Pledge Agreement, Company Note and all other documents,
instruments, blank stock powers, or other writings delivered by or on behalf of
the Company to SunTrust Bank, Central Florida, N.A. in connection with the
Company Loan.
"Company Note" shall mean that certain promissory note dated January
11, 1991 from the Company to SunTrust Bank, Central Florida, N.A. in the
original principal amount of $4,000,000, as amended, changed, modified or
renewed from time to time.
"Company Pledge Agreement" shall mean the Pledge Agreement dated
January 11, 1991 between the Company and SunTrust Bank, Central Florida, N.A.
"Default" shall mean any condition or event which constitutes an Event
of Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"ESOP" shall mean the Employee Stock Ownership Plan and Trust for
Employees of Sawtek Inc.
"Event of Default' has the meaning set forth in Article VI of the
Modified ESOP Loan Agreement
"Implementation Agreement" means the agreement between the Company and
the Trustee of even date herewith that provides the overall agreement between
the Company and the Trustee with respect to the modification of the 1991 ESOP
Loan Agreement and 1991 ESOP Pledge Agreement.
<PAGE>
"Liability" or "Liabilities" shall mean all obligations and
indebtedness, including principal and interest and all other monies, due or to
become due under or upon the Renewal ESOP Note or Modified ESOP Loan Agreement.
"Modified ESOP Loan Agreement" shall mean the 1991 ESOP Loan
Agreement, as modified September 26, 1997.
"1991 ESOP Loan" shall mean the loan in the original principal amount
of $4,000,000 extended by the Company to the Trust, the proceeds of which loan
were used to enable the Trust to acquire the Common Stock.
"1991 ESOP Loan Agreement" shall mean the $4,000,000 loan agreement
between the Company and the Trust dated January 11, 1991, as amended, changed,
modified and renewed from time to time.
"1991 ESOP Loan Documents" shall mean collectively the 1991 ESOP Loan
Agreement, the 1991 ESOP Note, the 1991 ESOP Pledge Agreement and all other
documents, instruments, blank stock powers or other writings delivered by or on
behalf of the ESOP to the Company in connection with the 1991 ESOP Loan.
"1991 ESOP Note" shall mean that certain promissory note, dated
January 11, 1991, in the face amount of $4,000,000 executed and delivered by the
Trust in favor of the Company.
"1991 ESOP Pledge Agreement" shall mean this Agreement prior to its
modification.
"Release Date" shall mean September 30, 1997 through 2002.
"Renewal ESOP Note" means the renewal of the 1991 ESOP Note in the
principal amount of $1,366,392.35, dated as of September 26, 1997.
"Rule 144" shall mean Rule 144 as promulgated by the SEC under the
Securities Act of 1933, as amended from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"Stock Certificate(s)" shall mean the stock certificates representing
the Common Stock.
"Trustee" shall mean Marine Midland Bank as successor trustee for the
KSOP, and its successors in office.
"UCC" shall mean the Florida Uniform Commercial Code, Chapters 671
through 679, inclusive, Florida Statutes, as the same may now exist or may
hereafter be amended from time to time.
2. GRANT OF SECURITY INTEREST. To secure the payment and performance
of all Liabilities, the Trust hereby grants to the Company a security interest
in all of the Collateral. See Section 11 below for the release of the
Collateral.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as permitted or
contemplated by the Company Loan Documents, the Trust represents and warrants
to, and covenants with, the Company as follows:
(a) The Trust is the absolute, legal, registered owner of the
Collateral free and clear of all liens, encumbrances, security interests, and
voting trust restrictions of any kind whatsoever except the security interest
granted the Company by this Agreement.
(b) The Trust will not, without the prior written consent of the
Company, sell, transfer, or create or permit to exist any lien on, or security
interest in, the Collateral.
(c) The Trust will defend the Collateral against the claims and
demands of any person at any time claiming the same or any interest therein.
(d) By virtue of this Agreement and the previous delivery of the
Stock Certificates and Blank Stock powers to the Company, the Trust has granted
to the Company a valid, first priority security interest in the Collateral.
(e) There is not now, and will not be filed in the future, any
financing statement listing any person other than the Company as a secured party
covering any or all of the Collateral.
<PAGE>
(f) The Trust will not permit any of the Collateral to be levied
upon under legal process.
(g) As directed by the Administrator, the Trust will pay promptly
when due all taxes, assessments and other charges of any nature which may be
levied or assessed upon or with respect to the Collateral.
(h) Except as otherwise provided herein, the Trust shall
immediately deliver to the Company any additions to the Collateral including
earnings on the Collateral and any products or proceeds of Collateral, together
with the Stock Certificates and Blank Stock Powers if applicable and such other
documents as the Company may reasonably request.
(j) The Trust shall not enter into any stock restriction or similar
agreement with respect to the Collateral without the prior written consent of
the Company.
(k) The Trust shall notify the Company in the event of the
occurrence of a Default or of an Event of Default under the Modified ESOP Loan
Documents. All of the foregoing representations, warranties and covenants shall
be true and correct throughout the term of this Agreement and shall be fulfilled
and maintained by the Trust throughout the term hereof.
4. PERFORMANCE OF BORROWER'S OBLIGATIONS. At its option, the Company
may, but shall not be obligated to, discharge taxes, liens or security interests
or encumbrances at any time levied upon or placed on the Collateral or perform
any other obligation of the Trust hereunder.
5. DEFAULT. The Trust shall be in default under this Agreement upon
the occurrence of an Event of Default.
6. RIGHTS AND REMEDIES ON DEFAULT.
(a) Upon the occurrence of an Event of Default under this Agreement
and the Modified ESOP Loan Agreement, the Company may, in its sole discretion
and without further notice or demand, proceed immediately to exercise any and
all of the Company's rights, powers and privileges with respect to the
Collateral, including without limitation, after prior notice to the Trustee, if
required, the right to (i) register the Collateral in the Company's name or in
the name of any designee of the Company and (ii) sell or otherwise dispose of
the Collateral or any part thereof at a private or public sale in such manner as
the Company shall deem reasonable.
(b) Subject to the requirement, if any, that the Company give prior
notice to the Trustee of any transfer of the Collateral, the Company shall act
as the authorized agent and attorney-in-fact of the Trust in disposing of the
Collateral, and in that capacity is authorized to take such action on behalf of
the Trustee as will further such a disposition, including without limitation,
making any necessary endorsement or signature in its own name, the Trust's name,
the Trustee's name or the Administrator's name. The Trust expressly acknowledges
that compliance with federal or state securities and other laws may limit the
disposition of the Collateral by the Company. No disposition of the Collateral
by the Company upon a Default shall be deemed to be a breach of any duty to the
KSOP or the Trust or to be commercially unreasonable because a better sales
price might have been attained through an alternative disposition if the Company
in good faith has determined that the alternative disposition might constitute a
violation of state or federal laws. Any purchaser at a sale conducted pursuant
to the terms of this Agreement shall hold the property sold absolutely, free
from any claim or right on the part of the Trust. The Trust hereby waives any
right of redemption, stay or appraisal under present or future law. Each and
every purchaser of any of the Collateral shall be vested with all shareholder's
rights provided by the stock purchased, including, without limitation, all
voting and dividend rights. The Trustee agrees that the Company may purchase the
Collateral or any part thereof at any sale. Any requirement imposed by law
regarding the giving to the Trustee of prior notice of any sale or other
disposition of the Collateral shall be deemed reasonable if given by the Company
in writing at least ten (10) days prior to such sale or other disposition,
specifying the time and place thereof; provided that this Agreement and this
paragraph shall not, of itself, require the giving of any such notice.
<PAGE>
(c) Notwithstanding anything contained herein to the contrary, the
Company may exercise its rights under this Section 6 only with respect to that
amount of Collateral equal in value to the amount by which the Trust is in
default, or such lesser amount of Collateral as may be required pursuant to
Section 25 hereof.
7. APPLICATION OF PROCEEDS. The net proceeds derived from a
disposition of the Collateral shall be applied first to the payment of all costs
and expenses of collection and disposition of the Collateral (including, without
limitation, reasonable attorneys' fees and securities registration fees and
expenses), and then toward payment of the Liabilities, in such order of
application as the Company may from time to time elect, and any remaining
balance shall be paid to the Trust or other party lawfully entitled thereto.
8. VOTING RIGHTS; DIVIDENDS; ETC.
(a) Unless and until an Event of Default hereunder shall have
occurred:
(i) The Trustee, in accordance with the KSOP and Trust
documents, shall be entitled to exercise any and all voting and consensual
rights and powers accruing to an owner of the Collateral or any part thereof for
any purpose not inconsistent with the terms of this Agreement; and
(ii) The Trust shall be entitled to receive and retain any and
all cash dividends or other distributions in respect of the pledged Common
Stock.
(b) Upon the occurrence, and during the continuance, of any Event
of Default, regardless of whether the Company makes any demand or request on the
Trust:
(i) The Trustee shall deliver immediately to the Company any
and all cash, checks, drafts, items, or other instruments for the payment of
money which may be received after such Default by the Trust as dividends or
otherwise with respect to the Collateral, duly endorsed and assigned to the
Company.
(ii) The Trustee shall deliver to the Company immediately upon
the Trust's receipt thereof, any and all stock, stock dividends, stock splits,
warrants, and stock purchase rights received with respect to any of the
Collateral, together with Blank Stock Powers with respect to all Stock
Certificates evidencing same.
(iii) All rights of the Trustee to exercise the voting and
consensual rights and powers which it is entitled to exercise pursuant to
subparagraph (a)(i) hereof shall cease, and all such rights shall thereupon
become vested in the Company, which shall have the sole and exclusive right and
authority to exercise such voting and consensual rights and powers. The exercise
by the Company of any of its rights hereunder with respect to voting of the
Collateral shall not in any way constitute an election by the Company to become
owner thereof.
9. PERFECTION. To continue to perfect the security interest in the
Collateral, the Company or its agent shall continue to retain possession of the
Stock Certificates for the Common Stock and Blank Stock Powers. The Trust shall
from time to time execute and deliver to the Company any and all documents which
are, in the opinion of the Company or its counsel, necessary to perfect the
security interest granted hereunder.
10. POSSESSION OF COLLATERAL. The Company shall have the duty to
preserve the Collateral. Upon the termination of this Agreement, the Company
shall return the Collateral (including the Stock Certificates and the Blank
Stock Powers) to the Trust along with such endorsements as may be necessary to
transfer title to the Collateral to the Trust.
11. RELEASE OF STOCK COLLATERAL.
(a) On each Release Date during the term of the Renewal ESOP Note,
the Company shall release from the Collateral and deliver over to the Trustee
Stock Certificates representing that number of shares of Common Stock as equals:
(i) the number of shares of Common Stock held as Collateral
immediately prior to the Release Date; multiplied by,
<PAGE>
(ii) a fraction, the numerator of which is the amount of
principal and interest paid on the Renewal ESOP Note during that plan year, and
the denominator of which is the sum of the numerator plus the principal and
interest to be paid on the Renewal ESOP Note for all future years.
Notwithstanding the foregoing, the Company agrees that unless so
required by the Company Loan Documents (as they exist as of the date of this
Agreement), the Company shall not use any encumbered shares of Common Stock to
repay the Renewal ESOP Note, and that in the event the KSOP and Trust is
terminated, all encumbered shares of Common Stock then shall be allocated to the
participants of the KSOP.
(b) Simultaneously with the release of any of the shares of Common
Stock from the Collateral, the Company shall take such actions as are necessary
to release its security interest in all dividends, stock dividends, stock
splits, warrants, options, stock purchase rights, and all other property at any
time and from time to time distributed by the Company in respect of, or in
exchange for, or in substitution of any and all of such shares of released
Common Stock.
(c) If the Company is not in possession of a Stock Certificate
representing the exact number of shares of Common Stock to be released from
Collateral on a particular Release Date, the Company and the Trustee shall take
such actions, including the delivery to the Company of a duly endorsed Stock
Certificate representing a number of shares greater than the number of shares to
be released from Collateral, as are necessary to provide for the Company to
reissue Stock Certificates representing, respectively, the requisite number of
shares to be released from Collateral and the number of shares to be retained by
Company. Upon the issuance of any new Stock Certificate by the Company
representing a portion of the Collateral, the Trustee shall deliver to the
Company Blank Stock Powers and such other documents or instruments as Company
may reasonably request.
(d) Notwithstanding any delay in the delivery to the Trustee of a
Stock Certificate representing the shares of Common Stock released from
Collateral on the Release Date, the Trustee shall, as against the Company, for
all purposes be deemed the record and beneficial owner of such shares as of the
Release Date, with all of the rights and privileges accruing thereto.
12. REGISTRATION IN NOMINEE NAME; DENOMINATIONS. The Company shall have
the right to hold the Stock Certificate(s) representing the Collateral in the
name of the Trust endorsed or assigned in blank or in favor of the Company.
Except as otherwise prohibited by law or any specific provision of this
Agreement, upon the occurrence of an Event of Default, the Company may have the
Collateral registered in the name of the Company or any nominee or nominees of
the Company. The Company shall at all times have the right to exchange the Stock
Certificate(s) representing the Common Stock for Stock Certificate(s) of similar
or larger denominations for any purpose consistent with its performance of this
Agreement.
13. REGISTRATION. After an Event of Default which is continuing, if for
any reason the Company desires to sell any of the Collateral at a public or
private sale, the Trust shall take, at any time and from time to time, upon the
written request of the Company, such action, and prepare, distribute and file
such documents, as are required in the opinion of counsel for the Company as
being necessary to permit the public or private sale of such Collateral. The
Trust shall use its best efforts to qualify, file or register or cause to be
qualified, filed or registered, any of the Collateral under the "Blue Sky" or
other securities laws of such states as may be reasonably requested by the
Company after an Event of Default which is continuing, and keep effective, or
cause to be kept effective, all such qualifications, filings or registrations.
14. FURTHER ASSURANCE. During the term of this Agreement, the Trust
shall do such further acts and execute and deliver any and all other documents
as the Company may request in connection with the administration and enforcement
of this Agreement or relative to the Collateral including the granting of a
perfected, valid and enforceable security interest in the Collateral to the
Company.
<PAGE>
15. NOTICE. All notices under this Agreement shall be in writing and
along with all other documents permitted or required to be given under this
Agreement shall be deemed to have been given, (i) in the case of delivery to the
address as set forth in the signature section of this Agreement, when so
delivered, (ii) in the case of mailing, on the third business day after said
document has been deposited in the United States Mails, postage prepaid, and
sent by certified mail and addressed to the other party at the address as set
forth in the signature section of this ESOP Pledge Agreement, and (iii) in all
other cases, when the same has been actually received by the other party. Either
party hereto may change the address at which said notices are to be delivered or
sent by the giving of notice of such change to the other party as set forth
herein.
16. POWER OF ATTORNEY. The Trustee hereby appoints the Company as its
attorney-in-fact for the purposes of carrying out the provisions of this
Agreement and taking any action and executing any document which the Company may
deem necessary or advisable to accomplish the purpose hereof. Without limiting
the generality of the foregoing, the Company shall have the right and power to
execute and file financing statements, Blank Stock Powers, and all necessary
forms for filing with the SEC and state security regulatory agencies, if
applicable, and to receive and endorse in the Trust's name all checks, drafts
and other instruments representing or constituting payments made on the
Collateral. The foregoing power of attorney is coupled with an interest and
shall be terminated only upon the release of all the Collateral.
17. TERM. This Agreement, and the rights and privileges granted
hereunder to the Company, shall continue and remain in full force and effect
until all Collateral has been released pursuant to this Agreement, at which time
this Agreement shall be terminated.
18. TIME. Time is of the essence of this Agreement.
19. WAIVER. No waiver by the Company of any default shall operate as a
waiver of any other default or of the same default on a future occasion. No
delay or omission on the part of the Company in exercising any right or remedy
shall operate as a waiver thereof, and no single or partial exercise by the
Company of any right or remedy shall include any other or further exercise
thereof or the exercise of any other right or remedy.
20. CUMULATIVE RIGHTS. The provisions of this Agreement are cumulative
and are in addition to the provisions of the Renewal ESOP Note and Modified ESOP
Loan Agreement and all of the Modified ESOP Loan Documents, and the Company
shall have all the benefits, rights and remedies provided hereunder and
thereunder.
21. SUCCESSORS AND ASSIGNS. All rights of the Company hereunder shall
inure to the benefit of its successors and assigns and all duties and
obligations of the Trust hereunder shall bind the heirs, executors,
administrators, successors and assigns of the Trust, except that the Trust shall
not (except as provided in the Company Loan Documents) be permitted to assign
its obligations under this Agreement or in the Collateral, in whole or in part,
directly or indirectly.
22. GOVERNING LAW. To the extent not superseded by federal law, this
Agreement shall be construed in accordance with and governed by the laws of
Florida.
23. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
<PAGE>
24. COMPLETE AGREEMENT. This Agreement constitutes the complete
agreement between the parties and incorporates and sets forth all prior
discussions, agreements and representations between the parties in regard to the
matters set forth herein. This Agreement may not be altered, amended or
otherwise modified except by a writing signed by the person to be charged by
said alteration, amendment or modification. The requirement that this Agreement
may not be altered, amended or modified except by a writing, may not itself be
waived except by a writing. The paragraph headings used in this Agreement are
for convenience of reference only and are not a part of this Agreement and do
not limit or define any provisions of this Agreement.
25. CONSTRUCTION. All provisions hereof shall be construed so as to
maintain (i) the KSOP as a qualified, leveraged employee stock ownership plan
under Sections 401(a) and 4975(e)(7) of the Code, (ii) the Trust as exempt from
taxation under Section 501(a) of the Code, and (iii) the Modified ESOP Loan as
an exempt loan under Section 54.5975-7 of the Treasury Regulations.
COMPANY:
SAWTEK INC.
By:/s/Raymond A. Link
Raymond A. Link
Vice President Finance
Chief Financial Officer
1818 South Highway 441
Apopka, Florida 32703
(407) 886-7061 (Fax)
TRUSTEE:
MARINE MIDLAND BANK, AS TRUSTEE OF THE
SAWTEK INC. EMPLOYEE STOCK OWNERSHIP
AND 401(k) PLAN AND TRUST
By:/s/Stephen J. Hartman, Jr.
Stephen J. Hartman, Jr.
Senior Vice President
Marine Midland Bank
140 Broadway
New York, New York 10005
(212) 503-6780 (Fax)
<PAGE>
EXHIBIT 10.45
RENEWAL ESOP NOTE
$1,366,392.35 Apopka, Florida
September 26, 1997
This is a Renewal ESOP Note modifying the terms of the ESOP Note dated
January 11, 1991, in the original principal amount of $4,000,000 (the "Original
Note"). All required documentary stamp taxes on the Original Note have been
fully paid. This Renewal ESOP Note is intended to comply with the provisions of
Florida Statutes ss.201.09 (dealing with documentary stamp taxes on renewal
notes). This Renewal ESOP Note modifies the term and interest rate of the
Original Note.
For value received, Marine Midland Bank, as successor trustee of the
Sawtek Inc. Employee Stock Ownership and 401(k) Plan and Trust (the "Borrower")
(formerly known as the Employee Stock Ownership Plan and Trust for Employees of
Sawtek Inc.), promises to pay to the order of Sawtek Inc. (the "Company") at
1818 South Highway 441, Apopka, Florida 32703, or at such other location as may
hereafter be designated by the Company, the principal sum of One Million Three
Hundred Sixty Six Thousand, Three Hundred Ninety Two Dollars and Thirty Five
Cents ($1,366,392.35) plus interest at seven and sixteen one-hundredths percent
(7.16%) per annum, in seven equal, annual installments of principal plus accrued
interest commencing September 30, 1997, and payable thereafter on September 30
of each year through and including September 30, 2003.
All such payments of principal and accrued interest shall be made in
lawful money of the United States in immediately available funds in the manner
specified in the ESOP Loan Agreement. The Borrower also shall pay all costs of
collection, including court costs and attorneys' fees, if collection proceedings
are brought with respect to this Renewal ESOP Note. The Borrower may prepay all
or any portion of this Renewal ESOP Note without penalty or premium.
This is the Renewal ESOP Note referred to in the Modified ESOP Loan
Agreement dated as of September 26, 1997, between the Borrower and the Company
(as the same may be amended from time to time, the "Modified ESOP Loan
Agreement"). The provisions of the Modified ESOP Loan Agreement are incorporated
herein by reference.
This Modified ESOP Note is secured by collateral as is more
specifically described in that certain Modified ESOP Pledge Agreement dated as
of September 26, 1997, between the Borrower and the Company (as the same may be
amended from time to time, the "Modified ESOP Pledge Agreement").
<PAGE>
This Note shall be without recourse to the Borrower, except that the
Company shall have rights in the collateral to the extent provided in Section
4975 of the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations thereunder, and as provided in the Modified ESOP Pledge Agreement.
Notwithstanding anything contained herein to the contrary, the Company shall not
take any action or fail to act in any manner that would cause the loan
represented by this Renewal ESOP Note to fail to qualify as an exempt loan as
defined in Section 54.4975-7 of the Treasury Regulations. This Renewal ESOP Note
shall be interpreted so as to qualify as such an exempt loan.
Time is of the essence hereunder. The failure or forbearance of the
Company to exercise any right hereunder, or otherwise granted by law or another
agreement, shall not affect or release the liability of the Borrower, and shall
not constitute a waiver of such right unless so stated by the Company in
writing. The Borrower agrees that the Company shall have no responsibility for
the collection or protection of any property securing this Renewal ESOP Note,
and expressly consents that the Company may from time to time, without notice,
extend the time for payment of this Renewal ESOP Note, or any part thereof, and
waive its rights with respect to any property or indebtedness.
The Borrower hereby expressly waives presentment and notice of dishonor
of this Renewal ESOP Note.
SAWTEK INC. EMPLOYEE STOCK
OWNERSHIP AND 401(k) PLAN AND TRUST
ATTEST: By: Marine Midland Bank, Trustee
____________________________ By:/s/Stephen J. Hartman, Jr.
Stephen J. Hartman, Jr.
Senior Vice President
<PAGE>
EXHIBIT 10.46
IMPLEMENTATION AGREEMENT
This IMPLEMENTATION AGREEMENT dated September 26, 1997, by and between
SAWTEK INC., a Florida corporation (the "Company") and MARINE MIDLAND BANK, as
successor trustee (the "Trustee") of the trust (the "Trust") that forms a part
of the SAWTEK INC. EMPLOYEE STOCK OWNERSHIP AND 401(K) PLAN AND TRUST (the
"Plan")
W I T N E S S E T H:
WHEREAS, effective October 1, 1990, the Company established the
Employee Stock Ownership Plan and Trust (the "Prior Plan") for the benefit of
its eligible employees; and
WHEREAS, the Prior Plan was amended and restated and combined with the
Company's 401(k) profit sharing plan in the form of the Plan effective July 16,
1997; and
WHEREAS, on January 11, 1991, the Company and certain shareholders
thereof sold 8,888,880 shares (as adjusted to reflect a 1996 20 for 1 stock
split) common stock of the Company (the "Shares") to the Trust; and
WHEREAS, in order to finance the acquisition of the Shares, the Trust
entered into an exempt loan (the "1991 Exempt Loan") with the Company in the
principal amount of $4,000,000, as evidenced by the ESOP Loan Agreement dated as
of January 11, 1991 (the "1991 Loan Agreement"); and
WHEREAS, the Shares were placed in a suspense account within the Prior
Plan for release in accordance with the ESOP Pledge Agreement dated as of
January 11, 1991 (the "1991 Pledge Agreement") and applicable regulations under
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); and
WHEREAS, as of the date of this agreement, the Trust remains indebted
to the Company from the 1991 ESOP Loan in the principal amount of $1,366,392.35
and there remains 3,036,431 of the Shares in the suspense account of the Plan
for allocation to the participants and beneficiaries of the Plan; and
WHEREAS, Effective May 5, 1997, the Trustee was appointed the successor
trustee of the Trust, replacing Steven P. Miller, Neal Jay Tolar, Willis C.
Young, and Robert C. Strandberg as co-trustees of the Trust. At the time of the
1991 Loan Agreement, Southeast Bank, N.A. was the trustee of the Trust; and
<PAGE>
WHEREAS, the Trustee has made the determination to enter into this
Agreement and other documents related to the modification of the 1991 ESOP Loan
including the Modification of ESOP Loan Agreement between the Company and the
Trust dated as of the date hereof, attached as Exhibit A (the "Modified ESOP
Loan Agreement"), the Renewal ESOP Note dated as of the date hereof, attached as
Exhibit B, and the Modified ESOP Pledge Agreement dated as of the date hereof
between the Company and the Trust, attached as Exhibit C (the "Modified ESOP
Pledge Agreement"); and
WHEREAS, it is intended that the loan made under the Modified ESOP Loan
Agreement and evidenced by the Renewal ESOP Note (the "Modified ESOP Loan") be
primarily for the benefit of the Plan participants and beneficiaries and will
constitute an "exempt loan" within the meaning of section 4975(d)(3) of the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulation
Section 54.4975-7(b), Section 408(b)(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), Department of Labor Regulation
Section 2550.408b-3, and Section 5.5 of the Plan; and
WHEREAS, the Company has agreed to enter into this Agreement in
consideration for the Trustee entering into the Modified ESOP Loan Agreement,
the Renewal ESOP Note and the Modified ESOP Pledge Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained and other good and valuable
consideration (the receipt, adequacy and sufficiency of which each party hereto
respectively acknowledges by its execution hereof), the parties hereto intending
legally to be bound do hereby agree to the implementation of their understanding
as follows:
1. Representation. The Company represents that (i) the execution,
delivery and performance of this Agreement are within Company's powers and have
been duly authorized by all necessary action by the Company, and (ii) this
Agreement constitutes the Company's valid and legally binding obligation,
enforceable against the Company in accordance with its terms.
2. Incremental Contribution. (a) For the fiscal year ended September
30, 1998, the Company shall contribute to the Trust a matching contribution in
an amount equal to 100 percent of each Plan participant's salary deferral
contributions, not to exceed 3 percent of such participant's compensation as
defined in Section 1.15 of the Plan.
<PAGE>
(b) For the fiscal years ended September 30, 1999 and September 30,
2000, the Company shall contribute to the Trust an amount equal to the lesser of
(i) 100 percent of each Plan participant's salary deferral contributions not to
exceed 3 percent of such participant's compensation, and (ii) 5 percent of the
Company's net, after-tax profits. For the purpose of this Agreement "net",
after-tax profits" shall be calculated in accordance with generally accepted
accounting principals, minus any accrual for the Company's contribution for that
Plan year.
The Company's contribution under paragraphs (a) and (b) are referred
collectively as the "Incremental Contributions." The Company, in its sole
discretion, may make the Incremental Contributions in the form of cash, shares
of common stock of the Company ("Common Stock"), or a combination thereof. The
value of a contribution in the form of shares of Common Stock shall be
determined by multiplying the number of shares contributed to the Plan by the
Average (as defined herein) of the last sale prices of a share of Common Stock,
as reported on NASDAQ at the close of trading on the ten consecutive trading
days ending on the third business day prior to the date of the contribution to
the Plan (the "Value Calculation"). "Average" shall mean the sum of the ten last
sale prices determined as specified above divided by ten, with the result
rounded to the nearest ten-thousandth. The Company and the Trustee agree that
the Value Calculation will be adjusted, as mutually agreeable, in the event that
such calculation is deemed at some future date to constitute a prohibited
transaction under section 4975 of the Code or Section 406 of ERISA.
3. Repayment of ESOP Loan. The Company agrees that under the terms of
the Modified ESOP Loan Agreement it is obligated to contribute sufficient monies
to the Trust to repay the Modified ESOP Loan and the Trustee agrees that it is
obligated to use these monies to repay its loan from the Company. The Company
agrees that no Shares held in the Trust will be used to repay the Modified ESOP
Loan.
4. General.
4.1 Amendment. This Agreement may not be amended, waived or modified in
any manner without the written consent of the parties.
4.2 Notices. All notices or other communications given or made
hereunder shall be duly given when received if delivered in person or by telex,
facsimile, registered or certified mail, return receipt requested, postage
prepaid to any party at the address and to the addressee for such party set
forth on the signature page of this Agreement or such other address or addressee
as the party to whom notice is to be given furnishes in writing to the other
party in the manner set forth above.
<PAGE>
4.3 Governing Law. This Agreement shall be construed in accordance with
the governed by the internal laws of the State of Florida applicable to
contracts made and performed in the State of Florida.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their respective representatives thereunto duly
authorized as of the date first hereinbefore apearing.
SAWTEK INC. EMPLOYEE STOCK OWNERSHIP
AND 401(k) TRUST
MARINE MIDLAND BANK, solely in its
capacity as Trustee and not in its
individual or corporate capacity
By: /s/Stephen J. Hartman, Jr.
Its: Senior Vice President
Name: Stephen J. Hartman, Jr.
Title: Vice President
Address: 140 Broadway
New York, New York 10005-1180
SAWTEK INC.
By: /s/Raymond A. Link
Its: VP-Finance
Name: Raymond A. Link
Title: Vice President- Finance
Chief Financial Officer
Address: P.O. Box 609501
Orlando, Florida 32860-9501
<PAGE>
Exhibit A
(Modified ESOP Loan Agreement dated September 26, 1997)
<PAGE>
Exhibit B
(Renewal ESOP Note dated September 26, 1997)
<PAGE>
Exhibit C
(Modified ESOP Pledge Agreement dated September 26, 1997)
<PAGE>
EXHIBIT 10.47
SAWTEK INC.
EMPLOYEE STOCK OWNERSHIP AND 401(K) PLAN
PREPARED BY:
MAGUIRE, VOORHIS & WELLS, P.A.
Two South Orange Plaza
Orlando, Florida 32801
EFFECTIVE JULY 16, 1997
<PAGE>
TABLE OF CONTENTS
Page
BACKGROUND INFORMATION 1
ARTICLE I. - DEFINITIONS 1
ARTICLE II. - ELIGIBILITY 14
2.1 CONDITIONS OF ELIGIBILITY 14
2.2 EFFECTIVE DATE OF PARTICIPATION 14
2.3 TERMINATION OF ELIGIBILITY 14
2.4 OMISSION OF ELIGIBLE EMPLOYEE 15
2.5 INCLUSION OF INELIGIBLE EMPLOYEE 15
ARTICLE III. - CONTRIBUTION AND ALLOCATION 15
3.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION 15
3.2 PARTICIPANT'S SALARY REDUCTION ELECTION 17
3.3 TIME OF PAYMENT OF CONTRIBUTIONS 21
3.4 ACCOUNTING AND ALLOCATION 21
3.5 AVERAGE DEFERRAL PERCENTAGE TESTS 25
3.6 ADJUSTMENT TO AVERAGE DEFERRAL PERCENTAGE TESTS 27
3.7 AVERAGE CONTRIBUTION PERCENTAGE TESTS 29
3.8 ADJUSTMENT TO AVERAGE CONTRIBUTION PERCENTAGE TESTS 31
3.9 MAXIMUM ANNUAL ADDITIONS 33
3.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS 34
3.11 TRANSFERS FROM QUALIFIED PLANS 35
3.12 PARTICIPANT'S QUALIFIED DIRECTED INVESTMENT ACCOUNT 36
3.13 DIRECTED INVESTMENT ACCOUNT 37
3.14 VOTING COMPANY STOCK 38
ARTICLE IV. - VALUATIONS 38
4.1 VALUATION OF THE TRUST FUND 38
ARTICLE V. - FUNDING AND INVESTMENT POLICY 39
5.1 INVESTMENT POLICY 39
5.2 EMPLOYER SECURITIES 39
5.3 APPLICATION OF CASH 40
5.4 TRANSACTIONS INVOLVING COMPANY STOCK 40
5.5 LOANS TO THE TRUST 41
ARTICLE VI. - DETERMINATION AND DISTRIBUTION OF BENEFITS 42
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT 42
6.2 DETERMINATION OF BENEFITS UPON DEATH 42
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY 43
6.4 DETERMINATION OF BENEFITS UPON TERMINATION 44
6.5 DETERMINATION OF BENEFITS AT AGE 59 46
6.6 DISTRIBUTION OF BENEFITS 46
6.7 DISTRIBUTION OF BENEFITS UPON DEATH 50
6.8 HOW ESOP BENEFITS WILL BE DISTRIBUTED 52
6.9 IN SERVICE DISTRIBUTION 52
6.10 TIME OF SEGREGATION OR DISTRIBUTION 53
6.11 DISTRIBUTION FOR MINOR BENEFICIARY 53
6.12 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN 53
6.13 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS 53
6.14 DISTRIBUTION OF DEFERRAL ACCOUNT UPON HARDSHIP 54
6.15 DIRECT ROLLOVERS 55
6.16 LOANS 55
6.17 PUT OPTION 57
6.18 NONTERMINABLE PROTECTIONS AND RIGHTS 59
<PAGE>
TABLE OF CONTENTS
--continued-- Page
ARTICLE VII. - TOP HEAVY RULES 59
7.1 DEFINITIONS 59
7.2 TOP HEAVY PLAN REQUIREMENTS 61
7.3 DETERMINATION OF TOP HEAVY STATUS 61
7.4 REQUIRED MINIMUM ALLOCATIONS 62
7.5 TOP HEAVY VESTING SCHEDULE 63
ARTICLE VIII - ADMINISTRATION 63
8.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER 63
8.2 ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE AUTHORITY 64
8.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES 64
8.4 POWERS, DUTIES AND RESPONSIBILITIES 64
8.5 RECORDS AND REPORTS 66
8.6 ANNUAL REPORT 66
8.7 APPOINTMENT OF ADVISERS 66
8.8 INFORMATION FROM EMPLOYER 66
8.9 PAYMENT OF EXPENSES 66
8.10 MAJORITY ACTIONS 67
8.11 CLAIMS PROCEDURE 67
8.12 CLAIMS REVIEW PROCEDURE 67
ARTICLE IX. - AMENDMENT, TERMINATION, AND MERGERS 68
9.1 AMENDMENT 68
9.2 TERMINATION 68
9.3 MERGER OR CONSOLIDATION 69
ARTICLE X. - MISCELLANEOUS 69
10.1 PARTICIPANT'S RIGHTS 69
10.2 ALIENATION 69
10.3 CONSTRUCTION OF AGREEMENT 70
10.4 GENDER AND NUMBER 70
10.5 LEGAL ACTION 70
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS OR FORFEITURE FOR CAUSE 70
10.7 BONDING 71
10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE 71
10.9 RECEIPT AND RELEASE FOR PAYMENTS 71
10.10 ACTION BY THE EMPLOYER 71
10.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY 71
10.12 HEADINGS 72
10.13 UNIFORMITY 72
<PAGE>
SAWTEK INC.
EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN
This Plan generally is made effective July 16, 1997, by SAWTEK INC., a
Florida corporation (the "Employer").
BACKGROUND INFORMATION
A. Effective October 1, 1980, the Employer adopted the predecessor of
the Sawtek Inc. Code Section 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. The Employer now desires to (i) add an Employer matching provision
to the 401(k) component of the Plan, (ii) merge the 401(k) Plan and ESOP into a
single, Employee Stock Ownership and 401(k) Plan (to form the "Plan") (iii)
modify the terms of the Plan to better meet the needs of the Employer,
Participants and Beneficiaries, and (iv) to comply with changes mandated by
federal law.
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.
1.2 "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.
<PAGE>
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 Section 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 Section 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
Section 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 Section 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
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.
<PAGE>
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 Section 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
Sections 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 Sections 125 or 401(k).
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
Section 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 Sections 401(a)(17) and 414(q)(6) (as modified by Code Section 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.
<PAGE>
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 Section 414(p), shall be
Distributees with regard to the interest of the spouse or former spouse.
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 Section
911(d)(2) from the Employer which constitutes United States source income (as
defined in Code Section 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 Section 408(a), an individual retirement annuity
described in Code Section 408(b), an annuity plan described in Code Section
403(a), or a qualified trust described in Code Section 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 Section
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 Section 414(n)(5)
and Leased Employees do not constitute more than 20% of the Employer's
Non-Highly Compensated Employees.
<PAGE>
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 Section 4975(e)(7) and Regulation Section 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 Section 1.402(g)-1(b), actually made on behalf of such
Participant for such taxable year, over the dollar limitation provided for in
Code Section 402(g), which is incorporated herein by reference. For purposes of
Code Section 415, pursuant to Regulation Section 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 Section 401(k)(3).
Excess Elective Contributions shall be treated as "annual additions" pursuant to
Section 3.9 and Code Section 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 Section 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 Section 2550.408b-3 of the Department of
Labor Regulations, Regulation Section 54.4975-7(b) and Section 5.5 hereof.
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 Section 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.
<PAGE>
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 Section 414(q) and the Regulations thereunder, and generally means an
Employee who 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 Section 416) and received Compensation during the Look-Back Year from
the Employer greater than 50% of the limit in effect under Code Section
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 Section 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.
<PAGE>
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 Section
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 Code Section 911(d)(2)) from the Employer constituting United
States source income within the meaning of Code Section 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
Section 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section 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 Sections 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.
<PAGE>
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 Sections 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 Section 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 Section 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
(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.
<PAGE>
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 Participant's Normal Retirement Age. For
purposes of this Section, Normal Retirement Age means the earlier of the
Participant's attainment of (i) age 65 with five (5) years of participation in
the Plan or (ii) age 55 with 10 Years of Service. A Participant shall become
100% Vested in his Aggregate Account upon attaining his Normal Retirement Age.
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.
<PAGE>
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.
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.
<PAGE>
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.
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 ay 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 a Participant that qualifies as a total and permanent disability
under the terms of the Employer's group disability income policy. Such
determination shall be made by the group disability income insurer.
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.
<PAGE>
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 Section 2530.200-2(c)
of the Department of Labor Regulations.
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.
<PAGE>
(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
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 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.
<PAGE>
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
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 Section
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 Section
404.
<PAGE>
(h) Except as provided in paragraph (g) above and in
accordance with Act Section 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 Section 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
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 Section 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;
<PAGE>
(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 Section 4975(e)(7)) or the
establishment of a successor defined contribution plan (other than an employee
stock ownership plan as defined in Code Section 4975(e)(7)) 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
Section 401(k)(10)(B) and of Regulation Sections 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 Section 409(d)(2)) used in its trade or business.
For purposes of this Section, the rules of Code Section 401(k)(10)(B) and
Regulation Sections 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 Section 409(d)(3)) to an entity which is not an Affiliated
Employer. For purposes of this Section, the rules of Code Section 401(k)(10)(B)
and Regulation Sections 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 Section 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 Section 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 Section
1.402(g)-1(b)) under another qualified cash or deferred arrangement (as defined
in Code Section 401(k)), a simplified employee pension (as defined in Code
Section 408(k)), a salary reduction arrangement (within the meaning of Code
Section 3121(a)(5)(D)), a deferred compensation plan under Code Section 457 or a
trust described in Code Section 501(c)(18), cumulatively exceed the limitation
imposed by Code Section 402(g) for such Participant's taxable year (such
limitation to be adjusted annually in accordance with the method provided in
Code Section 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 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:
<PAGE>
(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:
(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.
<PAGE>
(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.
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:
<PAGE>
(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 Participant's 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.
(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 Sections 401(a)(26) and 410 or to avoid
discrimination under Code Section 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.
<PAGE>
(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
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.
(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.
<PAGE>
(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 Sections 401(a)(26) and 410 or to avoid discrimination
under Code Section 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 Section 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.
(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 Sections 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:
<PAGE>
(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 Section 404. Any
adjustment to the 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
Section 401(k)(3) and Regulation Section 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.
<PAGE>
(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 Section
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 Section 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 $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 Sections 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 Section 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 Sections 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 Sections 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 Section 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.
<PAGE>
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 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 one of the tests set forth in
Section 3.5(a) is satisfied by the Highly Compensated Participant group.
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.
<PAGE>
(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.
(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 Serction 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
<PAGE>
(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.
(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 Section 1.401(m)-2. The provisions of Code Section 401(m)
and Regulation Sections 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 Section
1.402(g)-1(b)) and qualified non-elective contributions (as defined in Code
Section 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 Sections 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 Section 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 Section 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.
<PAGE>
(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 Sections 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 Section
410(b) (other than the average benefits test under Code Section 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 Sections 401(a)(4), 410(b) and
401(m). In such case, the aggregated plans must satisfy this Section and Code
Sections 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 Section 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 Sections 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 Section 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.
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
<PAGE>
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 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 one of the tests set
forth in Section 3.7(a) is satisfied by the Highly Compensated Participant
group. 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 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 Sections 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 Section 1.401(m) -
1(b)(5).
<PAGE>
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
Account for any limitation year (as defined in Section 3.9(d) below) shall equal
the lesser of: (1) $30,000 (or, if greater, one-fourth of the dollar limitation
in effect under Code Section 415(b)(1)(A)), 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 Section 404(a)(9), are allocated to Highly
Compensated Participants, the limitations of Code Section 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 Section
404(a)(9)(B).
(b) For purposes of applying the limitations of Code Section
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 Section 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 Section 419(A)(d)(3) of
the Code) under a welfare benefit plan (as defined in Section 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
Section 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 Section
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 Section 415(l)(i).
(c) For purposes of applying the limitations of Code Section
415, the following are not annual additions: (1) transfer of funds from one
qualified plan to another; (2) rollover contributions (as defined in Code
Sections 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 Section 411(a)(7)(B) (cash-outs); (5) repayments of
distributions received by an Employee pursuant to Code Section 411(a)(3)(D)
(mandatory contributions); (6) Employee contributions to a simplified employee
pension excludable under Code Section 408(k)(6); and (7) deductible Employee
contributions to a qualified Plan.
(d) For purposes of applying the limitations of Code Section
415, the "limitation year" shall be the Plan Year.
(e) The limitation stated in paragraph (a)(1) above shall be
adjusted annually as provided in Code Section 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.
<PAGE>
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 Section 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 Section 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 Section
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 Section 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.
(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.
<PAGE>
(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
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
Section 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 Section 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
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
<PAGE>
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 Section 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.
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.
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 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.
<PAGE>
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 Section 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
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 Section 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
Section 1042 applies may accrue, or be allocated directly or indirectly under
any plan maintained by the Employer meeting the requirements of Code Section
401(a):
<PAGE>
(1) During the Nonallocation Period, for the benefit of:
(i) Any taxpayer who makes an election under Code
Section 1042(a) with respect to Company Stock; or
(ii) Any individual who is related to the taxpayer
within the meaning of Code Section 267(b), or
(2) For the benefit of any other person who owns (after
application of Code Section 318(a), applied without regard to the employee trust
exemption in Code Section 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
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 Section 267(c)(4)) in a transaction to which Code Section 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 Section 4975(d)(3), Regulation Section 54.4975-7(b), Act Section
408(b)(3) and Department of Labor Regulation Section 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;
<PAGE>
(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);
(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
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.
<PAGE>
(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 Section 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 Section 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 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.
<PAGE>
(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 Section
409(o) are incorporated herein by reference. See Section 6.6. In the event a
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:
<TABLE>
<CAPTION>
Vesting Schedule
Years of Service Percentage
---------------- ----------
<S> <C> <C>
Less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 or more 100%
</TABLE>
(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
<PAGE>
(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, and such Former
Participant had received a distribution of his entire Vested Aggregate Account
prior to his re-employment, 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' 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 Section
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.
<PAGE>
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. 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
Section 415(d).
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;
<PAGE>
(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. 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 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.
<PAGE>
(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.
(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
Section 401(a)(9) and the Regulations thereunder (including Regulation Section
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 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 Section 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 Section 401(a)(9)(G) and the Regulations thereunder.
<PAGE>
(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 Sections
401(a)(11) and 417 do not apply, such distribution may commence less than thirty
(30) days after the notice required under Regulation Section 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.
6.7 DISTRIBUTION OF BENEFITS UPON DEATH
(a) Unless otherwise elected as provided in Section 6.2(d), a
Vested Participant who dies before the distribution of his Aggregate Account has
commenced pursuant to Section 6.6 above, and who has a surviving spouse, shall
have the value of his Aggregate Account paid to his surviving spouse.
(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, 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 Participants Aggregate
Account, in one of the methods of distribution specified in Section 6.6 above.
(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) Notwithstanding any provision in the Plan to the
contrary, distributions upon the death of a Participant shall be made in
accordance with the requirements of, and shall otherwise comply with, Code
Section 401(a)(9) and the Regulations thereunder. If a Participant dies before
he has begun to receive any distributions of his Aggregate Account, or before
distributions are deemed to have begun pursuant to Regulations, then the
Participant's Aggregate Account shall be distributed to his Beneficiaries by
December 31st of the calendar year in which the fifth anniversary of the
Participant's date of death occurs.
<PAGE>
However, the 5-year distribution requirement of the preceding
paragraph shall not apply to any portion of the deceased Participant's Aggregate
Account which is payable to or for the benefit of a designated Beneficiary. In
such event, such portion may, at the election of the Participant (or the
Participant's designated Beneficiary), be distributed over the life of such
designated Beneficiary (or over a period not extending beyond the life
expectancy of such designated Beneficiary) provided such distribution begins not
later than December 31st of the calendar year immediately following the calendar
year in which the Participant died. However, in the event the Participant's
spouse (determined as of the date of the Participant's death) is his
Beneficiary, the requirement that distributions commence within one year of a
Participant's death shall not apply. In lieu thereof, distributions must
commence on or before the later of: (1) December 31st of the calendar year
immediately following the calendar year in which the Participant died; or (2)
December 31st of the calendar year in which the Participant would have attained
age 70 1/2, and must be made over the life of the spouse (or over a period not
extending beyond the life expectancy of the spouse). If the surviving spouse
dies before distributions to such spouse begin, then the 5-year distribution
requirement of this Section shall apply as if the spouse was the Participant.
(f) The Beneficiary shall not have the right to demand
Employer securities allocated to the deceased Participant's Aggregate 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.
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%) of
such Participant's Company Stock Account, determined as of the Anniversary Date
or Valuation Date immediately preceding such request. 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.
<PAGE>
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
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 Section 414(p).
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
Sections 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:
<PAGE>
(1) The payment of unreimbursed medical expenses incurred
by the Participant, his spouse or his dependent (as defined in Code Section)
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 Section 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 Section 1.401(k)-1(d)(2)(iv)(B)(4) will be suspended for at least 12
months, and his 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.
<PAGE>
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
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 Sections 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.
(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
<PAGE>
(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
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.
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 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.
<PAGE>
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, 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.
<PAGE>
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.
(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 Section 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 Sectionse 414(b), (c),
(m), or (o) shall be treated as separate employers.
(d) "Key Employee" means those Employees defined in Code
Section 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 Sectione 416) having
Compensation in excess of 50% of the amount in effect under Code Section
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 Section
414(q)(8) shall be excluded as officers.
(2) One of the 10 Employees having Compensation greater
than the amount in effect under Code Section 415(c)(1)(A), and owning (or
considered as owning within the meaning of Code Section 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 Section 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 Section 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 Section 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.
<PAGE>
(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 Sections 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 Sections 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:
(1) Special vesting requirements of Code Section 416(b)
pursuant to Section 7.5 below; and
(2) Special minimum contribution and allocation
requirements of Code Section 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
<PAGE>
(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%.
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 Section 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 Sections 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 the above provisions of this Section 7.4,
no such minimum allocation shall be required for any Non-Key Employee who
participates in another defined contribution plan subject to Code Section 412
included with this Plan in a Required Aggregation Group, if the minimum benefit
is provided by such other defined contribution plan.
<PAGE>
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:
<TABLE>
<CAPTION>
Vesting Schedule
<S> <C>
Years of Service Percentage
---------------- ----------
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
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.
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.
<PAGE>
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 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 Section 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.
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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.
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.
<PAGE>
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 Section 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 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.
<PAGE>
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 Section 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.
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.
<PAGE>
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
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:/s/Steven P. Miller
Steven P. Miller, Chairman
Acceptance by Trustee
The undersigned Trustee hereby accepts the foregoing. Employee Stock
ownership and 401(k) Plan, and agrees to serve as a Trustee of the Plan. This
acceptance is dated effective as of July 16, 1997.
MARINE MIDLAND BANK
By:/s/Stephen J. Hartman, Jr.
Stephen J. Hartman, Jr.
Title:Senior Vice President
<PAGE>
EXHIBIT 10.48
SAWTEK INC.
EMPLOYEE STOCK OWNERSHIP AND 401(k) TRUST
PREPARED BY:
MAGUIRE, VOORHIS & WELLS, P.A.
Two South Orange Avenue
Orlando, Florida 32801
<PAGE>
SAWTEK INC.
EMPLOYEE STOCK OWNERSHIP AND 401(k) TRUST
This Trust Agreement (the "Agreement") is made and entered into between
Sawtek Inc., a Florida corporation (the "Employer") and Marine Midland Bank, a
New York banking corporation (the "Trustee"), to be effective as of July 16,
1997.
BACKGROUND INFORMATION
A. The Employer previously has adopted the Sawtek Inc. Code ss.401(k)
Profit Sharing Plan and Trust (the "401(k) Plan") and the Employee Stock
Ownership Plan and Trust Agreement for Employees of Sawtek Inc. (the "ESOP").
B. The Trustee previously has been appointed as the Trustee of the
ESOP.
C. Effective July 16, 1997, the 401(k) Plan and ESOP were merged into
the Sawtek Inc. Employee Stock Ownership and 401(k) Plan (the "Plan"), and the
Trustee was appointed by the Employer to serve as trustee of the Plan.
D. The Plan contemplates this separate trust document between the
Employer and the Trustee. It is intended that this Agreement implement and form
a part of the Plan. The provisions of, and benefits under, the Plan are subject
to the terms and provisions of this Trust.
ARTICLE I
NAME
This Trust Agreement shall be known as the
"Sawtek Inc. Employee Stock Ownership and 401(k) Trust."
ARTICLE II
PLAN ADMINISTRATION AND FIDUCIARY RESPONSIBILITY
2.1 PLAN ADMINISTRATION
The Plan shall be administered by the Plan administrator (the
"Administrator"), which shall be appointed by the Employer pursuant to Article
VIII of the Plan. The name of the Administrator (or the names of the members of
a committee acting as the Administrator) shall be certified to the Trustee by
the Secretary of the Employer. If there shall be more than one Administrator or
if a committee shall be appointed to serve as the Administrator, the
Administrator may authorize one or more individuals to sign all communications
between the Administrator and Trustee and shall at all times keep the Trustee
advised of the names of the individuals authorized to sign on behalf of the
Administrator, and provide specimen signatures thereof. With the Trustee's prior
written consent, the Administrator may authorize the Trustee to act, without
specific directions or instructions from the Administrator, on any matter or
class of matters with respect to which directions or instructions from the
Administrator are called for hereunder. The Trustee shall be fully protected in
relying on any communication sent by any authorized person and shall not be
required to verify the accuracy or validity of any signature unless the Trustee
has reasonable grounds to doubt the authenticity of any signature.
<PAGE>
2.2 FIDUCIARY RESPONSIBILITY
The Administrator, Trustee, any investment manager appointed
pursuant to Section 5.2 of this Agreement and Article VIII of the Plan, the
Investment Advisory Committee appointed pursuant to Section 5.1 of this
Agreement and Article VIII of the Plan, and any other fiduciaries with respect
to the Plan and this Trust, shall discharge their duties hereunder solely in the
interest of participants and beneficiaries of the Plan (the "Participants" and
"Beneficiaries"), for the exclusive purpose of providing their benefits and
defraying reasonable expenses of Plan and Trust administration, with the care,
skill, prudence and diligence under the circumstances then prevailing that a
prudent person acting in a like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and with like aims.
ARTICLE III
MANAGEMENT AND CONTROL OF TRUST FUND ASSETS
3.1 THE TRUST FUND
The "trust fund" as of any date shall mean all property of every
kind then held by the Trustee pursuant to this Agreement (the "Trust Fund").
3.2 TRUSTEE'S GENERAL POWERS
With respect to the Trust Fund, the Trustee shall have the
following powers, rights and duties in addition to those provided elsewhere in
this Agreement or by law:
(a) To receive and to hold all contributions paid to it under
the Plan; provided, however, that the Trustee shall have no duty to require any
contributions to be made to it or to determine that the contributions received
by the Trustee comply with the provisions of the Plan or with any action of the
Employer.
(b) To retain in cash such amounts as are considered advisable
and as are permitted by applicable law, as directed by the Administrator; and,
subject to Section 4.1 below, to deposit cash in any depositary (including the
banking department of the bank acting as Trustee or an affiliate of such bank)
without liability for interest and, without limiting the generality of the
foregoing, to invest cash in savings accounts or time certificates of deposit
bearing a reasonable rate of interest in the banking department of the bank
acting as Trustee (or an affiliate of the bank acting as Trustee) or to invest
any undirected cash or any cash directed to be invested in money market funds in
money market mutual funds established, maintained, or managed by the Trustee (or
an affiliate of the Trustee), including a money market mutual fund for which the
Trustee or an affiliate of the Trustee serves as investment adviser.
(c) As directed by the Administrator, to make distributions from
the Trust Fund to such persons or trusts, in such manner, at such times and in
such forms (including Company Stock (as defined in Section 1.14 of the Plan),
cash or otherwise) as directed, without inquiring as to whether a payee is
entitled to the payment, or as to whether a payment is proper, and without
liability for a payment made in good faith without actual notice or knowledge of
the changed condition or status of the payee.
<PAGE>
(d) To give proxies to vote stocks and other voting securities,
to join in or oppose (alone or jointly with others) voting trusts, mergers,
consolidations, foreclosures, reorganizations, liquidations, or other changes in
the financial structure of any corporation, and to exercise or sell stock
subscription or conversion rights; provided, however, that the Trustee shall
vote shares of Company Stock and shall tender shares of Company Stock in
response to a tender offer for, or a request or invitation for tenders of, such
shares in accordance with Section 4.3 of this Agreement and Section 3.14 of the
Plan.
(e) As directed by the Employer or the Administrator, to
contract or otherwise enter into transactions between itself, as Trustee, and
the Employer or any Employer stockholder or other individual, for the purpose of
acquiring or selling Company Stock and, subject to the provisions of Section 2.2
of this Agreement, to retain such Company Stock; provided, however, that the
Trustee shall have complete and independent discretion with respect to the
Trustee's initial decision whether to purchase Company Stock with the proceeds
of one or more exempt loans (as defined in Section 5.5 of the Plan) or with
other amounts specified by the Employer for investment in Company Stock as part
of the Trust's initial purchase of Company Stock.
(f) To compromise, contest, arbitrate, settle or abandon claims
and demands by or against the Trust Fund.
(g) To begin, maintain or defend any litigation necessary in
connection with the administration of the Plan or this Trust, except that,
unless otherwise required by law, the Trustee shall not be obliged or required
to do so unless indemnified to the Trustee's satisfaction.
(h) To retain any funds or property subject to any dispute
without liability for the payment of interest, or to decline to make payment or
delivery thereof until final adjudication is made by a court of competent
jurisdiction.
(i) To report to the Employer and the Administrator on each
accounting date under the Plan, or as soon thereafter as practicable, or at such
other times as the Employer or the Administrator may request and as agreed to by
the Trustee, the then net worth of the Trust Fund (that is, the fair market
value of all assets comprising the Trust Fund, less liabilities, if any, other
than liabilities to persons entitled to benefits under the Plan) determined on
the basis of such evidence, data or information as the Trustee considers
pertinent and reliable; and the Trustee shall furnish and report to the Employer
and Administrator only such information with respect to such assets as may be
agreed upon by the Administrator and the Trustee.
(j) To maintain records and accounts reflecting all receipts and
disbursements under this Agreement and such other records and accounts as may be
agreed upon by the Administrator and the Trustee, all of which shall be open to
the inspection of the Employer or the Administrator at all reasonable times, and
may be audited from time to time by anyone named by the Administrator. All
accounts of the Trustee shall be kept on an accrual basis. If, during the term
of this Agreement, the Department of Labor issues regulations under the Employee
Retirement Income Security Act of 1974 ("ERISA") regarding the valuation of
securities or other assets for purposes of the reports required by ERISA, the
Trustee shall use such valuation methods for purposes of the accounts described
by this subsection. If the Trustee determines that there is not a generally
recognized market (as contemplated by Section 3(18)(A) of ERISA) for shares of
Company Stock, the Trustee then shall determine, in accordance with Section
3(18)(B) of ERISA, the fair market value of Company Stock based on the report of
an "independent appraiser" (as described in Section 401(a)(28)(C) of the
Internal Revenue Code of 1986, as amended, the "Code") retained by the Trustee.
<PAGE>
The Administrator may approve any accounting so made by the
Trustee by written notice of approval delivered to the Trustee. Failure by the
Administrator to express objection to such accounting in writing delivered to
the Trustee within sixty (60) days from the date upon which the accounting was
delivered to the Employer and Administrator shall constitute approval of such
accounting. Upon the receipt of a written approval of the accounting, or upon
the passage of the period of time within which objection may be filed, without
written objections having been delivered to the Trustee, such accounting shall
be deemed to be approved, and the Trustee shall be released and discharged as to
all items, matters and things set forth in such accounting, as fully as if such
accounting had been settled and allowed by decree of a court of competent
jurisdiction in an action or proceeding in which the Trustee, Employer and
Administrator, and all persons having or claiming to have any interest in the
Trust Fund or under the Plan, were parties.
(k) As directed by the Administrator, to pay any estate,
inheritance, income or other tax, charge or assessment attributable to any
benefit which it shall or may be required to be paid out of such benefit; and to
require before making any payment such release or other document from any taxing
authority and such indemnity from the intended payee as the Trustee shall deem
necessary for its protection.
(l) To employ agents, attorneys, accountants, financial
advisers, independent appraisers, or other persons (who also may be employed by
the Employer) and to delegate to them such powers as the Trustee considers
desirable (except that the Trustee may not delegate its responsibilities under
this Agreement as to the management or control of the assets of the Trust Fund),
provided that such delegation, and the acceptance thereof, by such agents,
attorneys, accountants, financial advisers, independent appraisers, or other
persons, shall be in writing; and, to the extent permitted by law, the Trustee
shall be protected in acting or refraining from acting on the advice of persons
so employed without court action.
(m) To assume, until advised to the contrary, that the Plan is
qualified under Section 401(a) of the Code and that the Trust as evidenced
hereby is entitled to tax exemption under Section 501(a) of the Code.
(n) To manage, sell, contract to sell, grant options to
purchase, convey, exchange, transfer, abandon, improve, repair, insure, lease
for any term (although commencing in the future or extending beyond the term of
this Trust) and otherwise deal with all property, real or personal, in such way,
for such considerations, and on such terms and conditions as the Trustee
decides; and at the direction of the Administrator, to acquire and become the
policyholder under group annuity contracts issued by a legal reserve life
insurance company.
(o) Except for assets subject to the authority of the Investment
Advisory Committee (see Section 8.1(c) of the Plan), the rights of Participants
and Former Participants to direct the investment of a portion of their accounts
pursuant to Sections 3.12 and 3.13 of the Plan, and the authority of an
investment manager appointed pursuant to Section 8.1(c) of the Plan and Section
5.2 below, the Trustee shall have the authority to diversify the assets of the
Trust Fund so as to minimize the risk of large losses, unless under the
circumstances it is clearly prudent not to do so; provided, however, that all
investments in Company Stock shall be undertaken pursuant to the provisions of
Section 4.1 of this Agreement.
(p) To register ownership of any securities or other property
held by the Trustee in its own name or in the name of a nominee, with or without
the addition of words indicating that such securities are held in a fiduciary
capacity, and to hold any securities in bearer form; provided, that the books
and records of the Trustee shall at all times reflect that all such investments
are part of the Trust Fund.
<PAGE>
(q) With the approval of the Administrator, to borrow such sum
or sums from time to time as the Trustee considers necessary or desirable and in
the best interest of the Trust Fund, and for that purpose to mortgage or pledge
any part of the Trust Fund (subject to the applicable provisions of Section 4975
of the Code and the Treasury Regulations issued thereunder).
(r) To deposit securities with a clearing corporation as defined
in Article 8 of the Florida Uniform Commercial Code. The certificates
representing securities, including those in bearer form, may be held in bulk
form with, and may be merged into, certificates of the same class of the same
issuer which constitute assets of other accounts or owners, without
certification as to the ownership attached. Utilization of a book-entry system
may be made for the transfer or pledge of securities held by the Trustee or by a
clearing corporation. The Trustee shall at all times, however, maintain a
separate and distinct record of the securities owned by the Trust.
(s) To participate in and use the Federal Book-Entry Account
System, a service provided by the Federal Reserve Bank for its member banks for
deposit of United States Treasury securities.
(t) To appoint a bank, trust company, or broker or dealer
registered under the Securities Exchange Act of 1934 to act as custodian with
respect to any portion of the Trust Fund; and a custodian so appointed shall
have custody of such assets as are deposited with it and as custodian such
rights, powers and duties with respect thereto as shall be agreed upon from time
to time by the Administrator and such custodian.
(u) To furnish the Administrator with such information in the
Trustee's possession as the Administrator may need for tax or other purposes.
(v) At the direction of the Administrator, to receive, hold and
invest any funds or other property which the Administrator determines are to be
transferred to the Trustee from:
(i) any other trust forming a part of a plan intended to
meet the requirements of Section 401(a) of the Code;
(ii) an employee of the Employer if such funds or property
qualify as a rollover amount described in Sections 401(a)(31) or 402(c) of the
Code; or
(iii) an individual retirement account or individual
retirement annuity maintained by an employee of the Employer, if such funds or
property qualify as a rollover contribution described in Section 408(d)(3) of
the Code;
and to allocate, credit and distribute any such funds and other property so
transferred in accordance with the terms of the Plan.
(w) To transfer all or any portion of the Trust Fund to another
trust or trusts forming a part of a plan or plans that are intended to meet the
requirements of Section 401(a) of the Code, as directed by the Administrator.
(x) To perform any and all other acts which in the Trustee's
judgment are appropriate for the proper management, investment and distribution
of the Trust Fund.
<PAGE>
3.3 RESPONSIBILITY OF TRUSTEE
The Trustee shall not be responsible in any way for the adequacy
of the Trust Fund to meet and discharge any or all liabilities under the Plan or
for the proper application of distributions made or other actions taken upon the
written direction of the Administrator. The powers, duties and responsibilities
of the Trustee shall be limited to those set forth in this Agreement, and
nothing contained in the Plan, either expressly or by implication, shall be
deemed to impose any additional powers, duties or responsibilities on the
Trustee.
3.4 COMPENSATION AND EXPENSES
Except as otherwise provided below in this Agreement, all
reasonable costs, charges and expenses incurred in the administration of this
Trust and the Plan, including compensation to the Trustee (as agreed upon
between the Employer or Administrator and the Trustee), compensation to an
investment manager (as agreed upon between the Employer or Administrator and the
investment manager), and any compensation to agents, attorneys, accountants and
other persons employed by the Trustee, the Administrator, Investment Advisory
Committee or the Employer, will be paid from the Trust Fund to the extent not
paid by the Employer, in its discretion. Expenses incurred in connection with
the sale, investment and reinvestment of the Trust Fund (such as brokerage,
postage, express and insurance charges and transfer taxes) shall be paid from
the Trust Fund. The Trustee shall be fully protected in making payments of
administrative expenses pursuant to the written directions of the Administrator.
3.5 CONTINUATION OF POWERS UPON TRUST TERMINATION
Notwithstanding anything to the contrary in this Agreement, upon
termination of the Trust, the powers, rights and duties of the Trustee hereunder
shall continue until all Trust Fund assets have been liquidated.
ARTICLE IV
PROVISIONS RELATED TO
INVESTMENTS IN COMPANY STOCK
4.1 INVESTMENTS IN COMPANY STOCK
If the Employer's contribution made pursuant to the provisions
of Section 3.1(a) of the Plan for any "Plan Year" (as defined Section 1.62 of
the Plan) is in cash, such cash shall be used by the Trustee first to make any
scheduled or accelerated amortization payment on an acquisition loan and then,
if any amounts remain thereafter, shall be allocated as the Trustee is directed
in writing by the Administrator in accordance with the Plan. If allowed by the
Administrator under the terms of the Plan, Participants may elect to invest
salary deferral contributions (made pursuant to Section 3.2 of the Plan) in
Company Stock, and, subject to Subsection 3.2(e) of this Agreement and Section
3.13 of the Plan, the Administrator will direct the Trustee with respect to such
investments. Subject to the provisions of Section 3.2 of this Agreement, any
cash dividends received by the Trustee on Company Stock held in the Trust Fund
shall be applied as provided by Section 3.4(d) of the Plan. Subject to the
provisions of Section 3.2(e) of this Agreement, the Trustee is further
authorized to purchase Company Stock on the open market or from the Employer or
from any stockholder, and such stock may be outstanding, newly issued or
treasury stock. All such purchases must be at a price not in excess of fair
market value, as determined by an independent appraiser when the Company Stock
is not publicly traded. Pending investment of cash in Company Stock, such cash
may be invested in savings accounts, certificates of deposit, high-grade
short-term securities, common or collective funds or mutual funds (including a
common, collective, or mutual fund for which the Trustee or one of the
affiliates of the Trustee serves as investment adviser) maintained as a
short-term investment fund or in other types of short-term investments approved
by the Investment Advisory Committee for these purposes.
<PAGE>
4.2 STOCK DIVIDENDS, SPLITS AND OTHER CAPITAL REORGANIZATIONS; SALE
PROCEEDS
Any Company Stock received by the Trustee as a stock split or
dividend or as a result of a reorganization or other recapitalization of the
Employer shall be allocated as of each accounting date under the Plan in
proportion to the Company Stock to which it is attributable. While one or more
acquisition loans are outstanding, any proceeds received by the Trust Fund as
the result of the sale, assignment, transfer or other disposition of Company
Stock (to a party other than the Employer or an affiliate of the Employer) will
first be applied to repay such acquisition loans.
4.3 VOTING OF SHARES AND TENDER OFFERS
Company Stock held in the Trust Fund shall be voted and tendered
by the Trustee in the manner set forth in Section 3.14 of the Plan and
consistent with its duties described in Section 2.2 of this Agreement.
ARTICLE V
PROVISIONS RELATED TO
INVESTMENTS OTHER THAN COMPANY STOCK
5.1 INVESTMENT ADVISORY COMMITTEE AUTHORITY
With respect to Trust Fund assets not invested in Company Stock
(other than cash to be held on a short term basis), the Investment Advisory
Committee shall have the following powers, rights and duties in addition to
those provided elsewhere in this Agreement or the Plan:
(a) The Investment Advisory Committee, in its sole discretion,
may from time to time establish one or more investment funds ("Investment
Funds") under this Agreement for investment of all or a portion of a
Participant's or Former Participant's account in accordance with Sections 3.12
or 3.13 of the Plan. Such Investment Funds shall be comprised of:
(i) shares of an investment company registered under the
Investment Company Act of 1940 (a "mutual fund"), or
(ii) a common, collective or commingled trust fund or pooled
investment fund qualified under Section 401(a) and entitled to tax exemption
under Section 501(a) of the Code.
The Employer, in accordance with Section 8.1(c) of the Plan and
Section 5.2 of this Agreement, also may appoint one or more investment managers
to manage all or a portion of any such investment fund. Pursuant to Section 5.4
of this Agreement, the Administrator also may permit Participants to direct
investments in U.S. Government securities.
(b) The Administrator, pursuant to Sections 3.12 and 3.13 of the
Plan, may direct the Trustee to transfer amounts held in the Trust Fund to be
applied to the purchase or sale of shares or units in an Investment Fund in
accordance with the directions of Plan Participants and Former Participants.
<PAGE>
(c) In the absence of investment directions from any Participant
or Former Participant in the Plan in accordance with Sections 3.12 and 3.13 of
the Plan, the Administrator shall designate an Investment Fund in which the
amounts in such a Participant's or Former Participant's accounts will be
invested and shall direct the Trustee to invest such amounts in the designated
investment fund.
(d) The Administrator may authorize the Trustee to temporarily
invest assets of the Trust Fund in short-term investments described in the last
sentence of Section 4.1 of this Agreement pending investment of such assets in
accordance with the directions of Plan Participants or Former Participants, or
other disposition of such assets under the terms of this Agreement.
(e) The Trustee shall have no custodial or investment
responsibility with respect to any Trust assets invested in an Investment Fund
described in clause (a)(i) or (a)(ii) above, except the Trustee shall vote
shares of a mutual fund constituting an investment fund as provided in Section
3.2(d) of this Agreement.
(f) The Trustee shall be indemnified in accordance with Section
6.11 of this Agreement in connection with its good faith compliance with any
directions from the Participants or Former Participants, or the Plan
Administrator or Investment Advisory Committee, in accordance with this Section.
5.2 INVESTMENT MANAGERS
In accordance with Section 8.1(c) of the Plan, the Employer may
appoint one or more "investment managers" to direct the investments to be made
by the Trustee with respect to any part or all of the assets of an Investment
Fund designated by the Investment Advisory Committee pursuant to Section 5.1
above. Except as otherwise provided by law, the Trustee shall have no obligation
for investment of any assets of the Trust Fund that are subject to investment
directions from an investment manager. Appointment of an investment manager
shall be made by written agreement between the Employer and the investment
manager, which agreement shall specify those powers, rights and duties of the
Trustee under this Agreement that are allocated to the investment manager and
that portion of the assets of the Trust Fund subject to investment direction.
The Employer or Administrator shall notify the Trustee in writing of the
appointment of an investment manager, which notice shall specify those powers,
rights and duties of the Trustee under this Agreement that are allocated to the
investment manager and that portion of the assets of the Trust Fund subject to
investment direction by the investment manager. An investment manager so
appointed pursuant to this Section 5.2 shall be either a registered investment
adviser under the Investment Advisers Act of 1940, a bank, as defined in said
Act, or an insurance company qualified to manage, acquire and dispose of the
assets of a Plan under the laws of more than one state of the United States. Any
such investment manager shall acknowledge to the Employer in writing that it
accepts such appointment and that it is a fiduciary with respect to the Plan and
Trust. An investment manager may resign at any time upon written notice to the
Employer or Administrator, and the Employer or Administrator shall promptly
notify the Trustee of the investment manager's resignation. The Employer may
remove an investment manager at any time by written notice to the investment
manager and the Trustee.
<PAGE>
5.3 COLLECTIVE INVESTMENT FUNDS
In addition to a mutual fund, the Investment Advisory Committee
may designate as an Investment Fund any common, collective or commingled trust
fund or pooled investment fund qualified under Section 401(a) of the Code and
entitled to tax exemption under Section 501(a) of the Code. An investment
manager (including a bank or trust company) may cause any part or all of the
assets of the Trust Fund for which it has investment responsibility to be
invested in any common, collective or commingled trust fund or pooled investment
fund as described above. The Trustee may invest cash for which it has
responsibility to be invested in any common, collective or commingled trust fund
or pooled investment fund as described above. To the extent assets of the Trust
Fund are invested in any such common, collective or commingled trust fund or
pooled investment fund, the provisions of the documents under which such fund is
maintained, as amended from time to time, shall govern any investment therein,
and such provisions are hereby incorporated herein and made a part of this
Agreement. If the Investment Advisory Committee or an investment manager decides
to invest Trust Fund assets in a common, collective or commingled trust fund or
pooled investment fund (as described in this Section) then, upon direction of
the Investment Advisory Committee or the investment manager, the Trustee shall
enter into those agreements necessary for the purpose of investing in such fund,
including custody agreements. With respect to any assets the Investment Advisory
Committee or an investment manager invests in a common, collective or commingled
trust fund or pooled investment fund (as described in this Section) maintained
by an investment manager, the Administrator may appoint the investment manager
as custodian of such assets.
5.4 U.S. GOVERNMENT SECURITIES
If permitted by the Investment Advisory Committee and the
Administrator, Participants and Former Participants may direct the investment of
their accounts under the Plan in securities of the U.S. government, its
agencies, or instrumentalities, subject to such uniform and nondiscriminatory
rules and procedures as the Administrator may establish. In accordance with
Participants' and Former Participants' directions, the Administrator shall
direct the Trustee with respect to the purchase or sale of securities of the
U.S. government, its agencies, or instrumentalities. The Trustee shall have no
investment responsibility with respect to such Trust assets invested in
securities of the U.S. government, its agencies or instrumentalities over which
the Participant or Former Participant has the right of self-direction.
ARTICLE VI
GENERAL PROVISIONS
6.1 DISAGREEMENT AS TO ACTS
If there is a disagreement between the Trustee and anyone as to
any act or transaction reported in any accounting, the Trustee shall have the
right to have its account settled by a court of competent jurisdiction.
<PAGE>
6.2 INTERESTS NOT TRANSFERABLE
The interests of persons entitled to benefits under the Plan are
not subject to their debts or other obligations and, except as may be required
by the tax withholding provisions of the Code or any state's income tax act or
pursuant to a qualified domestic relations order as defined in Section 414(p) of
the Code, may not be voluntarily or involuntarily sold, transferred, alienated,
assigned or encumbered.
6.3 THIRD PARTIES
Except as otherwise provided by law, the Trustee's exercise or
non-exercise of its powers and discretions in good faith shall be conclusive on
all persons. No one shall be obliged to see to the application of any money paid
or property delivered to the Trustee, except to the extent that the Investment
Advisory Committee or investment manager is directing investments of the
Trustee. The certificate of the Trustee that it is acting according to this
Agreement will fully protect all persons dealing with the Trustee.
6.4 EVIDENCE
Evidence required of anyone under this Agreement may be by
certificate, affidavit, document or other instrument which the person acting in
reliance thereon considers pertinent and reliable, and signed, made or presented
by the proper party.
6.5 WAIVER OF NOTICE
Any notice required under this Agreement may be waived in
writing by the person entitled thereto.
6.6 COUNTERPARTS
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and no other counterparts need be
produced.
6.7 GOVERNING LAWS AND SEVERABILITY
This Agreement shall be construed and administered according to
the laws of the State of Florida to the extent that such laws are not preempted
by the laws of the United States of America. If any provision of this agreement
is held illegal or invalid, the illegality or invalidity shall not affect the
remaining provisions of the Agreement, but shall be severable, and the Agreement
shall be construed and enforced as if the illegal or invalid provision had never
been inserted herein.
<PAGE>
6.8 SUCCESSORS
This Agreement shall be binding on all persons entitled to
benefits under the Plan and their respective heirs and legal representatives, on
the Employer and its successors and assigns, on the Trustee and its successors,
and on the Administrator and Investment Advisory Committee, and their members
and their successors. The term "Employer" as used in the Plan and this Agreement
includes any entity that continues the Plan and this Trust in effect, as
provided in the Plan; and, if the employer concerned is the Employer, the term
"Employer" also shall include such entity.
6.9 ACTION
Any action required or permitted to be taken by the Employer
under this Agreement shall be by resolution of its Board of Directors, by a duly
authorized committee of such Board of Directors, or by a person or persons
authorized by resolution of such Board of Directors or such committee. The
Trustee shall not recognize or take notice of any appointment of any
representative of the Employer, Administrator or Investment Advisory Committee
unless and until the Employer, Administrator or Investment Advisory Committee
shall have notified the Trustee in writing of such appointment and the extent of
such representative's authority. The Trustee may assume that such appointment
and authority continue in effect until it receives written notice to the
contrary from the Employer, Administrator or Investment Advisory Committee. Any
action taken or omitted to be taken by the Trustee by authority of any
representative of the Employer, Administrator or Investment Advisory Committee
within the scope of its authority shall be as effective for all purposes hereof
as if such action or non-action had been authorized by the Employer,
Administrator or Investment Advisory Committee.
6.10 CONFORMANCE WITH PLAN
Unless otherwise indicated in this Agreement, all terms used in
this Agreement shall have the meaning as stated in the Plan. To the extent the
provisions of the Plan and this Agreement conflict, the provisions of the Plan
shall govern; provided, however, that the Trustee's duties and obligations shall
be determined solely under this Agreement.
6.11 INDEMNIFICATION
(a) Except as provided in subparagraph (b) below, with respect
to assets of the Trust Fund invested pursuant to Section 5.1, to the extent
permitted by law, the Employer shall indemnify and save harmless the Trustee
from and against liability, including all expenses reasonably incurred in its
defense, pursuant to the indemnification provisions of the engagement letter
between the Employer and the Trustee, which is attached hereto as Exhibit A.
(b) The provisions of this Section 6.11 shall survive the
termination of the Plan and Trust and the resignation or the removal of the
Trustee.
6.12 LITIGATION BY PARTICIPANTS
If a legal action begun against the Trustee, the Employer, or
the Investment Advisory Committee or Administrator, or any member thereof, by or
on behalf of any person results adversely to that person, or if a legal action
arises because of conflicting claims to a Participant's, Former Participant's or
other person's benefits, the cost to the Trustee, Employer, or the Investment
Advisory Committee or Administrator, or any member thereof, of defending the
action will be charged to the extent permitted by law to the sums, if any, which
were involved in the action or were payable to the person concerned.
<PAGE>
6.13 COURTS
Except as otherwise provided by law, in case of any court
proceedings involving the Employer, Investment Advisory Committee or
Administrator, or any member thereof, the Trustee or the Trust Fund, only the
Employer, the Trustee and any other of such parties involved in the proceedings
shall be necessary parties to the proceedings, and no other person shall be
entitled to notice of process. A final judgment entered in any such proceedings
shall be conclusive.
6.14 LIABILITIES MUTUALLY EXCLUSIVE
To the extent permitted by law, the Trustee, any investment
manager, the Employer, and each member of the Investment Advisory Committee or
Administrator, shall be responsible only for its or his own acts or omissions,
and neither the Administrator nor the Trustee shall be required to collect any
contribution from the Employer or any other person or to verify that any such
contribution is in the proper amount. No insurance company shall be a party to
this Agreement for any purpose or be responsible for the validity of this
Agreement, it being intended that an insurance company shall be liable only for
the obligations set forth in the contracts issued by it.
6.15 GENDER AND NUMBER
Where the context admits, words in the masculine gender shall
include the feminine and neuter genders, the singular shall include the plural,
and the plural shall include the singular.
6.16 HEADINGS
The headings of Articles and Sections of this Agreement are for
convenience of reference only and shall have no substantive effect on the
provisions of this Agreement.
6.17 STATUTORY REFERENCES
Any references in the Plan or this Agreement to a Section of the
Code or ERISA shall include any comparable section or sections of any future
legislation which amends, supplements or supersedes said Section.
ARTICLE VII
NO REVERSION TO EMPLOYER
The Employer shall have no right, title or interest in the assets of
the Trust Fund, except as may be permitted by law and provided in the Plan or in
a pledge agreement entered into between the Employer and the Trustee in
connection with an acquisition loan. If there is a default on an acquisition
loan, the Employer may exercise its rights under the pledge agreement with
respect to the shares of Company Stock subject to the pledge agreement. Such
Employer rights shall include, but not be limited to, the sale of pledged
shares, the transfer of pledged shares to the Employer, and the registration of
pledged shares in the Employer's name. Notwithstanding the foregoing, the
Trustee has no responsibility as to the sufficiency of the Trust Fund to provide
any distribution to the Employer under this Article VII.
<PAGE>
ARTICLE VIII
CHANGE OF TRUSTEE
8.1 RESIGNATION
The Trustee may resign at any time by giving at least sixty (60)
days advance, written notice to the Employer and the Administrator.
8.2 REMOVAL OF THE TRUSTEE
The Employer may remove the Trustee by giving at least sixty
(60) days advance, written notice to the Trustee, subject to providing the
removed Trustee with satisfactory written evidence of the appointment of a
successor Trustee and of the successor Trustee's acceptance of the Trusteeship.
8.3 DUTIES OF RESIGNING OR REMOVED TRUSTEE AND OF SUCCESSOR TRUSTEE
If the Trustee resigns or is removed, it shall promptly transfer
and deliver the assets of the Trust Fund to the successor Trustee, and may
reserve such amount to provide for the payment of all fees and expenses, or
taxes then or thereafter chargeable against the Trust Fund, to the extent not
previously paid by the Employer. Within sixty (60) days, the resigned or removed
Trustee shall furnish to the Employer and the successor Trustee an account of
its administration of the Trust from the date of its last account. Each
successor Trustee shall succeed to the title to the Trust Fund vested in its
predecessor without the signing or filing of any further instrument, but any
resigning or removed Trustee shall execute all documents and do all acts
necessary to vest such title or record in any successor Trustee. Each successor
shall have all the powers, rights and duties conferred by this Agreement as if
originally named Trustee. No successor Trustee shall be personally liable for
any act or failure to act of a predecessor Trustee. With the approval of the
Employer or Administrator, a successor Trustee may accept the account rendered
and the property delivered to it by its predecessor Trustee as a full and
complete discharge to the predecessor Trustee without incurring any liability or
responsibility for so doing.
8.4 FILLING TRUSTEE VACANCY
The Employer shall fill a vacancy in the office of Trustee as
soon as practicable by a writing filed with the person or entity appointed to
fill the vacancy.
ARTICLE IX
ADDITIONAL EMPLOYERS
Any Affiliated Employer (as defined in the Plan), with the consent of
the Board of Directors of the Employer, may become a party to this Agreement by:
(a) filing with the Employer and the Trustee a certified copy of
resolutions of its Board of Directors, a duly authorized committee of its Board
of Directors, or a person or persons authorized by resolution of its Board of
Directors or such committee to that effect; and
(b) filing with the Trustee a certified copy of resolutions of
the Employer's Board of Directors, a duly authorized committee of such Board of
Directors, or a person or persons authorized by resolution of such Board of
Directors or such committee consenting to such action.
<PAGE>
ARTICLE X
AMENDMENT AND TERMINATION
10.1 AMENDMENT
While the Employer expects and intends to continue the Trust,
the Employer reserves the right to amend or terminate the Trust by action of the
Employer's Board of Directors. Notwithstanding the foregoing:
(a) An amendment may not change the duties and liabilities of
the Trustee without the Trustee's consent;
(b) An amendment shall not reduce the value of a Participant's
or Former Participant's nonforfeitable benefits accrued prior to the later of
the adoption or the effective date of the amendment; and
(c) Except as provided in Article VII, under no condition shall
any amendment result in the return or repayment to the Employer of any part of
the Trust Fund or the income therefrom, or result in the distribution of the
Trust Fund for the benefit of anyone other than employees and former employees
of the Employer and any other persons entitled to benefits under the Plan.
10.2 TERMINATION
If the Plan is terminated, this Trust, including all rights,
titles, powers, duties, discretions and immunities imposed on or reserved to the
Trustee, the Employer, Investment Advisory Committee and Administrator
nevertheless shall continue in effect until all assets of the Trust Fund have
been distributed by the Trustee as directed by the Administrator under the Plan.
IN WITNESS WHEREOF, the Employer and Trustee have caused this Agreement
to be signed and attested by their duly authorized officers as of the day and
year first above written.
EMPLOYER:
SAWTEK INC.
Attest:/s/Raymond A. Link By: /s/Steven P. Miller
Raymond A. Link Steven P. Miller
Chief Financial Officer Chief Executive Officer
TRUSTEE:
MARINE MIDLAND BANK
Attest:________________________ By: /s/Stephen J. Hartman, Jr.
Stephen J. Hartman, Jr.
Senior Vice President
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