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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-13783
INTEGRATED ELECTRICAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 76-0542208
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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515 POST OAK BOULEVARD 77027
SUITE 450 (Zip Code)
HOUSTON, TEXAS 77027
(Address of principal executive offices)
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Registrant's telephone number, including area code: (713) 860-1500
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Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON
WHICH REGISTERED
Common Stock, par value $.01 per share New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: NONE
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 checkmark if disclosure of delinquent filings 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. ______________
As of December 16, 1998, there were outstanding 28,879,089 shares of common
stock of the Registrant. The aggregate market value on such date of the voting
stock of the Registrant held by non-affiliates was an estimated $483.3 million.
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FORM 10-K
INTEGRATED ELECTRICAL SERVICES, INC.
TABLE OF CONTENTS
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ITEM PAGE
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PART I
1 Business.................................................... 2
2 Properties.................................................. 13
3 Legal Proceedings........................................... 13
4 Submission of Matters to a Vote of Security Holders......... 13
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 14
6 Selected Financial Data..................................... 14
7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 15
7A Quantitative and Qualitative Disclosures About Market
Risk........................................................ 21
8 Financial Statements and Supplemental Data.................. 21
9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 42
PART III
10 Directors and Executive Officers of the Registrant.......... 42
11 Executive Compensation...................................... 42
12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 42
13 Certain Relationships and Related Transactions.............. 42
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 42
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements other than statements of historical
fact included in this Form 10-K, including without limitation, statements under
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" regarding the planned capital expenditures, the Company's
financial position, business strategy and other plans and objectives for future
operations, are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by such factors.
DOCUMENT INCORPORATED BY REFERENCE
The information called for by Part III of this Form 10-K is incorporated by
reference from the Proxy Statement for the Annual Meeting of Stockholders of the
Company to be held February 10, 1999.
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PART I
ITEM 1. BUSINESS
In this annual report, the words "Company," "IES," "we," "our," "ours," and
"us" refer to Integrated Electrical Services, Inc. and, except as otherwise
specified herein, to our subsidiaries. The words "Founding Companies" refer to
the 16 electrical businesses we purchased concurrently with our initial public
offering on January 30, 1998, "Acquired Companies" refers to those businesses
acquired since the initial public offering and through September 30, 1998 and
"Recent Acquisitions" refers to those businesses purchased since September 30,
1998. Our fiscal year is not a calendar year and ends on September 30.
Our Company is the third largest provider of electrical contracting and
maintenance services in the United States. In late 1997, we recognized a
significant opportunity for a well-capitalized company with critical mass and a
nationwide presence to realize substantial competitive advantages by
capitalizing on the fragmented nature of the electrical services industry. To
that end, we began operations on January 30, 1998 with the acquisition of 16
electrical businesses, each of which had a strong identity and presence in their
local markets, in order to create a nationwide provider of electrical services
and to lead the consolidation of our industry. Since February 1998 and through
September 30, 1998, we have acquired 21 additional electrical contracting and
maintenance services businesses. On a pro forma basis for the year ended
September 30, 1998 we generated revenues and earnings before interest, taxes,
depreciation and amortization ("EBITDA") of $750.4 million and $76.9 million,
respectively.
According to the most recently available U.S. Census data, the electrical
contracting industry generated annual revenues in excess of $40 billion in 1992.
This data also indicates that the electrical contracting industry is highly
fragmented with more than 54,000 companies, most of which are small,
owner-operated businesses. We estimate that there are only five other U.S.
electrical contractors with revenues in excess of $200 million. Government
sources indicate that total construction industry revenues have grown at an
average compound rate of approximately 6% from 1995 through 1998. Over the same
period, our pro forma combined revenues have increased at a compound annual rate
of approximately 13%. We believe this growth in revenues is primarily due to the
fact that our companies have been in business an average of 21 years, have
strong relationships with customers, have effectively employed industry best
practices and have focused on larger, higher margin projects.
We serve a broad range of markets, including the commercial, industrial,
residential and power line markets. In addition, we have recently entered into
the data communication market, which includes the installation of wiring for
computer networks and fiber optic telecommunications systems. Our revenues are
generated from a mix of new construction, renovation, maintenance and
specialized services. We focus on higher margin, larger projects that require
special expertise, such as design-and-build projects that utilize the
capabilities of our in-house engineers, as well as service, maintenance and
certain renovation and upgrade work which tends to either be recurring, have
lower sensitivity to economic cycles, or both.
INDUSTRY OVERVIEW
General. Virtually all construction and renovation in the United States
generates demand for electrical contracting services. Electrical work generally
accounts for approximately 8% to 12% of the total construction cost of
commercial and industrial projects, 5% to 10% of the total construction cost for
residential projects, and substantially all of the construction costs of power
line projects. In recent years, electrical contractors have experienced a
growing demand for their services due to more stringent electrical codes,
increased use of electrical power, demand for increased data cabling capacity
for high-speed computer systems and the construction of smart houses with
integrated computer, temperature control and safety systems.
THE MARKETS WE SERVE
Commercial Market. Our commercial work consists primarily of electrical
installations and renovations in office buildings, high-rise apartments and
condominiums, theaters, restaurants, hotels, hospitals and school
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districts. Our commercial customers include general contractors, developers,
building owners, engineers and architects. We believe that demand for our
commercial services is driven by construction and renovation activity levels, as
well as more stringent local and national electrical codes. From fiscal 1995
through 1998, our pro forma revenues from commercial work have grown at a
compound annual rate of approximately 11% per year and currently represent
approximately 45% of our total pro forma 1998 revenues.
Industrial Market. Our industrial work consists primarily of electrical
installations and upgrade, renovation and replacement service and maintenance
work in manufacturing and processing facilities, military installations,
airports, refineries and petrochemical and power plants. According to internal
estimates, approximately 60% of our industrial revenues are associated with new
construction with the balance derived from significant contracts for upgrade,
renovation and replacement service and maintenance work. Our industrial
customers include facility owners, general contractors, engineers, consultants
and architects. We believe that demand for our industrial services is driven by
facility upgrades and replacements as well as general activity levels in the
particular industries served, which is in turn affected by general economic
conditions. From fiscal 1995 through 1998, our pro forma revenues from
industrial work have grown at a compound annual rate of approximately 14% per
year and currently represent approximately 28% of our total pro forma 1998
revenues.
Residential Market. Our work for the residential market consists primarily
of electrical installations in new single family housing and low-rise
multifamily housing for customers which include local, regional and national
homebuilders and developers. The residential market is primarily dependent on
the number of single family and multi-family home starts, of which single-family
starts are most affected by the level of interest rates and general economic
conditions. Competitive factors particularly important in the residential market
include our ability to build relationships with homebuilders and developers by
providing services in each area of the country in which they operate. This
ability has become increasingly important as consolidation has occurred within
the residential construction industry and homebuilders and developers have
sought out service providers on whom they can rely for consistent service in all
of their operating regions. We believe we are currently one of the largest
providers of electrical contracting services to the U.S. residential
construction market and that there is significant additional opportunity for
consolidation within this highly fragmented market. In the current low interest
rate environment, our residential business has experienced significant growth.
Our pro forma revenues from residential electrical contracting have grown at a
compound annual rate of approximately 21% from fiscal 1995 through 1998 and
currently represent approximately 16% of our pro forma 1998 revenues.
Power Line Market. Our work for the power line market consists primarily of
the installation, repair and maintenance of electric power transmission lines
and the construction of electric substations. We generally serve as the prime
contractor and perform substantially all of the construction work on these
contracts. Our customers in this market are government agencies and utilities.
Demand for power line services is driven by new infrastructure development,
utilities' efforts to reduce costs through the outsourcing of power line
installation and maintenance services in anticipation of deregulation and the
need to modernize and increase the capacity of existing transmission and
distribution systems. The power line business is a new focus for our company and
currently represents approximately 3% of our total pro forma 1998 revenues.
Service and Maintenance Market. The balance of our total pro forma 1998
revenues is derived from service calls and routine maintenance contracts. Our
service and maintenance revenues have grown at a compound annual rate of
approximately 14% from fiscal 1995 through 1998.
Data Communication Market. We recently formed a division to specifically
target opportunities in the data communication market and completed our first
data communication acquisition in November 1998. Our data communication work
consists primarily of the installation, upgrade, maintenance and repair of
computer network cabling, telecommunication systems and wireless telephone and
microwave towers. We believe that demand for our data communication services
will be driven by the pace of technological change, the overall growth in voice
and data traffic and by the increasing use of personal computers and modems,
with particular emphasis on the speed with which information can be retrieved
from the Internet. As a result of our recent
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entry into the market, our data communication revenues are not a significant
component of our total pro forma 1998 revenues.
COMPETITIVE STRENGTHS
We believe several factors give us a competitive advantage in our industry,
including our:
- Size and critical mass -- which gives us purchasing and other economies
of scale, as well as greater ability to compete for larger jobs that
require greater technical expertise, personnel availability and bonding
capacity;
- Geographically diverse operations -- which enables us to effectively
service large customers across operating regions, including regional and
national homebuilders, national retailers and other commercial
businesses, as well as to lessen the impact of regional economic cycles;
- Diverse business lines -- which we believe provide greater stability in
sales revenue;
- Strong customer relationships -- which provide us repeat business and the
opportunity for cross-selling our services;
- Expertise in specialized markets -- which provides us with access to high
growth markets, including data cabling, wireless telecommunication,
highway lighting and traffic control, video, security and fire systems;
- Substantial number of licensed electricians -- which enables us to
deliver quality service with greater reliability than many of our
competitors, which is particularly important given a current industry
shortage of qualified electricians;
- Design technology and expertise -- which gives us the ability to
participate in higher margin design-and-build projects; and
- Experienced management -- which holds in excess of 60% of the Company's
outstanding common stock and includes executive management with extensive
electrical, consolidation and public company experience, as well as
regional and local management which have established reputations in their
local markets.
BUSINESS STRATEGY
Our goal is to expand our position as a leading national provider of
electrical contracting and maintenance services by:
- continuing to realize operational efficiencies;
- expanding our business and markets through internal growth; and
- pursuing a targeted acquisition strategy.
OPERATING STRATEGY. We believe there are significant opportunities to
continue to increase our revenues and profitability. The key elements of our
operating strategy are:
Implementation of Best Practices. We continue to expand the services
we offer in our local markets by using the specialized technical and
marketing strengths of each of our companies. Through a series of forums
attended by management, we regularly identify and share best practices that
can be successfully implemented throughout our operations. We have
identified opportunities to enhance certain operational, administrative,
safety, hiring and training practices, and we have adopted these practices
throughout our operations. Additional areas of focus include expanding the
use of our computer-aided-design technology and expertise and sharing
information relating to specific projects or job requirements throughout
our company.
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Focus on Higher Margin, High Growth Opportunities. We intend to pursue
projects and business markets which are higher value-added in nature and
provide us with opportunities to expand our revenues, gross margins and
operating margins. In particular, we intend to focus on leveraging our
unique skill base and competitive strengths to achieve leading market
shares in targeted business areas. Examples of high growth markets we have
recently entered are the power line and data communication markets in which
underlying industry dynamics are expected to lead to demand levels which
will outpace the growth of the electrical services market as a whole.
Examples of higher margin opportunities within our more established markets
include the expansion of maintenance and specialized services, as well as
increasing the amount of our repeat business with national customers.
Increase the Number of National Accounts. We intend to use our
geographic diversity to bid for additional business from new and existing
customers that operate on a regional and national basis, such as
developers, contractors, homebuilders and owners of national chains. We
believe that significant demand exists from such companies to utilize the
services of a single electrical contracting and maintenance service
provider. This demand is at least partially driven by the recent
consolidation among a number of our principal customers, including
homebuilders, developers and national contractors. Because we are able to
understand the demands and needs of our customers based on prior,
substantially similar projects, we are able to configure and install
systems to their specifications on a more timely and cost-efficient basis
than another electrical contractor. Moreover, we believe that the demand
for a single-source contractor limits the opportunities for smaller
contractors that may not be able to provide services at multiple locations
simultaneously. We believe our existing local and regional relationships
can be further expanded as we continue to develop a nationwide network.
Operate on Decentralized Basis. We believe that our decentralized
operating structure helps us retain the entrepreneurial spirit present in
each of our companies while maintaining disciplined operating and financial
controls. We have recently structured our company into regional operating
divisions to more efficiently share the considerable local and regional
market knowledge and customer relationships possessed by each of our
companies, as well as companies that we may acquire in the future. We
believe that this regional framework will allow us to more effectively
disseminate ideas, gather financial information and target customers. By
maintaining a local focus, we believe we are able to continue to:
- build relationships with general contractors and other customers;
- address design preferences and code requirements;
- respond quickly to customer demands; and
- adjust to local market conditions.
Attract and Retain Quality Employees. We believe that our ability to
attract and retain qualified electricians is a critical competitive factor.
We plan to continue to attract and train skilled employees by:
- extending active recruiting and training programs;
- offering stock-based compensation for key employees; and
- offering expanded career paths and more stable income through a larger
public company.
Achieve Additional Operating Efficiencies. We continue to focus on
operating efficiencies by combining overlapping operations and centralizing
certain administrative functions. We are also taking advantage of our combined
purchasing power to gain volume discounts on items such as electrical materials,
vehicles, bonding, employee benefits and insurance. Through sharing business
practices and providing repeat services to national accounts, we believe we can
continue to achieve operating margin improvements. In addition, we believe that
significant opportunities exist to increase our profitability through such
efforts as offsite prefabrication and standardized project management of similar
jobs.
ACQUISITION STRATEGY. Due to the highly fragmented nature of the electrical
contracting and maintenance services industry, we believe we have significant
acquisition opportunities. We focus on acquiring companies
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with an entrepreneurial attitude as well as a willingness to learn and share
improved business practices through open communications. We believe that many
electrical contracting and maintenance service businesses that lack the capital
necessary to expand operations will become acquisition candidates. For these
acquisition candidates, a sale of their company to us will provide them with
several benefits, including:
- the ability to improve margins through implementing best practices;
- expertise to expand in specialized markets;
- enhanced productivity through the reduction of administrative burdens;
- national name recognition;
- potential for substantial financial return through equity participation
in our company; and
- the opportunity for a continued role in management.
Other key elements of our acquisition strategy include:
Enter New Geographic Markets. We target acquisition candidates that
are financially stable, have a strong presence in the market in which they
operate and have the customer base necessary to integrate with or
complement our existing business. We expect that increasing our geographic
diversity will allow us to better serve an increasingly national customer
base. It should also further reduce the impact of local and regional
economic cycles, as well as weather-related or seasonal variations in our
business.
Expand Within Existing Markets. Once we enter a market, we seek to
acquire other well-established electrical contracting and maintenance
businesses operating within that region, including "add-on" acquisitions of
smaller companies. We believe that add-on acquisitions afford the
opportunity to improve our overall cost structure through the integration
of such acquisitions into existing operations as well as to increase
revenues through access to additional specialized markets. Despite the
integration opportunities afforded by such add-on acquisitions, we maintain
existing business names and identities to retain goodwill for marketing
purposes.
Diversify Business Operations. We will continue to diversify our
business operations as we identify opportunities within related electrical
businesses with similar characteristics to our current business lines.
Since our inception, we have added power line and data communication
operations to our business portfolio due to the fragmented nature of those
markets, our belief in their strong growth potential and their lower
sensitivity to economic downturns. We will continue to diversify into
higher margin businesses to enhance revenue growth and profitability.
INTEGRATION OF ACQUISITIONS
The Company believes that it has been successful in integrating the
companies it has acquired. Much of the work necessary to integrate the
operations of an acquired company is begun prior to the closing of the
transaction. In the process of extensive financial, operational and legal due
diligence, the Company often identifies a number of areas in which efficiencies
can be realized in the integration process. In addition, industrial
psychologists often test key management personnel of the target company to
determine whether they possess the qualities that the Company looks for in its
management. Further, outside accountants who specialize in the construction
industry conduct extensive financial due diligence with respect to the books and
financial records of the target. As a condition to the closing of the
acquisition and in order to retain the key management of the acquired company,
the president of the acquired company is typically required to enter into an
employment contract. Additionally, at the closing, the acquired company is added
to the insurance and bonding policies of the Company, which typically results in
an immediate cost savings. The Company's financial reporting package is put into
place shortly after closing so that the results of operations of the acquired
company can be reported to IES in a timely standardized format and easily
incorporated into the Company's consolidated reports. In addition, the
management of acquired companies is introduced to the policies and financial
goals of the Company and attend regularly scheduled best practices forums as
well as regional management meetings on an ongoing basis. In this manner, the
Company attempts to share
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efficiencies throughout its operations while maintaining the entrepreneurial
atmosphere of the acquired business.
COMPANY OPERATIONS
The Company offers a broad range of electrical contracting services,
including installation and design, for both new and renovation projects in the
commercial, industrial and residential markets. The Company also offers
long-term and per call maintenance services, which generally provide recurring
revenues that are relatively independent of levels of construction activity.
In certain markets the Company offers design-and-build expertise and
specialized services, which typically require specific skills and equipment, in
order to provide value added services to the customer and to earn higher margins
than those generated by general electrical contracting and maintenance services
which are often obtained by competitive bid. The Company also acts as a
subcontractor for a variety of national, regional and local builders in the
installation of electrical and other systems.
Commercial and Industrial. New commercial and industrial work begins with
either a design request or engineer's plans from the owner or general
contractor. Initial meetings with the parties allow the contractor to prepare
preliminary and then more detailed design specifications, engineering drawings
and cost estimates. Once a project is awarded, it is conducted in scheduled
phases, and progress billings are rendered to the owner for payment, less a
retainage of 5% to 10% of the construction cost of the project. Actual field
work (ordering of equipment and materials, fabrication or assembly of certain
components, delivery of materials and components to the job site, scheduling of
work crews and inspection and quality control) is coordinated during these
phases. The Company generally provides the materials to be installed as a part
of these contracts, which vary significantly in size from a few hundred dollars
to several million dollars and vary in duration from less than a day to more
than a year.
Residential. New residential installations begin with a builder providing
architectural or electrical drawings for the residences within the tract being
developed. The Company typically submits a bid or contract proposal for the
work. Company personnel analyze the plans and drawings and estimate the
equipment, materials and parts and the direct and supervisory labor required for
the project. The Company delivers a written bid or negotiates an arrangement for
the job. The installation work is coordinated by the Company's field supervisors
along with the builder's personnel. Payments for the project are generally
obtained within 30 days, at which time any mechanics' and materialmen's liens
securing such payments are released. Interim payments are often obtained to
cover labor and materials costs on larger projects.
Power Line. Power line work begins with a request for bids from either an
electric utility or a general contractor. The Company will analyze the plans
provided and determine the amount of its bid. Once the project is awarded, it is
conducted in scheduled phases, and progress billings are rendered for payment.
This work is capital intensive, requiring the use of various pieces of heavy
equipment. Additionally, the electricians that perform power line work must be
highly skilled in order to work with the high voltage power lines. In addition
to running the lines, the Company often will construct the towers that carry the
lines as well as electrical substations.
Data Communication. Data communication work can be either regional
infrastructure, which involves running lines cross country, or site specific
installation of cabling in a new or existing structure. Infrastructure work is
similar in nature to power line work. Installation of cabling in a new or
existing structure is usually done for general contractors, computer network
consultants or end users. The work is similar to the installation of electrical
wiring in commercial or residential structures. However, because the materials
and certain of the methods used in the installation of data cabling differ from
those used in the installation of electrical wiring, the work is typically
performed by technicians who specialize in data cabling. Large data cabling
projects often include traditional electrical contracting elements and create an
opportunity for the Company to better serve the overall needs of the customer
and to capture a larger percentage of that project's contractor expenditures.
The Company's operations in the data communication market are currently focused
on site specific installations.
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Maintenance Services. The Company's maintenance services are supplied on a
long-term and per call basis. The Company's long-term maintenance services are
provided through service contracts that require the customer to pay an annual or
semiannual fee for periodic diagnostic services at a specific discount from
standard prices for repair and replacement services. The Company's per call
maintenance services are initiated when a customer requests emergency repair
service or the Company calls the client to schedule periodic maintenance work.
Service technicians are scheduled for the call or routed to the customer's
residence or business by the dispatcher. Service personnel work out of the
Company's service vehicles, which carry an inventory of equipment, tools, parts
and supplies needed to complete the typical variety of jobs. The technician
assigned to a service call travels to the residence or business, interviews the
customer, diagnoses the problem, prepares and discusses a price quotation,
performs the work and often collects payment from the customer. Most work is
warrantied for one year.
Major Customers. The Company has a diverse customer base, with no single
customer accounting for more than 5% of the Company's pro forma combined
revenues for the year ended September 30, 1998. As a result of emphasis on
quality and worker reliability, the Company's management and a dedicated sales
and work force have been responsible for developing and maintaining successful
relationships with key customers. Customers generally include general
contractors; developers; consulting engineers; architects; owners and managers
of large retail establishments, office buildings, apartments and condominiums,
theaters and restaurants; hotels and casinos; manufacturing and processing
facilities; arenas and convention centers; hospitals; school districts; military
and other government agencies; airports and car lots. The Company intends to
continue its emphasis on developing and maintaining relationships with its
customers by providing superior, high-quality service.
Employee Screening, Training and Development. The Company is committed to
providing the highest level of customer service through the development of a
highly trained workforce. Employees are encouraged to complete a progressive
training program to advance their technical competencies and to ensure that they
understand and follow the applicable codes, the Company's safety practices and
other internal policies. The Company supports and funds continuing education for
its employees, as well as apprenticeship training for its technicians under the
Bureau of Apprenticeship and Training of the Department of Labor and similar
state agencies. Employees who train as apprentices for four years may seek to
become journeymen electricians and, after additional years of experience, master
electricians. The Company pays progressive increases in compensation to
employees who acquire such additional training, and more highly trained
employees serve as foremen, estimators and project managers. The Company's
master electricians are licensed in one or more cities or other jurisdictions in
order to obtain the permits required in the Company's business, and certain
employees have also obtained specialized licenses in areas such as security
systems and fire alarm installation. In some areas, licensing boards have set
continuing education requirements for maintenance of licenses. Because of the
lengthy and difficult training and licensing process for electricians, the
Company believes that the number, skills and licenses of its employees
constitute a competitive strength in the industry.
The Company actively recruits and screens applicants for its technical
positions and has established programs in some locations to recruit apprentice
technicians directly from high schools and vocational-technical schools. Prior
to employment, the Company makes an assessment of the technical competence level
of all potential new employees, confirms background references, conducts random
drug testing and checks criminal and driving records.
Purchasing. As a result of economies of scale derived through its
acquisitions, the Company has been able to purchase equipment, parts and
supplies at discounts to historical levels. In addition, as a result of the
Company's size, it is also able to lower its costs for (i) the purchase or lease
of vehicles; (ii) bonding, casualty and liability insurance; (iii) health
insurance and related benefits; (iv) retirement benefits administration; (v)
office and computer equipment; and (vi) marketing and advertising.
Substantially all the equipment and component parts the Company sells or
installs are purchased from manufacturers and other outside suppliers. The
Company is not materially dependent on any of these outside sources.
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MANAGEMENT INFORMATION AND CONTROLS
The Company has centralized its consolidation accounting and certain other
financial reporting activities at its operational headquarters in Houston,
Texas, while basic accounting activities are conducted at the operating level.
The Company believes that its current information systems hardware and software
are adequate to meet current needs for financial reporting, internal management
control and other necessary information and the needs of newly acquired
corporations.
PROPERTY AND EQUIPMENT
The Company operates a fleet of owned and leased service trucks, vans and
support vehicles. The Company believes these vehicles generally are adequate for
its current operations.
At September 30, 1998, the Company maintained warehouses, sales facilities
and administrative offices at 89 locations. Substantially all of the Company's
facilities are leased. The Company leases its corporate headquarters located in
Houston, Texas.
The Company believes that its properties are generally adequate for its
present needs. Furthermore, the Company believes that suitable additional or
replacement space will be available as required.
COMPETITION
The electrical contracting industry is highly fragmented and competitive.
Most of the Company's competitors are small, owner-operated companies that
typically operate in a limited geographic area. There are few public companies
focused on providing electrical contracting services. In the future, competition
may be encountered from new market entrants. Competitive factors in the
electrical contracting industry include (i) the availability of qualified and
licensed electricians, (ii) safety record, (iii) cost structure, (iv)
relationships with customers, (v) geographic diversity, (vi) ability to reduce
project costs, (vii) access to technology, (viii) experience in specialized
markets and (ix) ability to obtain bonding. See "Risk Factors -- Competition."
REGULATIONS
The Company's operations are subject to various federal, state and local
laws and regulations, including (i) licensing requirements applicable to
electricians; (ii) building and electrical codes; (iii) regulations relating to
consumer protection, including those governing residential service agreements
and (iv) regulations relating to worker safety and protection of the
environment. The Company believes it has all required licenses to conduct its
operations and is in substantial compliance with applicable regulatory
requirements. Failure of the Company to comply with applicable regulations could
result in substantial fines or revocation of the Company's operating licenses.
Many state and local regulations governing electricians require permits and
licenses to be held by individuals. In some cases, a required permit or license
held by a single individual may be sufficient to authorize specified activities
for all the Company's electricians who work in the state or county that issued
the permit or license. The Company intends to implement a policy to ensure that,
where possible, any such permits or licenses that may be material to the
Company's operations in a particular geographic region are held by at least two
Company employees within that region.
LITIGATION
Subsidiaries of the Company are involved in various legal proceedings that
have arisen in the ordinary course of business. While it is not possible to
predict the outcome of such proceedings with certainty, in the opinion of the
Company, all such proceedings are either adequately covered by insurance or, if
not so covered should not ultimately result in any liability which would have a
material adverse effect on the financial position, liquidity or results of
operations of the Company.
9
<PAGE> 12
RISK MANAGEMENT AND INSURANCE
The primary risks in the Company's operations include bodily injury,
property damage and injured workers' compensation. The Company maintains
automobile and general liability insurance for third party bodily injury and
property damage and workers' compensation coverage which it considers
appropriate to insure against these risks, subject to deductibles.
EMPLOYEES
At September 30, 1998, the Company had approximately 7,869 employees. The
Company is not a party to any collective bargaining agreements with its
employees. The Company believes that its relationship with its employees is
satisfactory.
RISK FACTORS
EXPOSURE TO DOWNTURNS IN CONSTRUCTION
A large portion of our business is the installation of electrical systems
in newly constructed and renovated buildings, plants and residences. Our ability
to maintain or increase revenues from new installation services will depend on
the number of new construction starts and renovations. Our revenue growth from
year to year is likely to reflect the cyclical nature of the construction
industry. The number of new building starts will be affected by local economic
conditions, changes in interest rates and other related factors. The housing
industry is similarly affected by changes in general and local economic
conditions, such as the following:
- employment and income levels;
- interest rates and other factors affecting the availability and cost of
financing;
- tax implications for home buyers;
- consumer confidence; and
- housing demand.
Downturns in levels of construction or housing starts could have a material
adverse effect on our business, financial condition and results of operations.
MANAGEMENT OF GROWTH
We expect to grow both internally and through acquisitions. We expect to
expend significant time and effort in evaluating, completing and integrating
acquisitions and opening new facilities. We cannot guarantee that our systems,
procedures and controls will be adequate to support our expanding operations,
including the timely receipt of financial information from acquired companies.
This future growth will impose significant added responsibilities on our senior
management, such as the need to identify, recruit and integrate new senior
managers and executives. If we are unable to manage our growth, or if we are
unable to attract and retain additional qualified management, there could be a
material adverse effect on our financial condition and results of operations.
LIMITED AVAILABILITY OF ELECTRICIANS
There is currently a shortage of qualified electricians. Our ability to
increase productivity and profitability will be limited by our ability to
employ, train and retain skilled electricians who meet our requirements. There
can be no assurance that, among other things:
- we will be able to maintain the skilled labor force necessary to operate
efficiently;
- our labor expenses will not increase as a result of a shortage in the
skilled labor supply; or
- we will not have to curtail internal growth as a result of labor
shortages.
10
<PAGE> 13
ABSENCE OF COMBINED OPERATING HISTORY
Each of our companies formerly operated as separate independent entities.
As we continue to grow, there can be no assurance that our management group will
be able to oversee the company and effectively implement our operating or growth
strategies. Our success will depend on our management's ability to profitably
integrate future acquisitions.
EFFECT OF ACQUISITIONS ON OPERATIONS
We expect to grow through acquisitions. We cannot guarantee that we will be
able to acquire additional businesses or integrate and manage them successfully.
Such acquisitions may involve a number of issues, including:
- adverse short-term effects on our financial results;
- diversion of our management's attention;
- dependence on retention, hiring and training of key personnel; and
- risks associated with unanticipated problems or legal liabilities.
In addition, if industry consolidation becomes more prevalent, the prices
for acquisition candidates may increase and the number of available candidates
may decrease. We believe that the industry will experience continuing
consolidation on both a national and a regional level by other companies that
have acquisition objectives similar to ours. These competitors may have greater
financial resources to finance acquisition and internal growth opportunities and
might be willing to pay higher prices than we are willing to pay for the same
acquisition opportunities. We cannot assure you that the businesses we acquire
will achieve sales and profitability that justify our investment.
ACQUISITION FINANCING
We intend to continue to use our common stock as at least part of the
consideration paid for companies we acquire. If the common stock does not
maintain a sufficient value or company owners will not accept common stock as
consideration for their businesses, we may be required to use more of our cash
to pursue our acquisition program. If we do not have sufficient cash or
borrowing capacity, our growth could be limited unless we are able to obtain
additional cash from the sale of debt or common stock in the public market.
OPERATING HAZARDS
Our operations are subject to the numerous hazards associated with the
construction of electrical systems. These hazards include, but are not limited
to, electrocutions, fires, mechanical failures or transportation accidents.
These hazards can cause personal injury and loss of life, severe damage to or
destruction of property and equipment and may result in suspension of
operations. We maintain insurance coverage in the amounts and against the risks
we believe are in accordance with industry practice, but this insurance does not
cover all types or amounts of liabilities. No assurance can be given either that
(i) this insurance will be adequate to cover all losses or liabilities we may
incur in our operations or (ii) we will be able to maintain insurance of the
types or at levels that are adequate or at reasonable rates.
CONTRACT BIDDING RISKS
We currently generate, and expect to continue to generate, a significant
portion of our revenues under fixed price contracts. We must estimate the costs
of completing a particular project to bid for such fixed price contracts. The
cost of labor and materials, however, may vary from the costs we originally
estimated. These variations along with other risks inherent in performing fixed
price contracts may result in actual revenue and gross profits for a project
differing from those we originally estimated and could result in losses on
projects. Depending upon the size of a particular project, variations from
estimated contract costs can have a significant impact on our operating results
for any fiscal quarter or year.
11
<PAGE> 14
DEPENDENCE ON KEY PERSONNEL
Our operations depend on the continued efforts of our current and future
executive officers and senior management and key management personnel at the
companies we have acquired. We cannot guarantee that any key member of
management at the corporate or subsidiary level will continue in such capacity
for any particular period of time. The loss of key personnel or the inability to
hire and retain qualified employees could have an adverse effect on our
business, financial condition and results of operations. We do not maintain key
man life insurance.
COMPETITION
Our industry is highly competitive and is served by small, owner-operated
private companies, public companies and several large regional companies. We
could also face competition in the future from other competitors entering the
market. Some of our competitors offer a greater range of services, such as
mechanical construction, plumbing and heating, ventilation and air conditioning
services. Competition in the electrical contracting industry depends on a number
of factors, including price. Some of our competitors may have lower overhead
cost structures and may, therefore, be able to provide their services at lower
rates.
CERTAIN ANTI-TAKEOVER PROVISIONS
Our amended and restated certificate of incorporation, bylaws, employment
agreements and employee benefit plans contain provisions which may have the
effect of delaying, deferring or preventing a change in our control. For
example, the certificate of incorporation and bylaws provide for a classified
board of directors, the prohibition of stockholder action by written consent and
the affirmative vote of at least 66 2/3% of all outstanding shares of our stock
to approve the removal of directors from office. Our board of directors has the
authority to issue shares of preferred stock without stockholder approval. Any
series of preferred stock is likely to be senior to the common stock with
respect to dividends, liquidation rights and, possibly, voting. In addition, the
board of directors is authorized by our certificate of incorporation to issue
certain rights pursuant to a rights plan. The ability to issue preferred stock
or rights could have the effect of discouraging unsolicited acquisition
proposals. Our stock option plan contains provisions that allow for, among other
things, the acceleration of vesting or payment of awards granted under such plan
in the event of a "change of control," as defined in the plan. In addition, we
have entered into employment agreements with certain executive officers and key
employees allowing for cash payments under certain circumstances following a
change in control, which is generally defined to occur upon:
- the acquisition by any person of 20% or more of the total voting power of
our outstanding securities;
- the first purchase pursuant to a tender or exchange offer for common
stock;
- the approval of certain mergers, sale of substantially all our assets, or
our dissolution; or
- a change in a majority of the members of the our board of directors.
SEASONALITY; FLUCTUATION OF QUARTERLY OPERATING RESULTS
Our business can be subject to seasonal variations in operations and demand
that affect the construction business, particularly in residential construction.
Our quarterly results may also be affected by the timing of acquisitions, the
timing and size of acquisition costs and regional economic conditions.
Accordingly, our performance in any particular quarter may not be indicative of
the results which can be expected for any other quarter or for the entire year.
12
<PAGE> 15
POTENTIAL FAILURE OF COMPUTER SYSTEMS TO RECOGNIZE YEAR 2000
We are dependent on our computer software programs and operating systems in
operating our business. We also depend on the proper functioning of computer
systems of third parties, such as vendors and clients. The failure of any of
these systems to appropriately interpret the upcoming calendar year 2000 could
have a material adverse effect on our financial condition, results of
operations, cash flow and business prospects. We are currently identifying our
own applications that will not be Year 2000 compliant and taking steps to
determine whether third parties are doing the same. In addition, we are
implementing a plan to prepare our computer systems to be Year 2000 compliant by
September 30, 1999.
Our inability to remedy our own Year 2000 problems or the failure of third
parties to do so may cause business interruptions or shutdown, financial loss,
regulatory actions, reputational harm and/or legal liability. We can not assure
you that our Year 2000 program will be effective or that our estimates about the
timing and cost of completing our program will be accurate. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000."
ITEM 2. PROPERTIES
IES operates a fleet of owned and leased service trucks, vans and support
vehicles. It believes these vehicles generally are adequate for IES's current
operations.
At September 30, 1998, IES maintained warehouses, sales facilities and
administrative offices at 89 locations. Substantially all of IES's facilities
are leased. IES leases its corporate headquarters located in Houston, Texas.
IES believes that its properties are generally adequate for its present
needs. Furthermore, IES believes that suitable additional or replacement space
will be available as required.
ITEM 3. LEGAL PROCEEDINGS
Subsidiaries of the Company are involved in various legal proceedings that
have arisen in the ordinary course of business. While it is not possible to
predict the outcome of such proceedings with certainty, in the opinion of the
Company, all such proceedings are either adequately covered by insurance or, if
not so covered should not ultimately result in any liability which would have a
material adverse effect on the financial position, liquidity or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since January 27, 1998, the Company's Common Stock has traded on the NYSE
under the symbol "IEE." The following table presents the quarterly high and low
sales prices for the Common Stock on the NYSE since January 26, 1998.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1998
Second Quarter (From January 27, 1998).................... 19 7/8 13
Third Quarter............................................. 24 1/2 17
Fourth Quarter............................................ 23 3/8 13
</TABLE>
As of December 17, 1998 there were approximately 225 holders of record of
the Common Stock.
The Company does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. The Company expects that it will retain all available
earnings generated by the Company's operations for the development and growth of
its business. Any future determination as to the payment of dividends will be
made at the discretion of the Board of Directors of the Company and will depend
upon the Company's operating results, financial condition, capital requirements,
general business conditions and such other factors as the Board of Directors
deems relevant. The Company's debt instruments include certain restrictions on
the payment of cash dividends on the Common Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA
IES acquired the Founding Companies concurrently with the consummation of
its initial public offering of common stock on January 30, 1998 (the "IPO").
Pursuant to the SEC's Staff Accounting Bulletin No. 97, Houston-Stafford
Electric, Inc. ("Houston-Stafford") is considered for accounting purposes the
entity which acquired the other Founding Companies and IES (the "Accounting
Acquirer"). As such, IES's consolidated historical financial statements
represent the financial position and results of operations of (i)
Houston-Stafford as restated to include the financial position and results of
operations of one Acquired Company that was acquired in a pooling of interests,
and (ii) the other Founding Companies and the other Acquired Companies beginning
on their respective dates of acquisition. The following selected consolidated
historical financial information for IES should be read in conjunction with the
audited historical consolidated Financial Statements of Integrated Electrical
Services, Inc. and Subsidiaries and the notes thereto included in Item 8.
"Financial Statements and Supplementary Data." The selected historical financial
information for the nine months ended September 30, 1997 has been derived from
the unaudited consolidated financial statements of IES, which have been prepared
on the same basis as the audited financial statements and, in the opinion of
Company management, reflect all adjustments consisting of normal recurring
adjustments, necessary for a fair
14
<PAGE> 17
presentation of such data. The results of operations for the interim period
presented should not be regarded as indicative of the results that may be
expected for a full year.
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------- SEPTEMBER 30, -------------------
1994 1995 1996 1997 1997 1998
------- ------- -------- ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................... $65,211 $73,345 $101,431 $ 92,379 $117,111 $386,721
Cost of services (including
depreciation).............. 57,633 63,709 85,081 76,306 95,937 306,052
------- ------- -------- ------------- -------- --------
Gross profit................. 7,578 9,636 16,350 16,073 21,174 80,669
Selling, general and
administrative expenses.... 6,786 7,905 10,228 10,222 14,261 47,390
Non-cash, non-recurring
compensation charge........ -- -- -- -- -- 17,036
Goodwill amortization........ -- -- -- -- -- 3,212
------- ------- -------- ------------- -------- --------
Income from operations....... 792 1,731 6,122 5,851 6,913 13,031
Interest and other income
(expense), net............. (80) (182) 14 292 385 (393)
------- ------- -------- ------------- -------- --------
Income before income taxes... 712 1,549 6,136 6,143 7,298 12,638
Provision for income taxes... 287 563 2,471 2,408 2,923 12,690
------- ------- -------- ------------- -------- --------
Net income (loss)............ $ 425 $ 986 $ 3,665 $ 3,735 $ 4,375 $ (52)
======= ======= ======== ============= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
--------------------------- --------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................ $ 680 $ 1,772 $ 4,301 $ 4,154 $ 14,583
Working capital............................. 3,095 3,905 7,068 7,770 75,020
Total assets................................ 13,594 14,882 23,712 35,794 502,468
Total debt.................................. 3,294 1,221 1,959 2,169 94,177
Total stockholders' equity.................. 4,431 5,842 8,700 12,636 302,704
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
INTRODUCTION
The following discussion should be read in conjunction with the financial
statements, and related notes thereto, and "Selected Financial Data" appearing
elsewhere in this annual report.
Our company is the third largest provider of electrical contracting and
maintenance services in the United States. We began operations on January 30,
1998 with the acquisition of 16 electrical businesses and through September 30,
1998, we have acquired 21 additional electrical contracting and maintenance
services businesses.
We serve a broad range of markets, including the commercial, industrial and
residential and power line markets. In addition, we have recently entered into
the data communication market, which includes the installation of wiring for
computer networks and fiber optic telecommunications systems. Our revenues are
generated from a mix of new construction, renovation, maintenance and
specialized services. We also focus on higher margin, larger projects that
require special expertise, such as design-and-build projects that utilize the
capabilities of our in-house engineers, as well as service, maintenance and
certain renovation and upgrade work which tends to either be recurring, have
lower sensitivity to economic cycles, or both.
Pursuant to the SEC's Staff Accounting Bulletin No. 97, Houston-Stafford is
considered for accounting purposes the entity which acquired the other Founding
Companies and IES. As such, IES's consolidated
15
<PAGE> 18
historical financial statements represent the financial position and results of
operations of (i) Houston-Stafford as restated to include the financial position
and results of operations of one Acquired Company that was acquired in a pooling
of interests transaction, and (ii) the other Founding Companies and the other
Acquired Companies beginning on their respective dates of acquisition.
The Company's revenues are derived primarily from electrical construction
and maintenance services provided to commercial, industrial, residential and
power line and data communications customers. Revenues from fixed-price
construction and renovation contracts are generally accounted for on a
percentage-of-completion basis, using the cost-to-cost method. The cost-to-cost
method measures the percentage completion of a contract based on total costs
incurred to date compared to total estimated costs at completion. Such contracts
generally provide that the customers accept completion of progress to date and
compensate the Company for services rendered measured in terms of hours expended
or some other measure of progress. Certain of the Company's customers require
the Company to post performance and payment bonds upon the execution of the
contract, depending upon the nature of the work to be performed. The Company's
fixed-price contracts often include payment provisions pursuant to which the
customer withholds up to ten percent from each payment during the course of a
job and forwards all retained amounts to the Company upon completion and
approval of the work. Maintenance and other service revenues are recognized as
the services are performed.
Cost of services consists primarily of salaries and benefits of employees,
subcontracted services, materials, parts and supplies, depreciation, fuel and
other vehicle expenses and equipment rentals. The Company's gross margin, which
is gross profit expressed as a percentage of revenues, depends on the relative
proportions of costs related to labor and materials. On jobs in which a higher
percentage of the cost of services consists of labor costs, the Company
typically achieves higher gross margins than on jobs where materials represent
more of the cost of services. Materials costs can be calculated with relatively
greater accuracy than labor costs, and the Company seeks to maintain higher
margins on its labor-intensive projects to compensate for the potential
variability of labor costs for these projects. Selling, general and
administrative expenses consist primarily of compensation and related benefits
for presidents, administrative salaries and benefits, advertising, office rent
and utilities, communications and professional fees.
The Company believes that it has realized savings from consolidation of
insurance and bonding programs, reduction in other general and administrative
expenses, such as training and advertising, the Company's ability to borrow at
lower interest rates than the individual companies and consolidation of
operations in certain locations and greater volume discounts from suppliers of
materials, parts and supplies. Offsetting these savings are costs related to the
Company's corporate management, costs of being a public company and costs of
integrating acquired companies.
As a result of the acquisitions of the Acquired Companies and the Founding
Companies that were accounted for as purchases, the excess of the consideration
paid over the fair value of the net assets acquired was recorded as goodwill on
the Company's balance sheet and is being amortized as a non-cash charge to the
statement of operations over a 40-year period.
The Company does not utilize financial instruments for trading purposes and
holds no derivative financial instruments which could expose the company to
significant market risk. The Company's exposure to market risk for changes in
interest rates relates primarily to its long-term obligation under the Credit
Facility, of which $89.5 million had been borrowed as of September 30, 1998. The
Credit Facility matures on July 30, 2001. The weighted average interest rate of
the $89.5 million of outstanding indebtedness was 6.87% at September 30, 1998.
RESULTS OF OPERATIONS
The following table presents selected historical results of operations of
IES and subsidiaries, with dollar amounts in thousands. These historical
statements of operations represent the results of operations of (i)
Houston-Stafford (as restated to include the results of operations of one
Acquired Company that was acquired in a pooling-of-interests transaction) for
periods ending prior to January 30, 1998 and (ii) Houston-
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<PAGE> 19
Stafford (as restated) and the results of operations of the Founding Companies
and other Acquired Companies beginning on their respective dates of acquisition.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEARS ENDED SEPTEMBER 30,
DECEMBER 31, SEPTEMBER 30, -------------------------------
1996 1997 1997 1998
-------------- ------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $101,431 100% $92,379 100% $117,111 100% $386,721 100%
Cost of services............ 85,081 84 76,306 83 95,937 82 306,052 79
-------- --- ------- --- -------- --- -------- ---
Gross profit.............. 16,350 16 16,073 17 21,174 18 80,669 21
Selling, general and
administrative expenses... 10,228 10 10,222 11 14,261 12 47,390 12
Goodwill amortization....... -- -- -- -- -- -- 3,212 1
Non-cash, non-recurring
compensation charge in
connection with the
Founding Company
acquisitions.............. -- -- -- -- -- -- 17,036 5
-------- --- ------- --- -------- --- -------- ---
Income from operations...... 6,122 6 5,851 6 6,913 6 13,031 3
Interest and other income
(expense), net............ 14 -- 292 1 385 -- (393) --
-------- --- ------- --- -------- --- -------- ---
Income before income
taxes..................... 6,136 6 6,143 7 7,298 6 12,638 3
Provision for income
taxes..................... 2,471 2 2,408 3 2,923 2 12,690 3
-------- --- ------- --- -------- --- -------- ---
Net income (loss)........... $ 3,665 4% $ 3,735 4% $ 4,375 4% $ (52) --
======== === ======= === ======== === ======== ===
</TABLE>
Year ended September 30, 1998 compared to the year ended September 30, 1997
Revenues increased $269.6 million, or 230%, from $117.1 million for the
year ended September 30, 1997 to $386.7 million for the year ended September 30,
1998. The increase in revenues was principally due to the acquisition of the
Founding Companies and the Acquired Companies.
Gross profit increased $59.5 million, or 281%, from $21.2 million for the
year ended September 30, 1997 to $80.7 million for the year ended September 30,
1998. The increase in gross profit was principally due to the acquisition of the
Founding Companies and the Acquired Companies. As a percentage of revenues,
gross profit increased from 18% in 1997 to 21% in 1998. This increase was
attributable primarily to Houston-Stafford's lower margin on certain materials
acquired for a significant customer and higher than normal levels of overtime in
the prior year.
Selling, general and administrative expenses increased $33.1 million, or
232%, from $14.3 million for the year ended September 30, 1997 to $47.4 million
for the year ended September 30, 1998. Selling, general and administrative
expenses as a percentage of revenues remained constant at approximately 12% in
1997 and 1998. Selling, general and administrative expenses were primarily
attributable to the acquisitions of the Founding Companies and the Acquired
Companies, a $5.6 million bonus paid to the owners of Houston-Stafford during
the four months ended in January 1998, compared to a $1.5 million bonus during
the four months ended in January 1997, and approximately $3.3 million of public
company related corporate costs incurred in 1998 which did not exist in 1997.
Excluding such bonuses and higher corporate costs, selling, general and
administrative expenses as a percentage of revenues decreased from 11% in 1997
to 10% in 1998.
Income from operations increased $6.1 million, or 88%, from $6.9 million
for the year ended September 30, 1997 to $13.0 million for the year ended
September 30, 1998. This increase in operating income was primarily attributable
to acquisition of the Founding Companies and the Acquired Companies and the non-
recurring owner bonuses in 1997. These increases were partially offset by the
higher corporate costs discussed above and the $17.0 million non-cash,
non-recurring compensation charge incurred in connection with the Company's IPO
(see Note 1 of Notes to Consolidated Financial Statements). As a percentage of
revenues,
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<PAGE> 20
income from operations (excluding the owner bonuses, higher corporate costs and
the non-cash, non-recurring compensation charge noted above) increased from 7%
in 1997 to 10% in 1998.
Interest and other income (expense), net changed from income of $0.4
million in 1997 to $(0.4) million in 1998, primarily as a result of interest
expense on borrowings to fund the Company's 1998 acquisitions. The increase in
the Company's tax provision from $2.9 million in 1997 to $12.7 million in 1998
is primarily attributed to the growth in income from operations discussed above.
The Company's effective tax rate increased from 40% in 1997 to 100% in 1998, due
to a $17.0 million non-cash, non-recurring compensation charge recognized during
1998 in connection with the IPO which is not deductible for tax purposes. The
change in net income (loss) is primarily attributed to the factors discussed
above.
Year ended September 30, 1997 compared to the year ended December 31, 1996.
Revenues increased $15.7 million, or 15%, from $101.4 million for the year
ended December 31, 1996 to $117.1 million for the year ended September 30, 1997
primarily as a result of increased demand and the consolidation of an electrical
supply company, partially offset by the effects of unusually rainy weather in
Texas.
Gross profit increased $4.8 million, or 30%, during the year ended
September 30, 1997 to $21.2 million, and gross margin increased to 18% during
the year ended September 30, 1997 from 16% during the year ended December 31,
1996 as a result of favorable pricing related to the increase in demand and
higher discounts on certain long-term material purchase commitments.
Selling, general and administrative expenses increased 40% from $10.2
million to $14.3 million. The increase was primarily attributable to an increase
in bonuses for certain key employees and to a lesser degree higher insurance
costs.
Income from operations increased $0.8 million, or 13%, from $6.1 million
for the year ended December 31, 1996 to $6.9 million for the year ended
September 30, 1997. This increase in operating income was primarily attributable
to the changes in revenues and selling, general and administrative expenses
discussed above. As a percentage of revenues, income from operations remained
constant at 6%.
Interest and other income, net increased from $14,000 in 1996 to $0.4
million in 1997 due to an increase in other income. The Company's effective tax
rate remained constant at 40% in 1996 and 1997. The increase in net income is
primarily attributed to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had cash of $14.6 million, working
capital of $75.0 million, borrowings of $89.5 million under its three-year
revolving credit facility (the "Credit Facility"), $2.2 million of letters of
credit outstanding and available capacity under its Credit Facility of $83.3
million.
During the year ended September 30, 1998, the Company generated $8.3
million of net cash from operating activities, comprised of a net loss of
$52,000, increased by $22.6 million of non-cash charges related to a
non-recurring compensation charge and depreciation and amortization expense,
decreased by a $20.0 million increase in receivables as a result of revenue
growth and the timing of collections, with the balance of the change due to
other working capital changes. Net cash used in investing activities was $131.9
million, including $128.7 million used for the purchase of businesses, net of
cash acquired. Net cash flow provided by financing activities was $134.0
million, resulting primarily from $91.5 million of net proceeds from the IPO,
$108.0 million from borrowings under the Company's Credit Facility, reduced by
payments of debt of $47.5 million, and cash payments of $17.8 million
representing consideration paid to the stockholders of Houston-Stafford.
In January 1998, the Company entered into a credit facility (the "Credit
Facility"), which provided for borrowings of up to $65.0 million, to be used for
working capital, capital expenditures, other corporate purposes and
acquisitions. In August 1998, the Company increased the amounts available for
borrowings under its Credit Facility to $175.0 million. The amounts borrowed
under the Credit Facility bear interest at an
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<PAGE> 21
annual rate equal to either (a) the London interbank offered rate ("LIBOR") plus
1.0% to 2.0%, as determined by the ratio of the Company's total funded debt to
EBITDA (as defined), or (b) the higher of (i) the bank's prime rate and (ii) the
federal funds rate plus 0.5%, plus up to an additional 0.5% as determined by the
ratio of the Company's total funded debt to EBITDA. Commitment fees of 0.25% to
0.375%, as determined by the ratio of the Company's total funded debt to EBITDA,
are due on any unused borrowing capacity under the Credit Facility. The
Company's subsidiaries have guaranteed the repayment of all amounts due under
the facility, and the facility is secured by the capital stock of the guarantors
and the accounts receivable of the Company and the guarantors. The Credit
Facility requires the consent of the lenders for acquisitions exceeding a
certain level of cash consideration, prohibits the payment of cash dividends on
the Company's common stock, restricts the ability of the Company to incur other
indebtedness and requires the Company to comply with certain financial
covenants. Availability of the Credit Facility is subject to customary drawing
conditions.
The Company anticipates that its cash flow from operations and proceeds
from its Credit Facility will provide sufficient cash to enable the Company to
meet its working capital needs, debt service requirements and planned capital
expenditures for property and equipment through fiscal 1999.
Through September 30, 1998, the Company utilized a combination of existing
cash, borrowings under its Credit Facility, and its common stock to acquire 37
companies. Subsequent to September 30, 1998, the Company acquired five companies
for an aggregate consideration of approximately 732,000 shares of Common Stock
and $6.0 million in cash, net of cash acquired. The cash component of the
consideration paid for these companies was funded with proceeds from the IPO,
existing cash, and borrowings under the Credit Facility.
The Company intends to continue to pursue acquisition opportunities and may
be in various stages of negotiation, due diligence and documentation of
potential acquisitions at any time. The timing, size or success of any
acquisition effort and the associated potential capital commitments cannot be
predicted. The Company expects to fund future acquisitions primarily with
working capital, cash flow from operations and borrowings, including any
unborrowed portion of the Credit Facility, as well as issuances of additional
equity or debt. To the extent the Company funds a significant portion of the
consideration for future acquisitions with cash, it may have to increase the
amount available for borrowing under the Credit Facility or obtain other sources
of financing through the public or private sale of debt or equity securities.
There can be no assurance that the Company will be able to secure such financing
if and when it is needed or on terms the Company deems acceptable. If the
Company is unable to secure acceptable financing, its acquisition program could
be negatively affected. Capital expenditures for equipment and expansion of
facilities are expected to be funded from cash flow from operations and
supplemented as necessary by borrowings under the Credit Facility.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's results of operations from residential construction are
seasonal, depending on weather trends, with typically higher revenues generated
during the spring and summer and lower revenues during the fall and winter. The
commercial and industrial aspect of the Company's business is less subject to
seasonal trends, as this work generally is performed inside structures protected
from the weather. The Company's service business is generally not affected by
seasonality. In addition, the construction industry has historically been highly
cyclical. The Company's volume of business may be adversely affected by declines
in construction projects resulting from adverse regional or national economic
conditions. Quarterly results may also be materially affected by the timing of
new construction projects and acquisitions and the timing and magnitude of
acquisition assimilation costs. Accordingly, operating results for any fiscal
period are not necessarily indicative of results that may be achieved for any
subsequent fiscal period.
INFLATION
Due to the relatively low levels of inflation experienced in fiscal 1996,
1997 and 1998, inflation did not have a significant effect on the results of the
company in those fiscal years, or any of the Founding Companies or the Acquired
Companies during similar periods.
19
<PAGE> 22
RECENT ACCOUNTING PRONOUNCEMENTS
The Company will adopt in the first quarter of 1999 SFAS No. 130 "Reporting
Comprehensive Income," which requires the display of comprehensive income and
its components in the financial statements. Comprehensive income represents all
changes in equity of an entity during the reporting period, including net income
and charges directly to equity which are excluded from net income. The Company
expects that there will be no difference between the Company's "traditional" and
"comprehensive" net income.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, "Disclosure about Segments of an Enterprise and Related Information,"
which establishes standards for the way public enterprises are to report
information about operating segments in annual financial statements and requires
the reporting of selected information about operating systems in interim
financial reports issued to shareholders. SFAS No. 131 is effective for the
Company for its year ended September 30, 1999, at which time the Company will
adopt the provision. The Company is currently evaluating the impact on the
Company's financial disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which becomes effective for the Company for
its year ended September 30, 2000. SFAS No. 133 requires a company to recognize
all derivative instruments (including certain derivative instruments embedded in
other contracts) as assets or liabilities in its balance sheet and measure them
at fair value. The statement requires that changes in the derivatives' fair
value be recognized as current earnings unless specific hedge accounting
criteria are met. The Company is evaluating SFAS No. 133 and the impact on
existing accounting policies and financial reporting disclosures. However, the
Company has not to date engaged in activities or entered into arrangements
normally associated with derivative instruments.
YEAR 2000
Year 2000 Issue. Many software applications, hardware and equipment and
embedded chip systems identify dates using only the last two digits of the year.
These products may be unable to distinguish between dates in the year 2000 and
dates in the year 1900. That inability (referred to as the "Year 2000" issue),
if not addressed, could cause applications, equipment or systems to fail or
provide incorrect information after December 31, 1999, or when using dates after
December 31, 1999. This in turn could have an adverse effect on the Company due
to the Company's direct dependence on its own applications, equipment and
systems and indirect dependence on those of other entities with which the
Company must interact.
Compliance Program. In order to address the Year 2000 issue, the Company
has established a project team to assure that key automated systems and related
processes will remain functional through year 2000. The team will address the
project in the following stages: (i) awareness, (ii) assessment, (iii)
remediation, (iv) testing and (v) implementation of the necessary modifications.
The key automated systems consist of (a) project estimating, management and
financial systems applications, (b) hardware and equipment, (c) embedded chip
systems and (d) third-party developed software. The evaluation of the Year 2000
issue includes the evaluation of the Year 2000 exposure of third parties
material to the operations of the Company. The Company has retained a consulting
firm to assist with the review of its systems for Year 2000 issues.
Company State of Readiness. The awareness phase of the Year 2000 project
has begun with a corporate-wide awareness program which will continue to be
updated throughout the life of the project. The assessment phase of the project
involves, among other things, efforts to obtain representations and assurances
from third parties, including third party vendors, that their hardware and
equipment, embedded chip systems and software being used by or impacting the
Company or any of its business units are or will be modified to be Year 2000
compliant. To date, the Company does not expect that responses from such third
parties will be conclusive. As a result, management cannot predict the potential
consequences if these or other third parties are not Year 2000 compliant. The
exposure associated with the Company's interaction with third parties is also
currently being evaluated.
Management expects that the remediation, testing and implementation phases
will be completed prior to the year 2000.
20
<PAGE> 23
Costs to Address Year 2000 Compliance Issues. While the total cost to the
Company of the Year 2000 project is still being evaluated, management currently
estimates that the costs to be incurred by the Company in 1999 and 2000
associated with assessing and testing applications, hardware and equipment,
embedded chip systems, and third party developed software will be less than
$300,000. The Company expects that planned capital expenditures to replace
existing financial system applications and hardware will substantially address
its existing Year 2000 issues with financial system applications and hardware.
To date, the Company has not expended significant funds related to its Year 2000
compliance assessment.
Risk of Non-Compliance and Contingency Plans. The major applications which
pose the greatest Year 2000 risks for the Company if implementation of the Year
2000 compliance program is not successful are the Company's project estimating
and management systems, financial systems applications and related third-party
software. Potential problems if the Year 2000 compliance program is not
successful include disruptions of the Company's revenue gathering from and
distribution to its customers and vendors and the inability to perform its other
financial and accounting functions.
The goal of the Year 2000 project is to ensure that all of the critical
systems and processes which are under the direct control of the Company remain
functional. However, because certain systems and processes may be interrelated
with systems outside of the control of the Company, there can be no assurance
that all implementations will be successful. Accordingly, as part of the Year
2000 project, contingency and business plans will be developed to respond to any
failures as they may occur. Such contingency and business plans are scheduled to
be completed during 1999. Management does not expect the costs to the Company of
the Year 2000 project to have a material adverse effect on the Company's
financial position, results of operations or cash flows. However, based on
information available at this time, the Company cannot conclude that any failure
of the Company or third parties to achieve Year 2000 compliance will not
adversely affect the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not utilize financial instruments for trading purposes and
holds no derivative financial instruments which could expose the company to
significant market risk. The Company's exposure to market risk for changes in
interest rates relates primarily to its long-term obligation under the Credit
Facility, of which $89.5 million had been borrowed as of September 30, 1998. The
Credit Facility matures on July 30, 2001. The weighted average interest rate of
the $89.5 million of outstanding indebtedness was 6.87% at September 30, 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Integrated Electrical Services, Inc. and Subsidiaries
Report of Independent Public Accountants.................. 22
Consolidated Balance Sheets............................... 23
Consolidated Statements of Operations..................... 24
Consolidated Statements of Stockholders' Equity........... 25
Consolidated Statements of Cash Flows..................... 26
Notes to Consolidated Financial Statements................ 27
</TABLE>
21
<PAGE> 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Integrated Electrical Services, Inc.:
We have audited the accompanying consolidated balance sheets of Integrated
Electrical Services, Inc., a Delaware corporation, and subsidiaries as of
September 30, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year ended December 31,
1996, and for each of the two years in the period ended September 30, 1998.
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 Integrated Electrical Services,
Inc., and subsidiaries as of September 30, 1997 and 1998, and the results of
their operations and their cash flows for the year ended December 31, 1996, and
for each of the two years in the period ended September 30, 1998, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 12, 1998
22
<PAGE> 25
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(NOTE 1)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1997 1998
------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 4,154 $ 14,583
Accounts receivable:
Trade, net of allowance of $537 and $4,160,
respectively.......................................... 14,287 120,153
Retainage.............................................. 4,611 26,074
Related party.......................................... -- 100
Inventories, net.......................................... 2,878 6,440
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 1,368 12,502
Prepaid expenses and other current assets................. 1,173 3,198
------- --------
Total current assets.............................. 28,471 183,050
------- --------
RECEIVABLES FROM RELATED PARTIES............................ 309 142
GOODWILL, net............................................... 970 293,066
PROPERTY AND EQUIPMENT, net................................. 4,110 23,436
OTHER NONCURRENT ASSETS..................................... 1,934 2,774
------- --------
Total assets...................................... $35,794 $502,468
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current maturities of long-term
debt................................................... $ 894 $ 3,823
Accounts payable and accrued expenses..................... 14,669 69,225
Income taxes payable...................................... 1,540 6,686
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 3,266 27,807
Other current liabilities................................. 332 489
------- --------
Total current liabilities......................... 20,701 108,030
------- --------
LONG-TERM BANK DEBT......................................... -- 89,500
OTHER LONG-TERM DEBT, net of current maturities............. 1,275 854
OTHER NON-CURRENT LIABILITIES............................... 1,182 1,380
------- --------
Total liabilities................................. 23,158 199,764
------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 authorized,
none issued and outstanding............................ -- --
Common stock, $.01 par value, 100,000,000 shares
authorized, 4,492,039 and 28,105,363 shares issued and
outstanding............................................ 45 281
Restricted common stock, $.01 par value, 2,655,709 shares
authorized, 2,655,709 shares issued and outstanding at
September 30, 1998..................................... -- 27
Additional paid-in capital................................ 887 291,650
Retained earnings......................................... 11,704 10,746
------- --------
Total stockholders' equity........................ 12,636 302,704
------- --------
Total liabilities and stockholders' equity........ $35,794 $502,468
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE> 26
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(NOTE 1)
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, SEPTEMBER 30, ------------------------
1996 1997 1997 1998
------------ ------------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES................................... $ 101,431 $ 92,379 $ 117,111 $ 386,721
COST OF SERVICES (including depreciation).. 85,081 76,306 95,937 306,052
---------- ---------- ---------- -----------
Gross profit............................. 16,350 16,073 21,174 80,669
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................. 10,228 10,222 14,261 47,390
NON-CASH, NON-RECURRING COMPENSATION CHARGE
IN CONNECTION WITH THE FOUNDING COMPANY
ACQUISITIONS (Note 1).................... -- -- -- 17,036
GOODWILL AMORTIZATION...................... -- -- -- 3,212
---------- ---------- ---------- -----------
Income from operations................... 6,122 5,851 6,913 13,031
---------- ---------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net.................... (171) (164) (214) (728)
Other, net............................... 185 456 599 335
---------- ---------- ---------- -----------
Other income (expense), net...... 14 292 385 (393)
---------- ---------- ---------- -----------
INCOME BEFORE INCOME TAXES................. 6,136 6,143 7,298 12,638
PROVISION FOR INCOME TAXES................. 2,471 2,408 2,923 12,690
---------- ---------- ---------- -----------
NET INCOME (LOSS).......................... $ 3,665 $ 3,735 $ 4,375 $ (52)
========== ========== ========== ===========
BASIC AND DILUTED EARNINGS (LOSS) PER
SHARE.................................... $ .82 $ .83 $ .97 $ --
========== ========== ========== ===========
SHARES USED IN THE COMPUTATION OF BASIC AND
DILUTED EARNINGS (LOSS) PER SHARE (Note
2)....................................... 4,492,039 4,492,039 4,492,039 19,753,060
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE> 27
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(NOTE 1)
<TABLE>
<CAPTION>
RESTRICTED
COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
------------------- ------------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ------ --------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........ 4,492,039 $ 45 -- $-- $ 887 $ 4,109 $ 5,041
Net income...................... -- -- -- -- -- 3,665 3,665
---------- ---- --------- --- -------- ------- --------
BALANCE, December 31, 1996........ 4,492,039 45 -- -- 887 7,774 8,706
Net income...................... -- -- -- -- -- 3,735 3,735
Adjustment for change in fiscal
year of pooled company........ -- -- -- -- -- 195 195
---------- ---- --------- --- -------- ------- --------
BALANCE, September 30, 1997....... 4,492,039 45 -- -- 887 11,704 12,636
Non-cash non-recurring
compensation charge........... -- -- -- -- 17,036 -- 17,036
Initial public offering of
stock......................... 8,050,000 80 -- -- 91,433 -- 91,513
Issuance of stock for
acquisitions.................. 15,563,324 156 2,655,709 27 199,920 -- 200,103
Distribution to accounting
acquirer...................... -- -- -- -- (17,626) (906) (18,532)
Net loss........................ -- -- -- -- -- (52) (52)
---------- ---- --------- --- -------- ------- --------
BALANCE, September 30, 1998....... 28,105,363 $281 2,655,709 $27 $291,650 $10,746 $302,704
========== ==== ========= === ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE> 28
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(NOTE 1)
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, SEPTEMBER 30, --------------------
1996 1997 1997 1998
------------ ------------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ 3,665 $ 3,735 $ 4,375 $ (52)
Adjustment for change in fiscal year of the pooled
company.............................................. -- 195 -- --
Non-cash non-recurring compensation charge............. -- -- -- 17,036
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 304 319 398 5,557
Loss (gain) on sale of property and equipment........ 3 (142) (140) (177)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable................................ (4,157) (4,399) (3,886) (20,000)
Inventories........................................ (9) (1,400) (1,409) 631
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... (95) (540) (841) (2,013)
Prepaid expenses and other current assets.......... (91) (153) (286) 1,603
Increase (decrease) in:
Accounts payable and accrued expenses................ 1,675 2,613 2,379 (1,063)
Billings in excess of costs and estimated earnings on
uncompleted contracts.............................. 1,609 (54) (747) 4,838
Other current liabilities............................ 906 688 272 (66)
Other, net........................................... (20) 190 210 2,042
------- -------- -------- ---------
Net cash provided by operating activities............ 3,790 1,052 325 8,336
------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment........... 22 70 84 702
Additions of property and equipment.................... (900) (1,025) (997) (4,352)
Purchase of businesses, net of cash acquired........... -- (100) (100) (128,735)
Collections of notes receivable........................ -- 77 77 475
Other, net............................................. -- -- 21 --
------- -------- -------- ---------
Net cash used in investing activities................ (878) (978) (915) (131,910)
------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt........................... 2,960 10,373 10,979 108,026
Payments of long-term debt............................. (3,408) (10,594) (11,545) (47,778)
Distributions to stockholders.......................... -- -- -- (17,758)
Proceeds from initial public offering.................. -- -- -- 91,513
------- -------- -------- ---------
Net cash provided by (used in) financing
activities......................................... (448) (221) (566) 134,003
------- -------- -------- ---------
NET INCREASE (DECREASE) IN CASH.......................... 2,464 (147) (1,156) 10,429
CASH, beginning of period................................ 1,837 4,301 5,310 4,154
------- -------- -------- ---------
CASH, end of period...................................... $ 4,301 $ 4,154 $ 4,154 $ 14,583
======= ======== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest............................................. $ 171 $ 160 $ 193 $ 755
Income taxes......................................... 1,643 1,421 2,571 10,779
Non-cash property distribution......................... -- -- -- 774
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 29
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION AND BASIS OF PRESENTATION:
Integrated Electrical Services, Inc. (the "Company" or "IES"), a Delaware
corporation, was founded in June 1997 to create a leading national provider and
consolidator of electrical contracting and maintenance services, focusing
primarily on the commercial, industrial, residential, powerline and data
communications markets.
On January 30, 1998, concurrent with the closing of its initial public
offering (the "IPO" or "Offering") of common stock, IES acquired, in separate
transactions, for consideration including $53.4 million of cash and 12.3 million
shares of common stock, 16 companies and related entities engaged in all facets
of electrical contracting and maintenance services (collectively, the "Founding
Companies" or the "Founding Company Acquisitions"). Subsequent to its IPO, and
through September 30, 1998, the Company acquired 21 additional electrical
contracting and maintenance businesses for approximately $93.0 million of cash
and 6.3 million shares of common stock (the "Acquired Companies"). Of these 21
Acquired Companies, 20 were accounted for using the purchase method of
accounting and one was accounted for using the pooling-of-interests method of
accounting resulting in a restatement of the Company's financial statements for
all periods presented (see Note 3).
The financial statements of the Company for periods prior to January 30,
1998, reflect the historical accounts of Houston-Stafford as the accounting
acquirer. The $18.5 million of distributions to the accounting acquirer includes
$17.8 million of the $53.4 million of cash consideration described above. The
historical financial statements have been restated for all periods presented for
the effect of the acquisition accounted for as a pooling-of-interest. The
Founding Companies are included in the Company's results of operations beginning
February 1, 1998, and the other Acquired Companies beginning on their respective
dates of acquisition. Houston-Stafford's results of operations through January
30, 1998, include a non-cash, non-recurring compensation charge of approximately
$17.0 million required by the Securities and Exchange Commission ("SEC") in
connection with a note receivable and rights held by an officer of
Houston-Stafford which was exchanged for cash and shares of IES common stock in
connection with the Founding Company Acquisitions (see Note 10). The Company has
changed from a calendar to a September fiscal year.
In the course of its operations, the Company is subject to certain risk
factors, including but not limited to: absence of combined operating history,
exposure to downturns in commercial construction or housing starts, risks
related to its acquisition strategy, management of growth, availability of
qualified employees, competition, seasonality, and dependence on key personnel.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
IES and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain reclassifications
have been made to the prior year consolidated financial statements to conform
with the presentation used in 1998.
Interim Financial Information
The interim financial statements for the nine months ended September 30,
1997, are unaudited and have been prepared pursuant to the rules and regulations
of the SEC. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, the unaudited
interim financial statements contain all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation.
27
<PAGE> 30
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are valued by the Company at the lower of cost or market
generally using the first-in, first-out (FIFO) method.
Property and Equipment
Additions of property and equipment are stated at cost, and depreciation is
computed using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are capitalized and amortized over the lesser of
the life of the lease or the estimated useful life of the asset. Depreciation
expense was approximately $304,000 for the year ended December 31, 1996, and
$391,000 and $2,148,000 for the years ended September 30, 1997 and 1998,
respectively.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Goodwill
Goodwill represents the excess of the aggregate of purchase price paid by
the Company in the acquisition of businesses accounted for as purchases over the
estimated fair market value of the net assets acquired. Goodwill is amortized on
a straight-line basis over 40 years. As of September 30, 1997 and 1998,
accumulated amortization was approximately $33,000 and $3,245,000, respectively.
The Company periodically evaluates the recoverability of intangibles
resulting from business acquisitions and measures the amount of impairment, if
any, by assessing current and future levels of income and cash flows as well as
other factors, such as business trends and prospects and market and economic
conditions.
Debt Issue Costs
Debt issue costs related to the Company's credit facility (see Note 6) are
included in other noncurrent assets and are amortized to interest expense over
the scheduled maturity of the debt. As of September 30, 1998, accumulated
amortization of debt issue costs was approximately $197,000.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Such contracts generally
provide that the customers accept completion of progress to date and compensate
the Company for services rendered measured in terms of hours expended or some
other measure of progress. Revenues from construction contracts are recognized
on the percentage-of-completion method generally measured by the percentage of
costs incurred to date to total estimated costs for each contract. Contract
costs include all direct material and labor costs and those indirect costs
related to contract performance, such as indirect labor, supplies, tools,
repairs and depreciation costs. Provisions for total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated contract costs
and profitability and final contract settlements may result in revisions to
costs and income. The effects of these revisions are recognized in the
28
<PAGE> 31
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
period in which the revisions are determined. An amount equal to contract costs
attributable to claims is included in revenues when realization is probable and
the amount can be reliably estimated.
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Warranty Costs
For certain contracts, the Company warrants labor for the first year after
installation of new electrical systems. The Company generally warrants labor for
30 days after servicing of existing electrical systems. A reserve for warranty
costs is recorded based upon the historical level of warranty claims and
management's estimate of future costs.
Accounts Receivable and Provision for Doubtful Accounts
Accounts receivable at September 30, 1997 and 1998 include approved claims
and change orders which were expected to be collected within the fiscal year.
The Company provides an allowance for doubtful accounts for unknown collection
issues in addition to reserves for specific accounts receivable where collection
is no longer probable.
Stock-Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," allows entities to choose between a new fair value
method of accounting for employee stock options or similar equity instruments
and the current method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25 under which compensation expense is not recorded unless the
fair market value of the related stock is in excess of the options exercise
price at date of grant. The Company has elected to follow APB Opinion No. 25 for
employee stock options and make pro forma disclosures of net income and earnings
per share as if the fair value method of accounting prescribed in SFAS No. 123
had been applied.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes in accordance with SFAS No. 109. Under this method, deferred tax assets
and liabilities are recorded for future tax consequences of temporary
differences between the financial reporting and tax bases of assets and
liabilities, and are measured using enacted tax rates and laws.
The Company files a consolidated federal income tax return, which includes
the operations of all acquired businesses for periods subsequent to their
respective acquisition dates. The acquired businesses file "short period"
federal income tax returns for the period from their last fiscal year through
their respective acquisition dates.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported
29
<PAGE> 32
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Realization of Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" the Company
evaluates the recoverability of property and equipment or other assets, if facts
and circumstances indicate that any of those assets might be impaired. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset are compared to the asset's carrying amount to determine if an
impairment of such property is necessary. The effect of any impairment would be
to expense the difference between the fair value of such property and its
carrying value. Adoption of this standard did not have a material effect on the
consolidated financial position or results of operations of the Company.
Earnings per Share
The Company has adopted SFAS No. 128, "Earning Per Share," which requires
restatement of all comparative per share amounts. Under the provisions of SFAS
No. 128, the presentation of primary earnings per share has been replaced with
earnings per share for potentially dilutive securities such as outstanding
options. All prior period earnings per share data have been restated.
For financial statement purposes as required by the rules and regulations
of the Securities Act, Houston-Stafford has been identified as the accounting
acquirer in the transaction with IES and its initial public offering. As such
the shares of IES beneficially owned by the shareholders of Houston-Stafford and
the shares issued in the pooling transaction have been used in the calculation
of basic and diluted earnings per share of the Company, for all periods prior to
the IPO. There was no impact on weighted average shares outstanding in fiscal
1998 as common stock equivalents are excluded in the calculation of weighted
average shares outstanding for fiscal 1998 as the Company reported a net loss
for this period. The number of potentially antidilutive shares excluded from the
calculation of fully diluted earnings per share was 399,833 at September 30,
1998.
New Accounting Pronouncements
The Company will adopt in the first quarter of 1999 SFAS No. 130 "Reporting
Comprehensive Income," which requires the display of comprehensive income and
its components in the financial statements. Comprehensive income represents all
changes in equity of an entity during the reporting period, including net income
and charges directly to equity which are excluded from net income. The Company
expects that there will be no difference between the Company's "traditional" and
"comprehensive" net income.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which establishes standards for the way public enterprises are to report
information about operating segments in annual financial statements and requires
the reporting of selected information about operating segments in interim
financial reports issued to shareholders. SFAS No. 131 is effective for the
Company for its year ended September 30, 1999, at which time the Company will
adopt the provision. The Company is currently evaluating the impact on the
Company's financial disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which becomes effective for the Company for
its year ended September 30, 2000. SFAS No. 133 requires a company to recognize
all derivative instruments (including certain derivative instruments embedded in
other contracts) as assets or liabilities in its balance sheet and measure them
at fair value. The statement requires that changes in the derivatives fair value
be recognized currently in earnings unless specific
30
<PAGE> 33
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
hedge accounting criteria are met. The Company is evaluating SFAS No. 133 and
the impact on existing accounting policies and financial reporting disclosures.
However, the Company has not to date engaged in activities or entered into
arrangements normally associated with derivative instruments.
3. BUSINESS COMBINATIONS:
On January 30, 1998, concurrent with the closing of its IPO, IES acquired,
in separate transactions, for consideration including $53.4 million of cash and
12.3 million shares of common stock, 16 companies and related entities engaged
in all facets of electrical contracting and maintenance services. Subsequent to
its IPO, and through September 30, 1998, the Company has acquired 21 additional
electrical contracting and maintenance businesses for approximately $93.0
million of cash and 6.3 million shares of common stock. Of these 21 Acquired
Companies, 20 were accounted for using the purchase method of accounting and one
was accounted for using the pooling-of-interests method of accounting.
Accordingly, the Company's historical financial statements have been restated to
include the historical financial statements of this one Acquired Company.
The total consideration paid for the Acquired Companies, other than the one
accounted for as a pooling-of-interest, through September 30, 1998, was
approximately $93.0 million of cash and 5.2 million shares of common stock. The
$137.8 million excess of the total consideration paid over the net tangible
assets acquired has been recorded as goodwill in the accompanying consolidated
financial statements. The accompanying September 30, 1998, consolidated balance
sheet includes allocations of the respective purchase prices to the assets
acquired and liabilities assumed based on preliminary estimates of fair value
and are subject to final adjustment.
Pooling
On June 1, 1998, IES completed the acquisition of all the capital stock of
H.R. Allen, Inc. ("Allen"), in a business combination accounted for as a
"pooling-of-interests" transaction in accordance with the requirements of APB
No. 16. Allen, headquartered in Charleston, South Carolina, provides electrical
contracting and maintenance services. IES issued 1,140,000 shares of common
stock in exchange for all of the capital stock of Allen. There were no
transactions between IES or Allen during periods prior to the business
combination.
The following table summarizes the unaudited restated revenues, net income
and per share data of the Company after giving effect to the acquisition of
Allen (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
--------------------- --------------------- ---------------------
REVENUES NET INCOME REVENUES NET INCOME REVENUES NET INCOME
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues and net income
(loss):
As previously
reported.......... $ 70,493 $3,047 $ 81,575 $3,316 $366,208 $(1,351)
Pooled Company....... 30,938 618 35,536 1,059 20,513 1,299
-------- ------ -------- ------ -------- -------
As restated.......... $101,431 $3,665 $117,111 $4,375 $386,721 $ (52)
======== ====== ======== ====== ======== =======
Earnings per share:
As previously
reported.......... $ .91 $ .99 $ (.07)
Pooled Company....... (.09) (.02) .07
------ ------ -------
As restated.......... $ .82 $ .97 $ --
====== ====== =======
</TABLE>
31
<PAGE> 34
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro Forma Presentation
The unaudited pro forma data presented below reflect the results of
operations of the Company, the Founding Companies and the Acquired Companies
acquired during fiscal 1998, and the IPO, assuming the transactions were
completed on October 1, 1996 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------
1997 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $705,034 $750,449
======== ========
Net income.................................................. $ 33,204 $ 34,633
======== ========
Basic earnings per share.................................... $ 1.08 $ 1.13
======== ========
Diluted earnings per share.................................. $ 1.08 $ 1.11
======== ========
</TABLE>
The unaudited pro forma data summarized above also reflects pro forma
adjustments primarily related to: reductions in general and administrative
expenses for contractually agreed reductions in owners' compensation, the
reversal of the $17 million non-cash, non-recurring compensation charge (see
Note 1), estimated goodwill amortization for the excess of consideration paid
over the net assets acquired assuming a 40-year amortization period, interest
expense on borrowings incurred to fund acquisitions, elimination of interest
income, and additional tax expense based on the Company's effective tax rate.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED SEPTEMBER 30,
USEFUL LIVES -----------------
IN YEARS 1997 1998
------------ ------- -------
<S> <C> <C> <C>
Land.................................................. N/A $ 1,773 $ 1,523
Buildings............................................. 5-32 686 585
Transportation equipment.............................. 3-5 2,158 12,692
Machinery and equipment............................... 3-10 1,214 9,926
Leasehold improvements................................ 5-32 273 2,888
Furniture and fixtures................................ 5-7 563 3,170
------- -------
6,667 30,784
Less -- Accumulated depreciation and amortization..... (2,557) (7,348)
------- -------
Property and equipment, net................. $ 4,110 $23,436
======= =======
</TABLE>
32
<PAGE> 35
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1997 1998
---- ------
<S> <C> <C>
Balance at beginning of period.............................. $459 $ 537
Additions from the Acquired Companies (except Allen)...... -- 3,534
Additions to costs and expenses........................... 85 261
Deductions for uncollectible receivables written off and
recoveries............................................. (7) (172)
---- ------
Balance at end of period.................................... $537 $4,160
==== ======
</TABLE>
Accounts payable and accrued liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1997 1998
------- -------
<S> <C> <C>
Accounts payable, trade..................................... $ 9,033 $40,913
Accrued compensation and benefits........................... 2,412 8,536
Other accrued liabilities................................... 3,224 19,776
------- -------
$14,669 $69,225
======= =======
</TABLE>
Electrical system installation contracts in progress are as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1998
-------- ---------
<S> <C> <C>
Costs incurred on contracts in progress..................... $ 43,997 $ 399,797
Estimated earnings.......................................... 6,816 85,682
-------- ---------
50,813 485,479
Less -- Billings to date.................................... (52,711) (500,784)
-------- ---------
$ (1,898) $ (15,305)
======== =========
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 1,368 $ 12,502
Less -- Billings in excess of costs and estimated earnings
on uncompleted contracts.................................. (3,266) (27,807)
-------- ---------
$ (1,898) $ (15,305)
======== =========
</TABLE>
33
<PAGE> 36
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT:
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1997 1998
------ -------
<S> <C> <C>
Secured credit facility with bank group, due July 30, 2001,
at a weighted average interest rate of 6.87%.............. $ -- $89,500
Note payable to an officer, dated January 1998, payable on
demand, including interest at 7%.......................... -- 3,149
Note payable to an officer, dated August 1996, payable in
monthly payments of $12 including interest at a rate of
8%, maturing August 2003 and secured by stock (see Note
10)....................................................... 699 --
Line of credit with a bank with total borrowing capacity of
$3,100, bearing interest at prime plus 1/2 percent,
repaid in 1998 with proceeds from the Company's credit
facility.................................................. 507 --
Notes payable to banks bearing interest ranging from 8% to
8.25%, repaid in 1998 with proceeds from the Company's
credit facility........................................... 387 --
Note payable to an officer, bearing interest at 11%, repaid
in 1998 with proceeds from the Company's credit
facility.................................................. 47 --
Mortgage payables to a bank and an individual bearing
interest at 9% and 10%, repaid in 1998 with proceeds from
the Company's credit facility............................. 145 --
Various capital lease obligations........................... 65 941
Other notes payable......................................... 319 587
------ -------
2,169 94,177
Less short-term debt and current maturities of long-term
debt...................................................... 894 3,823
------ -------
Total long-term debt.............................. $1,275 $90,354
====== =======
</TABLE>
Principal payments due on long-term debt at September 30, are as follows
(in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 3,823
2000........................................................ 463
2001........................................................ 89,736
2002........................................................ 89
2003........................................................ 27
Thereafter.................................................. 39
-------
Total............................................. $94,177
=======
</TABLE>
Credit Facility
In January 1998, the Company obtained a three-year revolving credit
facility of up to $65.0 million from a commercial bank to be used for working
capital, capital expenditures, other corporate purposes and acquisitions. In
August, the Company increased the credit facility to $175.0 million. The credit
facility matures July 30, 2001. Amounts borrowed under the credit facility bear
interest at an annual rate equal to either (a) the London interbank offered rate
(LIBOR) plus 1.0 percent to 2.0 percent, as determined by the ratio of the
Company's total funded debt to EBITDA (as defined in the credit facility) or (b)
the higher of (i) the bank's prime rate and (ii) the Federal funds rate plus 0.5
percent plus up to an additional 0.5 percent, as determined by the ratio of the
Company's total funded debt to EBITDA. Commitment fees of 0.25 percent to 0.375
percent, as determined by the ratio of the Company's total funded debt to
EBITDA, will be due on any unused borrowing capacity under the credit facility.
The Company's existing and future subsidiaries
34
<PAGE> 37
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
guarantee the repayment of all amounts due under the facility, and the facility
is secured by the capital stock of those subsidiaries and the accounts
receivable of the Company and those subsidiaries. The credit facility requires
the consent of the lenders for acquisitions exceeding a certain level of cash
consideration, prohibits the payment of cash dividends on the common stock,
restricts the ability of the Company to incur other indebtedness and requires
the Company to comply with various affirmative and negative covenants including
certain financial covenants. Among other restrictions, the financial covenants
include minimum net worth requirements and maintenance of a total consolidated
funded debt to EBITDA ratio and a minimum fixed charge coverage ratio. The
Company was in compliance with the financial covenants at September 30, 1998. As
of September 30, 1998, the Company had outstanding indebtedness of $89.5 million
under its Credit Facility, letters of credit outstanding under its Credit
Facility of $2.2 million, and available borrowing capacity under its Credit
Facility of $83.3 million.
7. LEASES:
The Company leases various facilities, at which it conducts its operations,
under noncancelable operating leases. For a discussion of leases with certain
related parties see Note 10.
Future minimum lease payments under these noncancelable operating leases
are as follows (in thousands):
<TABLE>
<S> <C>
YEAR ENDED SEPTEMBER 30,
1999........................................................ $ 3,635
2000........................................................ 3,377
2001........................................................ 2,883
2002........................................................ 2,494
2003........................................................ 1,493
Thereafter.................................................. 553
-------
$14,435
=======
</TABLE>
Rental expense for the year ended December 31, 1996, and the years ended
September 30, 1997 and 1998, was approximately $155,000, $206,000 and
$2,033,000, respectively.
8. INCOME TAXES:
Federal and state income tax provisions are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -----------------
1996 1997 1998
------------ ------ -------
<S> <C> <C> <C>
Federal:
Current........................................... $1,741 $2,691 $11,952
Deferred.......................................... 434 (149) (712)
State:
Current........................................... 241 400 1,616
Deferred.......................................... 55 (19) (166)
------ ------ -------
$2,471 $2,923 $12,690
====== ====== =======
</TABLE>
35
<PAGE> 38
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 35 percent to income
before provision for income taxes as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -----------------
1996 1997 1998
------------ ------ -------
<S> <C> <C> <C>
Provision at the statutory rate..................... $2,148 $2,554 $ 4,423
Increase resulting from:
Non-cash, non-recurring compensation charge....... -- -- 5,963
Non-deductible goodwill........................... -- -- 1,103
State income tax, net of benefit for federal
deduction...................................... 184 219 942
Non-deductible expenses........................... 139 150 259
------ ------ -------
$2,471 $2,923 $12,690
====== ====== =======
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
------------------
1997 1998
------- ------
<S> <C> <C>
Deferred income tax assets:
Bad debts................................................. $ 162 $1,029
Inventory................................................. -- 240
Reserves and accrued expenses............................. 564 1,758
Other..................................................... -- 521
------- ------
Total deferred income tax asset................... 726 3,548
------- ------
Deferred income tax liabilities:
Property and equipment and goodwill....................... (112) (1,438)
Deferred contract revenue and other....................... (1,012) (3,089)
Accrued expenses.......................................... (47) --
------- ------
Total deferred income tax liability............... (1,171) (4,527)
------- ------
Net deferred income tax liability................. $ (445) $ (979)
======= ======
</TABLE>
The net deferred tax assets and liabilities are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Current................................................... $ 726 $ 326
Deferred tax liabilities:
Current................................................... $(1,059) $ --
Long-Term................................................. (112) (1,305)
------- -------
Total............................................. $(1,171) $(1,305)
======= =======
</TABLE>
36
<PAGE> 39
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. STOCKHOLDERS' EQUITY:
Restricted Common Stock
The shares of restricted common stock have rights similar to shares of
common stock except that such shares are entitled to elect one member of the
board of directors and to not otherwise vote with respect to the election of
directors and are entitled to one-half of one vote for each share held on all
other matters. Each share of restricted common stock will convert into common
stock upon disposition by the holder of such shares.
Stock Plan
In September 1997, the Company's board of directors and stockholders
approved the Company's 1997 Stock Plan (the "Plan"), which provides for the
granting or awarding of incentive or nonqualified stock options, stock
appreciation rights, restricted or phantom stock and other incentive awards to
directors, officers, key employees and consultants of the Company. The number of
shares authorized and reserved for issuance under the Plan is the greater of 3.5
million shares or 15 percent of the aggregate number of shares of common stock
outstanding. The terms of the option awards will be established by the
compensation committee of the Company's board of directors. The Company has
filed a registration statement on Form S-8 under the Securities Act of 1933
registering the issuance of shares upon exercise of options granted under this
Plan. Options generally vest at the rate of 20 percent per year, commencing on
the first anniversary of the grant date and will expire 10 years from the date
of grant, three months following termination of employment due to death or
disability, or one year following termination of employment by means other than
death or disability.
Director's Stock Plan
In September 1997, the Company's board of directors and stockholders
approved the 1997 Directors' Stock Plan (the "Directors' Plan"), which provides
for the granting or awarding of stock options to nonemployee directors. The
number of shares authorized and reserved for issuance under the Directors' Plan
is 260,000 shares. Each nonemployee director is granted options to purchase an
additional 5,000 shares at the time of an initial election of such director. In
addition, each director will be automatically granted options to purchase 5,000
shares annually at each September 30 on which such director remains a director.
All options have an exercise price based on the fair market value at the date of
grant and vesting terms similar to options granted under the Plan discussed
above.
The Directors' Plan allows nonemployee directors to receive additional
option grants in amounts and at terms as deemed appropriate by the Company's
board of directors.
As of September 30, 1998, the Company had total outstanding options under
these plans to purchase up to a total of approximately 3,238,951 shares of
common stock.
The following table summarizes activity under the Company's stock option
plans:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding, September 30, 1997........................... -- --
Granted (range of exercise prices, $7.80 to $22.125).... 3,464,014 $13.99
Forfeited (range of exercise prices, $13.00 to
$22.125)............................................. (225,063) $13.14
========= ======
Outstanding, September 30, 1998........................... 3,238,951 $13.48
========= ======
Exercisable, September 30, 1998........................... 85,000 $ 9.33
========= ======
</TABLE>
Unexercised options expire at various dates from September 4, 2007 through
September 14, 2008.
37
<PAGE> 40
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company follows APB No. 25 in accounting for stock options issued to
employees. Under APB No. 25, compensation expense is not recorded for stock
options issued to employees if the exercise price of the option is equal to the
market price of the stock on the date of grant. SFAS No. 123, "Accounting for
Stock-Based Compensation," requires that if a company does not record
compensation expense for stock options issued to employees pursuant to APB No.
25, the company must also disclose the effects on its results of operations as
if an estimate of the value of stock-based compensation at the date of grant was
recorded as an expense. The following compares the Company's reported income and
earnings per share to pro forma estimates of these amounts assuming that the
Company had expensed the estimated fair value of options provided to its
employees over the applicable vesting period.
<TABLE>
<CAPTION>
1998
-------
<S> <C> <C>
Net Loss As reported............................................... $ (52)
Pro forma for SFAS No. 123................................ $(2,173)
Loss Per Share As reported............................................... $ --
Pro forma for SFAS No. 123................................ $ (0.11)
</TABLE>
Pro forma basic loss per share and diluted loss per share are the same for
SFAS No. 123 purposes. The effects of applying SFAS No. 123 in the pro forma
disclosure may not be indicative of future amounts as additional awards in
future years are anticipated and because the Black-Scholes option-pricing model
involves subjective assumptions which may be materially different than actual
amounts.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following subjective
assumptions:
<TABLE>
<S> <C>
Expected dividend yield..................................... 0.00%
Expected stock price volatility............................. 53.20%
Risk free interest rate..................................... 5.55%
Expected life of options.................................... 6 years
</TABLE>
Options outstanding at September 30, 1998, had exercise prices ranging from
$7.80 to $22.13, a weighted average remaining contractual life of 9.3 years, a
weighted average fair value of $7.98 per option and a weighted average exercise
price of $13.48 per option.
Initial Public Offering
On January 30, 1998, the Company completed its initial public offering,
issuing to the public 7,000,000 shares of its common stock at a price of $13.00
per share, resulting in net proceeds to the Company of $78.8 million after
deducting underwriting commissions and discounts. On February 5, 1998, the
Company sold an additional 1,050,000 shares of common stock pursuant to the
overallotment option granted to the underwriters. The Company realized net
proceeds from the sale of $12.7 million.
10. RELATED-PARTY TRANSACTIONS:
The Company has transactions in the normal course of business with certain
affiliated companies. Amounts due from related parties at September 30, 1997 and
1998 were $309,000 and $242,000, respectively. In connection with certain of the
Founding Company Acquisitions and the acquisitions of the Acquired Companies,
subsidiaries of the Company have entered into a number of lease arrangements for
facilities. These lease agreements are for periods generally ranging from three
to five years. Lease payments for the years ended December 31, 1996, September
30, 1997 and 1998 were $291,000, $216,000, and $1,648,000, respectively. Future
commitments with respect to these leases are included in the schedule of minimum
lease payments in note 7.
38
<PAGE> 41
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1996, the Company negotiated the purchase of the stock from an
officer. The selling price of the shares totaled $800,000. The Company signed an
installment promissory note that provided for the payout of $800,000 over seven
years at 8 percent interest, secured by the purchased stock. Subsequent to the
August 1996 transaction, the executive remained an officer of the Company and
was paid cash compensation of approximately $372,000 during the last four months
of 1996 and approximately $252,000 during the first nine months of 1997. These
amounts have been reflected as compensation expense in the accompanying income
statements for the applicable periods. At the closing of the IPO, the officer
exchanged the promissory note for cash and shares of IES common stock. In
connection therewith, the Company recorded a non-cash, non-recurring
compensation charge of approximately $17.0 million.
11. EMPLOYEE BENEFIT PLANS:
Certain subsidiaries of the Company provide various defined contribution
savings plans for their employees (the "Plans"). The Plans cover substantially
all full-time employees of such subsidiaries. Participants vest at varying rates
ranging from full vesting upon participation to those that provide for vesting
to begin after three years of service and are fully vested after eight years.
Certain plans provide for a deferral option that allows employees to elect to
contribute a portion of their pay into the plan and provide for a discretionary
profit sharing contribution by the individual subsidiary. Generally the
subsidiaries match a portion of the amount deferred by participating employees.
Contributions for the profit sharing portion of the Plans are generally at the
discretion of the individual subsidiary board of directors. The aggregate
contributions to the Plans were $75,000, $100,000 and $1,127,000 for the years
ended December 31, 1996 and September 30, 1997 and 1998, respectively.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, receivables from related parties, other receivables,
accounts payable, a line of credit, notes payable and long-term debt. The
Company believes that the carrying value of these instruments on the
accompanying balance sheets approximates their fair value.
13. COMMITMENTS AND CONTINGENCIES:
Litigation
Subsidiaries of the Company are involved in various legal proceedings that
have arisen in the ordinary course of business. While it is not possible to
predict the outcome of such proceedings with certainty, in the opinion of the
Company, all such proceedings are either adequately covered by insurance or, if
not so covered should not ultimately result in any liability which would have a
material adverse effect on the financial position, liquidity or results of
operations of the Company.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability, commercial property, workers' compensation
and general umbrella policy. The Company has not incurred significant uninsured
losses on any of these items.
14. RISK CONCENTRATION:
Financial instruments, which potentially subject the Company to
concentrations of credit risk consist principally of cash deposits and trade
accounts receivable. The Company grants credit, generally without collateral, to
its customers, which are generally contractors and home builders throughout the
United States. Consequently, the Company is subject to potential credit risk
related to changes in business and economic
39
<PAGE> 42
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
factors throughout the United States within the construction and home-building
market. However, the Company generally is entitled to payment for work performed
and has certain lien rights in that work. Further, management believes that its
contract acceptance, billing and collection policies are adequate to minimize
any potential credit risk.
The Company routinely maintains cash balances in financial institutions in
excess of federally insured limits.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
Quarterly financial information for the years ended September 30, 1997 and
1998 are summarized as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1997
------------------------------------------
DECEMBER MARCH JUNE SEPTEMBER
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues................................... $24,732 $ 24,368 $ 30,747 $ 37,264
Gross profit............................... $ 5,137 $ 3,873 $ 5,611 $ 6,553
Net income................................. $ 639 $ 719 $ 1,326 $ 1,691
Earnings per share:
Basic.................................... $ .14 $ .16 $ .30 $ .38
Diluted.................................. $ .14 $ .16 $ .30 $ .38
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1998
------------------------------------------
DECEMBER MARCH JUNE SEPTEMBER
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues................................... $31,799 $ 72,534 $115,287 $167,101
Gross profit............................... $ 6,537 $ 15,670 $ 23,993 $ 34,469
Non-cash, non-recurring compensation
charge................................... $ -- $ 17,036 $ -- $ --
Net income (loss).......................... $ (681) $(13,842) $ 6,381 $ 8,090
Earnings (loss) per share:
Basic.................................... $ (.15) $ (.76) $ .24 $ .28
Diluted.................................. $ (.15) $ (.76) $ .24 $ .28
</TABLE>
The quarterly information has been restated to include the results of
operations of Allen.
The sum of the individual quarterly earnings per share amounts may not
agree with year-to-date earnings per share as each period's computation is based
on the weighted average number of shares outstanding during the period.
16. SUPPLEMENTAL PRO FORMA COMBINED RESULTS OF OPERATIONS (UNAUDITED):
The following supplemental unaudited pro forma income statements presented
below reflect the results of operations of the Company (as restated for results
of operations of Allen) and the Founding Companies and the IPO, assuming these
transactions were completed on October 1, 1996. The 20 Acquired Companies
accounted for under the purchase method of accounting have been included in the
following supplemental pro forma income statements beginning on their respective
dates of acquisition during fiscal 1998.
40
<PAGE> 43
INTEGRATED ELECTRICAL SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UNAUDITED
SUPPLEMENTAL PRO FORMA
YEAR ENDED SEPTEMBER 30,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Revenue.................................................... $ 350,236 $ 470,177
Cost of Services........................................... 279,472 370,760
----------- -----------
Gross Profit............................................. 70,764 99,417
Selling, General and Administrative Expenses............... 37,893 52,008
Goodwill Amortization...................................... 3,848 4,481
----------- -----------
Operating Income......................................... 29,023 42,928
Interest Expense........................................... 1,092 1,570
Interest Income............................................ (89) (615)
Other...................................................... (532) (279)
----------- -----------
471 676
Income Before Income Taxes................................. 28,552 42,252
Provision for Income Taxes................................. 12,404 18,099
----------- -----------
Net Income............................................... $ 16,148 $ 24,153
=========== ===========
Earnings Per Share:
Basic.................................................... $ .63 $ .91
=========== ===========
Diluted.................................................. $ .63 $ .89
=========== ===========
Shares Outstanding:
Basic.................................................... 25,555,336 26,616,132
Diluted.................................................. 25,675,336 27,015,965
</TABLE>
The unaudited supplemental pro forma income statements summarized above
also reflects pro forma adjustments primarily related to: reductions in general
and administrative expenses for contractually agreed reductions in Founding
Companies owners' compensation, the reversal of the $17 million non-cash, non-
recurring compensation charge (see Note 1), estimated goodwill amortization for
the excess of consideration paid for the Acquired Companies over the net assets
acquired assuming a 40-year amortization period, interest expense on borrowings
incurred in connection with acquisitions, elimination of interest income, and
additional tax expense based on the Company's effective tax rate.
17. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):
Subsequent to September 30, 1998, the Company acquired five companies for
an aggregate consideration of approximately 732,000 shares of common stock and
$6.0 million in cash, net of cash acquired. The cash portion of such
consideration was provided by borrowings under the Company's credit facility and
cash on hand.
41
<PAGE> 44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from the
sections entitled "Management" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders (the "Proxy Statement") to be filed with the Securities
and Exchange Commission no later than January 28, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
section entitled "Executive Compensation" in the Proxy Statement. Nothing in
this report shall be construed to incorporate by reference the Board
Compensation Committee Report on Executive Compensation or the Performance Graph
which are contained in the Proxy Statement, but expressly not incorporated
herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
section entitled "Certain Relationships and Other Transactions" in the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Supplementary Data, Financial Statement
Schedules and Exhibits.
1. Consolidated Financial Statements.
See Index to Financial Statements under Item 8 of this report.
2. Consolidated Financial Statement Schedules
All consolidated financial statements schedules have been omitted
because they are not required, are not applicable or the information
required has been included elsewhere herein.
3. Exhibits and Financial Statement Schedules (except as otherwise
designated below, all exhibits have been previously filed).
(b) Reports on Form 8-K.
A report on Form 8-K was filed on July 14, 1998 in connection with the
acquisition of three businesses on June 30, 1998. The financial statements of
the businesses acquired were incorporated by reference from Post-Effective
Amendment No. 1 to the Company's Registration Statement on Form S-1 (No.
333-50031) in an amendment to Form 8-K filed by amendment on September 14, 1998.
A report on Form 8-K was filed on September 14, 1998 in connection with the
acquisition of a business. The financial statements of the business acquired
were incorporated by reference from Post-Effective Amendment No. 1 to the
Company's Registration Statement on Form S-1 (No. 333-50031).
(c) Exhibits.
42
<PAGE> 45
<TABLE>
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation as
amended. (Incorporated by reference to 3.1 to the
Registration Statement on Form S-1 (File No. 333-38715)
of the Company)
*3.2 -- Bylaws, as amended.
4.1 -- Specimen Common Stock Certificate. (Incorporated by
reference to 4.1 to the Registration Statement on Form
S-1 (File No. 333-38715) of the Company)
10.1 -- Form of Employment Agreement (Incorporated by reference
to 10.1 to the Registration Statement on Form S-1 (File
No. 333-38715) of the Company)
10.2 -- Form of Officer and Director Indemnification Agreement.
(Incorporated by reference to 10.2 to the Registration
Statement on Form S-1 (File No. 333-38715) of the
Company)
10.3 -- Integrated Electrical Services, Inc. 1997 Stock Plan.
(Incorporated by reference to 10.3 to the Registration
Statement on Form S-1 (File No. 333-38715) of the
Company)
10.4 -- Integrated Electrical Services, Inc. 1997 Directors Stock
Plan. (Incorporated by reference to 10.4 to the
Registration Statement on Form S-1 (File No. 333-38715)
of the Company)
10.5 -- Form of Credit Agreement among the Company, the Financial
Institutions named therein and NationsBank of Texas,
N.A., including form of Subsidiary Guaranty Agreement,
form of Pledge Agreement, form of Security Agreement,
form of promissory note, and form of swing line note.
(Incorporated by reference to 10.5 to the Registration
Statement on Form S-1 (File No. 333-38715) of the
Company)
10.6 -- Form of Lock-up Agreement entered into by the Company and
the stockholders set forth on Schedule A thereto.
(Incorporated by reference to 10.6 to the Registration
Statement on Form S-1 (File No. 333-38715) of the
Company)
*21.1 -- List of Subsidiaries.
*23.1 -- Consent of Arthur Andersen LLP.
*27 -- Financial Data Schedule
*99.1 -- Integrated Electrical Services, Inc. 401(k) Retirement
Savings Plan
</TABLE>
- ---------------
* Filed herewith.
43
<PAGE> 46
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 December 18, 1998.
INTEGRATED ELECTRICAL SERVICES, INC.
By: /s/ JIM P. WISE
----------------------------------
Jim P. Wise
President and Chief Executive
Officer
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 December 18, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JIM P. WISE Chief Executive Officer and Chief Financial
- ----------------------------------------------------- Officer
Jim P. Wise
/s/ DONALD PAUL HODEL Director
- -----------------------------------------------------
Donald Paul Hodel
/s/ JERRY M. MILLS Senior Vice President and Chief Operating
- ----------------------------------------------------- Officer -- Commercial and Industrial and
Jerry M. Mills Director
/s/ BEN L. MUELLER Senior Vice President and Chief Operating
- ----------------------------------------------------- Officer -- Residential and Director
Ben L. Mueller
/s/ RICHARD MUTH Director
- -----------------------------------------------------
Richard Muth
/s/ JON POLLOCK Vice Chairman of the Board of Directors
- -----------------------------------------------------
Jon Pollock
/s/ ALAN R. SIELBECK Director
- -----------------------------------------------------
Alan R. Sielbeck
/s/ C. BYRON SNYDER Chairman of the Board of Directors
- -----------------------------------------------------
C. Byron Snyder
/s/ ROBERT STALVEY Director
- -----------------------------------------------------
Robert Stalvey
/s/ RICHARD L. TUCKER Director
- -----------------------------------------------------
Richard L. Tucker
/s/ BOB WEIK Director
- -----------------------------------------------------
Bob Weik
/s/ J. PAUL WITHROW Vice President and Chief Accounting Officer
- -----------------------------------------------------
J. Paul Withrow
</TABLE>
44
<PAGE> 47
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation as
amended. (Incorporated by reference to 3.1 to the
Registration Statement on Form S-1 (File No. 333-38715)
of the Company)
*3.2 -- Bylaws, as amended.
4.1 -- Specimen Common Stock Certificate. (Incorporated by
reference to 4.1 to the Registration Statement on Form
S-1 (File No. 333-38715) of the Company)
10.1 -- Form of Employment Agreement (Incorporated by reference
to 10.1 to the Registration Statement on Form S-1 (File
No. 333-38715) of the Company)
10.2 -- Form of Officer and Director Indemnification Agreement.
(Incorporated by reference to 10.2 to the Registration
Statement on Form S-1 (File No. 333-38715) of the
Company)
10.3 -- Integrated Electrical Services, Inc. 1997 Stock Plan.
(Incorporated by reference to 10.3 to the Registration
Statement on Form S-1 (File No. 333-38715) of the
Company)
10.4 -- Integrated Electrical Services, Inc. 1997 Directors Stock
Plan. (Incorporated by reference to 10.4 to the
Registration Statement on Form S-1 (File No. 333-38715)
of the Company)
10.5 -- Form of Credit Agreement among the Company, the Financial
Institutions named therein and NationsBank of Texas,
N.A., including form of Subsidiary Guaranty Agreement,
form of Pledge Agreement, form of Security Agreement,
form of promissory note, and form of swing line note.
(Incorporated by reference to 10.5 to the Registration
Statement on Form S-1 (File No. 333-38715) of the
Company)
10.6 -- Form of Lock-up Agreement entered into by the Company and
the stockholders set forth on Schedule A thereto.
(Incorporated by reference to 10.6 to the Registration
Statement on Form S-1 (File No. 333-38715) of the
Company)
*21.1 -- List of Subsidiaries.
*23.1 -- Consent of Arthur Andersen LLP.
*27 -- Financial Data Schedule
*99.1 -- Integrated Electrical Services, Inc. 401(k) Retirement
Savings Plan
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
INTEGRATED ELECTRICAL SERVICES, INC.
(AS AMENDED)
<PAGE> 2
ARTICLE I
OFFICES
Section 1. The registered office of Integrated Electrical Services,
Inc.(the "Corporation") shall be in the City of Wilmington, County of New
Castle, State of Delaware.
Section 2. The Corporation may also have offices at such other places
both within and without the state of Delaware as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
Directors shall be held at such place as may be fixed from time to time by the
Board of Directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof
Section 2. Annual meetings of stockholders shall be held on such date
and at such time as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. At the annual meeting, the
stockholders shall elect by a plurality vote the Directors pursuant to Article
III of these Bylaws, and transact such other business as may properly be brought
before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to a vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be (i) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (iii) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed to and received at the
principal executive offices of the Corporation not less than 80 days prior to
the meeting; provided, however, that in the event that less than 90 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later
-2-
<PAGE> 3
than the close of business on the tenth day following the date on which such
notice of the date of the annual meeting was mailed or such public disclosure
made.
A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. Notwithstanding anything in the Bylaws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 3.
The presiding officer of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with this Section 3, and if the presiding
officer should so determine, the presiding officer shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.
Section 4. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders for any purpose may be
called only by the Chairman of the Board of Directors and shall be called within
10 days after receipt of the written request of the Board of Directors, pursuant
to a resolution approved by a majority of the entire Board of Directors. The
business permitted to be conducted at any special meeting of the stockholders is
limited to the business brought before the meeting by the Chairman or by the
Secretary at the request of a majority of the entire Board of Directors.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting, and the purpose or purposes for which the meeting is
called, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. The holders of a majority of the stock issued, outstanding
and entitled to vote, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the
-3-
<PAGE> 4
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented.
Section 8. When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting, except as otherwise required by this
Section 8, if the time and place thereof are announced at the meeting at which
the adjournment is taken. At such adjourned meeting the Corporation may transact
any business which might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 9. If a quorum exists, action on a matter (other than the
election of directors) shall be approved if the votes cast in favor of the
matter exceed the votes cast opposing the matter. In determining the number of
votes cast, shares abstaining from voting or not voted on a matter will not be
treated as votes cast. The provisions of this paragraph will govern with respect
to all votes of stockholders except as otherwise provided for in these Bylaws or
in the certificate of incorporation or by a specific statutory provision
superseding the provisions contained in these Bylaws or the certificate of
incorporation.
Section 10. Each stockholder shall at every meeting of the
stockholders, subject to any restriction or qualification set forth in the
Certificate of Incorporation, be entitled to one vote in person or by proxy for
each share of the capital stock having voting power held by such stockholder,
but no proxy shall be voted after three years from its date, unless the proxy
provides for a longer period.
Section 11. After March 1, 1998, any action required or permitted to be
taken by the stockholders of the Corporation must be affected at a duly called
annual or special meeting of stockholders of the Corporation and may not be
effected by any consent in writing of such stockholders.
Section 12. At each meeting of stockholders, the Chairman or
Vice-Chairman of the Board of Directors shall preside, and the secretary shall
keep records, and in the absence of either such officer, his duty shall be
performed by a person appointed at the meeting.
ARTICLE III
DIRECTORS
Number, Nomination, Removal
Section 1. The number of Directors shall be fixed from time to time by
the Board of Directors, but shall not be less than 1 nor more than 15 persons.
The Directors shall be elected at
-4-
<PAGE> 5
the annual meeting of the stockholders in accordance with the provisions of
Section 2 of this Article, and each Director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Subject to the rights of holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation, nominations for the election of Directors may be made by the Board
of Directors or a committee appointed by the Board of Directors or by any
stockholder entitled to vote in the election of Directors generally. Any
stockholder entitled to vote in the election of Directors generally may nominate
one or more persons for election as Directors at a meeting only if written
notice of such stockholder's intent to make such nomination or nominations has
been given, either by personal delivery or by United States mail, postage
prepaid, to the Secretary of the Corporation not later than 80 days prior to the
date of any annual or special meeting. In the event that the date of such annual
or special meeting was not publicly announced by the Corporation by mail, press
release or otherwise more than 90 days prior to the meeting, notice by the
stockholder to be timely must be delivered to the Secretary of the Corporation
not later than the close of business on the tenth day following the day on which
such announcement of the date of the meeting was communicated to the
stockholders.
Each such notice shall set forth: (a) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (d) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had the nominee been nominated, or intended to be nominated, by the
Board of Directors, and (e) the consent of each nominee to serve as a Director
of the Corporation if so elected.
If the presiding officer of the meeting for the election of Directors
determines that a nomination of any candidate for election as a Director at such
meeting was not made in accordance with the applicable provisions of these
Bylaws, such nomination shall be void.
Section 3. Subject to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to dividends or upon
liquidation to elect additional Directors under specified circumstances, newly
created directorships resulting from any increase in the number of Directors and
any vacancy on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in office, even
though less than a quorum of the Board of Directors. or by a sole remaining
Director. Any Director elected or chosen as provided herein shall hold office
until the sooner of the following events: (i) the expiration of the term of the
directorship to which he is appointed, (ii) such time as his successor is
elected and qualified or (iii) his resignation or
-5-
<PAGE> 6
removal. No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of an incumbent Director.
Section 4. Subject to the rights of the holders of any class or series
of stock having preference over the Common Stock as to dividends or upon
liquidation to elect additional Directors under specified circumstances, any
Director may be removed from office only for cause by the stockholders in the
manner provided in this Section 4. At any annual meeting of the stockholders of
the Corporation or at any special meeting of the stockholders of the
Corporation, the notice of which shall state that the removal of a Director or
Directors is among the purposes of the meeting, the affirmative vote of the
holders of at least 66 2/3 percent of the combined voting power of the
outstanding shares of Voting Stock (as defined below), voting together as a
single class, may remove such Director or Directors for cause.
For the purpose of this Section 4, "Voting Stock" shall mean the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors. In any vote required by or provided for
in this Section 4, each share of Voting Stock shall have the number of votes
granted to it generally in the election of Directors.
Section 5. The business of the Corporation shall be managed by its
Board of Directors, which may exercise all such powers of the Corporation and do
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.
Meetings of the Board of Directors
Section 6. The Board of Directors of the Corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 7. Meetings of the Board of Directors may be held at such time
and place as shall be specified in a notice given in the manner hereinafter
provided, or as shall be specified in a written waiver signed by all of the
Directors.
Section 8. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board of Directors.
Section 9. Special meetings of the Board of Directors may be called by
the Chairman of the Board on 24 hours' notice to each Director, either
personally or by telecopy or telegram; special meetings shall be called by the
president, chief executive officer or secretary in like manner and on like
notice on the written request of three Directors.
Section 10. Except as provided in these Bylaws to the contrary, at all
meetings of the board a majority of the total number of Directors shall
constitute a quorum for the transaction of business and the vote of a majority
of the Directors entitled to vote and present at a meeting at which a
-6-
<PAGE> 7
quorum is present shall be the act of the Board of Directors, unless the
certificate of incorporation shall require a vote of a greater number. If a
quorum shall not be present at any meeting of the Board of Directors, the
Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 11. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors, or of any committee thereof, may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee.
Section 12. At all meetings of the Board of Directors, business shall
be transacted in such order as from time to time the Board of Directors may
determine.
At all meetings of the Board of Directors, the Chairman or
Vice-Chairman of the Board of Directors shall preside, and in the absence of
either such Director a person shall be chosen by the board from among the
Directors present to act as chairman of the meeting.
The secretary of the Corporation shall act as secretary of the meeting
of the Board of Directors, but in the absence of the secretary, the presiding
officer may appoint any person to act as secretary of the meeting.
Committees of Directors
Section 13. The Board of Directors may, by resolution adopted by a
majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more Directors. The board may designate one
(1) or more directors as alternate members of any committee, who may replace any
absent or disqualified member of any meeting of the committee. In the absence or
disqualification of a member, and the alternate or alternates, if any,
designated for such member, of any committee, the member or members thereof
present at the meetings and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another director to act at the
meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution
establishing such committee, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to the following matters: (i) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by the Delaware General Corporation Law to be submitted to stockholders
for approval or (ii) adopting, amending or repealing any bylaw of the
Corporation. Such committee or committees shall have such name or names as may
be determined from time to time by resolution adopted by the Board of Directors.
-7-
<PAGE> 8
Section 14. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors.
Compensation of Directors
Section 15. The Directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary or
retainer as Director. No such payment shall preclude any Director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Whenever notice is required to be given to any Director or
stockholder pursuant to a statutory provision or the certificate of
incorporation or these Bylaws, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
Director or stockholder, at his address as it appears in the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to Directors may also be given personally or by telegram or telecopy.
Section 2. Whenever notice is required to be given pursuant to a
statutory provision or the certificate of incorporation or Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the Board
of Directors and shall be the Chairman of the Board of Directors, a chief
executive officer, a president, a vice president, a secretary and a treasurer.
The Board of Directors may also appoint chief operating officers, additional
vice presidents and one or more assistant secretaries and assistant treasurers.
Any number of offices may be held by the same person, unless the certificate of
incorporation or these Bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a Chairman of the Board of
Directors, a chief executive officer, a
-8-
<PAGE> 9
president, one or more chief operating officers, one or more vice presidents, a
secretary and a treasurer.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the Corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the Corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
The Chairman of the Board of Directors
Section 6. The Chairman of the Board of Directors of the Corporation
shall preside at all meetings of stockholders and the Board of Directors. He
shall perform such duties and have such powers as usually appertain to the
office or as the Board of Directors may from time to time prescribe.
The Chief Executive Officer
Section 7. The Chief Executive Officer shall be a senior officer of the
Corporation and shall perform such duties and have such powers as usually
appertain to the office or as the Board of Directors may from time to time
prescribe. He shall have the authority to execute all documents and instruments
necessary to carry out the management of the business of the Corporation. He
shall report to the Board of Directors.
The President
Section 8. The president of the Corporation shall have general and
active management of the business of the Corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect. He
shall have the authority to execute all documents and instruments necessary to
carry out the management of the business of the Corporation. He shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
this Corporation. He shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe. He shall report to
the Board of Directors.
-9-
<PAGE> 10
The Chief Operating Officers
Section 9. The chief operating officers of the Corporation shall be
responsible for the day-to-day operations of the Corporation and shall have the
authority to execute all documents and instruments necessary to carry out such
operations. They shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe. They shall report to the
Board of Directors.
The Vice Presidents
Section 10. In the absence of the president or in the event of his
inability or refusal to act, the vice president (or in the event there is more
than one, the vice presidents in the order determined by the Board of Directors,
or, if there be no such determination, then in the order of their election),
shall perform the duties of the president, and when so acting, shall have all
the powers of and be subject to all the restrictions imposed upon the president.
The vice presidents shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
The Secretary and the Assistant Secretary
Section 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the Corporation, if any such seal be adopted by
resolution of the Board of Directors, and he, or an assistant secretary, shall
have authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by his signature or by the signature of such
assistant secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affirming
thereof by his signature.
Section 12. The assistant secretary (or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors, or, if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
The Treasurer and Assistant Treasurer
Section 13. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
-10-
<PAGE> 11
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the president and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as treasurer
and of the financial condition of the Corporation.
Section 14. The assistant treasurer (or, if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors,
or, if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
The Vice Chairman of the Board of Directors
Section 15. The Vice Chairman of the Board of Directors of the
Corporation shall perform such duties and have such powers as the Board
of Directors or Chief Executive Officer may from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the Corporation shall be entitled
to a certificate, signed by, or in the name of the Corporation by, the Chairman
of the Board, the president or a vice president and the secretary or an
assistant secretary of the Corporation, certifying the number of shares owned by
him in the Corporation. Any signature on the certificate may be a facsimile. If
the Corporation shall be authorized to issue more than one class of stock or
more than one series of any class of stock, the designations, preferences. and
relative participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in Section
202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
Section 2. Where a certificate is countersigned (1) by a transfer agent
other than the Corporation or its employee or, (2) by a registrar other than the
Corporation or its employee, any signature on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
-11-
<PAGE> 12
Lost Certificates
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Transfers of Stock
Section 4. Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by a
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Fixing Record Date
Section 5. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting prior to March 1, 1998, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Registered Stock Holders
Section 6. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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<PAGE> 13
ARTICLE VII
GENERAL PROVISIONS
Dividends
Section 1. Dividends upon the capital stock of the Corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the Board of Directors at any regular or special meetings, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
Directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the Directors shall think conducive to the interest of the
Corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
Checks
Section 3. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
Fiscal Year
Section 4. The fiscal year of the Corporation shall begin on the first
day of October of each year and end on the last day of September of each year,
unless otherwise determined by the Board of Directors.
Seal
Section 5. The corporate seal, if any such seal be adopted by
resolution of the Board of Directors, will be in such form as the Board of
Directors may prescribe. The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise placed thereon.
Interested Directors and Officers
Section 6.
(a) No contract or transaction between the Corporation and one
or more of its Directors or officers, or between the Corporation and any other
corporation, partnership, association,
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<PAGE> 14
or other organization in which one or more of its Directors or officers are
Directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the Director or officer is present at
or participates in the meeting of the board or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purposes, if;
(1) the material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the board or committee in good
faith authorizes the contract or transaction by the affirmative votes
of a majority of the disinterested Directors, even though the
disinterested Directors be less than a quorum; or
(2) the material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract for transaction
is specifically approved in good faith by vote of the stockholders; or
(3) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholder.
(b) Common or interested Directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE VIII
AMENDMENTS
These Bylaws may be altered, amended or repealed, or new Bylaws may be
adopted by the affirmative vote of a majority of the entire Board of Directors
at any meeting and without the consent or vote of the stockholders. These Bylaws
may be altered, amended or repealed, or new Bylaws may be adopted by the
stockholders at any regular meeting of the stockholders or at any special
meeting of the stockholders, if notice of such alteration, amendment, repeal or
adoption of new Bylaws is contained in the notice of such meeting, by the
holders of at least 66 2/3% of the total voting power of all shares of stock of
the Corporation entitled to vote in the election of directors, considered for
purposes of this Article VIII as one class.
-14-
<PAGE> 15
ARTICLE IX
INDEMNIFICATION AND INSURANCE
Section 1. The Corporation shall, to the full extent permitted by
Section 145 of Title 8 of the General Corporation Law of the State of Delaware,
as amended from time to time, indemnify all officers and directors of the
Corporation whom it may indemnify pursuant thereto. The provisions of this
Article IX shall apply to acts or omissions occurring before or after the
adoption hereof. The right of indemnification herein provided for shall not be
exclusive of any other right to which any Director or officer may now or
hereafter be entitled under any statute, bylaw, agreement, vote of stockholders
or disinterested Directors or otherwise, shall continue as to a person who has
ceased to be such Director or officer entitled to indemnification pursuant to
this Article IX and shall inure to the benefit of the heirs, executors and
administrators of such Director or officer.
Section 2. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
Director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article IX or of Section 145 of the
General Corporation Law of the State of Delaware.
Section 3. The indemnification provided by this Article IX shall be
subject to all valid and applicable laws, and, in the event this Article IX or
any of the provisions hereof or the indemnification contemplated hereby are
found to be inconsistent with or contrary to any such valid laws, the latter
shall be deemed to control, and this Article IX shall be regarded as modified
accordingly and, as so modified, shall continue in full force and effect.
-15-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Ace Electric, Inc.
Aladdin-Ward Electric, Inc.
Amber Electric, Inc.
ARC Electric, Inc.
Bexar Electric Company, Ltd.
Brink Electrical Construction Co., Inc.
BW/CEC LLC
BW Consolidated, Inc.
BW/CEC, Inc.
BW/BEC, Inc.
BW/BEC LLC
Calhoun Electric, Inc.
Calhoun Electric Company, Ltd.
Charles P. Bagby Company, Inc.
Commercial Electrical Contractors, Inc.
Cypress Electrical Contractors, Inc.
Daniel Electrical of Treasure Coast, Inc.
Daniel Electrical Contractors, Inc.
Davis Electrical Constructors, Inc.
East Coast Electric Co., Inc.
Electro-Tech, Inc.
Florida Industrial Electric, Inc.
Fort Worth Regional Electrical Systems, LLC
Galbraith Acquisition Company, Inc.
Galbraith Electric Company, Inc.
GANP Leasing Co., Inc.
General Partner, Inc.
Goss Electric Company, Inc.
H. R. Allen, Inc.
Hamer Electric Acquisition, Inc.
Hatfield Electric, Inc.
Hatfield Reynolds Electric Co.
Haymaker Electric, Ltd.
Haynes Electrical Supply, Inc.
Holland Electrical Systems, Inc.
Houston-Stafford Electric, Inc.
Houston-Stafford Management LLC
Houston-Stafford Holdings LLC
Howard Brothers Electric Co., Inc.
HSE Electrical Contractors LP
ICS Management, LLC
ICS Integrated Communication Services, LP
ICS Holdings, LLC
IES Management LP
IES Holdings LLC
Integrated Electrical Finance, Inc.
Integrated Communication Services, Inc.
J. W. Gray Management LLC
45
<PAGE> 2
J. W. Gray Holdings LLC
J. W. Gray Electric Company, Inc.
J. W. Gray Electrical Contractors, LP
Kayton Electric, Inc.
M-S Systems, Inc.
Mark Henderson, Inc.
MCS Enterprises, Inc.
Menninga Electric, Inc.
Mid-States Electric Company, Inc.
Mills Electric LP
Mills Electrical Contractors, Inc.
Mills Management LLC
Mills Electrical Holdings LLC
Muth Electric, Inc.
Paulin Electric Co., Inc.
Pollock Summit Electrical LP
Pollock Electric, Inc.
Pollock/Summit Holdings, Inc.
Raines Electric Co., Inc. (including CNR Services, Inc.)
Raines Management LLC
Raines Holdings LLC
Raines Electric LP
Reynolds Electric Corp.
RKT Electric, Inc.
Rodgers Electric Company
Spectrol, Inc.
Spoor Electric, Inc.
Stark Investments, Inc.
Summit Electric of Texas, Inc.
T & H Electrical Corporation
Thomas Popp & Co.
Thurman & O'Connell Corp.
Wright Electrical Contracting, Inc.
46
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 333-67113, 333-45447 and
333-45449).
ARTHUR ANDERSEN LLP
Houston, Texas
December 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
THE FINANCIAL STATEMENTS OF INTEGRATED ELECTRICAL SERVICES, INC. AS OF
SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 14,583
<SECURITIES> 0
<RECEIVABLES> 146,327
<ALLOWANCES> 4,160
<INVENTORY> 6,440
<CURRENT-ASSETS> 183,050
<PP&E> 30,784
<DEPRECIATION> 7,348
<TOTAL-ASSETS> 502,468
<CURRENT-LIABILITIES> 108,030
<BONDS> 0
0
0
<COMMON> 281
<OTHER-SE> 302,423
<TOTAL-LIABILITY-AND-EQUITY> 502,468
<SALES> 386,721
<TOTAL-REVENUES> 386,721
<CGS> 306,052
<TOTAL-COSTS> 373,690
<OTHER-EXPENSES> (335)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 728
<INCOME-PRETAX> 12,638
<INCOME-TAX> 12,690
<INCOME-CONTINUING> (52)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
<PAGE> 1
EXHIBIT 99.1
[INTEGRATED ELECTRICAL SERVICES LOGO]
INTEGRATED ELECTRICAL SERVICES, INC.
401(k) RETIREMENT SAVINGS PLAN
DECEMBER 9, 1998
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE I - DEFINITIONS....................................................1.1
1.01 "Account"....................................................1.1
1.02 "Accounting Date"............................................1.1
1.03 "Accrued Benefit"............................................1.1
1.04 "Administrative Committee"...................................1.1
1.05 "Beneficiary"................................................1.1
1.06 "Break In Service"...........................................1.1
1.07 "Code".......................................................1.1
1.08 "Company Stock"..............................................1.1
1.09 "Company Stock Fund..........................................1.2
1.10 "Compensation"...............................................1.2
1.11 "Determination of Top Heavy Status"..........................1.3
1.12 "Disability".................................................1.4
1.13 "Effective Date".............................................1.4
1.14 "Eligible Contributions".....................................1.4
1.15 "Employee"...................................................1.5
1.16 "Employer"...................................................1.5
1.17 "Employment Commencement Date"...............................1.5
1.18 "ERISA"......................................................1.5
1.19 "Highly Compensated Employee"................................1.5
1.20 "Hour of Service"............................................1.5
1.21 "Leased Employees"...........................................1.7
1.22 "Nonforfeitable".............................................1.7
1.23 "Nontransferable Annuity"....................................1.7
1.24 "Participant"................................................1.7
1.25 "Participating Employer "....................................1.7
1.26 "Plan".......................................................1.7
1.27 "Plan Administrator".........................................1.7
1.28 "Plan Entry Date"............................................1.8
1.29 "Plan Year"..................................................1.8
1.30 "Related Employers"..........................................1.8
1.31 "Service" ...................................................1.8
1.32 "Service for Predecessor Employer "..........................1.8
1.33 "Sponsor" ...................................................1.8
1.34 "Trust"......................................................1.8
1.35 "Trustee"....................................................1.8
1.36 "Trust Fund".................................................1.8
1.37 "Year of Service"............................................1.8
ARTICLE II - EMPLOYEE PARTICIPANTS.........................................2.1
2.01 Eligibility..................................................2.1
2.02 Year of Service - Participation..............................2.1
2.03 Break in Service - Participation.............................2.2
2.04 Participation upon Re-employment.............................2.2
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE III - EMPLOYER CONTRIBUTIONS AND FORFEITURES.......................3.1
3.01 Amount.......................................................3.1
3.02 Determination of Contribution................................3.2
3.03 Time of Payment of Contribution..............................3.2
3.04 Contribution Allocation......................................3.2
3.05 Forfeiture Allocation........................................3.4
3.06 Accrual of Benefit...........................................3.4
3.07 Limitations on Allocations to Participants' Accounts.........3.5
3.08 Definitions - Article III....................................3.7
ARTICLE IV - PARTICIPANT CONTRIBUTIONS.....................................4.1
4.01 Participant Rollover Contributions...........................4.1
4.02 Participant Rollover Contribution - Forfeitability...........4.1
4.03 Participant Rollover Contribution - Withdrawal/Distribution..4.1
4.04 Participant Contribution - Accrued Benefit...................4.1
ARTICLE V - TERMINATION OF SERVICE - PARTICIPANT VESTING...................5.1
5.01 Normal Retirement Age........................................5.1
5.02 Participant Disability or Death..............................5.1
5.03 Vesting Schedule.............................................5.1
5.04 Cash-Out Distributions to Partially-Vested Participants/
Restoration of Forfeited Accrued Benefit.....................5.1
5.05 Included Years of Service - Vesting..........................5.3
5.06 Forfeiture Occurs............................................5.3
ARTICLE VI - TIME AND METHOD OF PAYMENT OF BENEFITS........................6.1
6.01 Time of Payment of Accrued Benefit...........................6.1
6.02 Method of Payment of Accrued Benefit.........................6.3
6.03 Benefit Payment Elections....................................6.5
6.04 Annuity Distributions to Participants and Surviving Spouses..6.8
6.05 Waiver Election - Qualified Joint and Survivor Annuity.......6.9
6.06 Waiver Election - Preretirement Survivor Annuity............6.10
6.07 Distributions under Domestic Relations Orders...............6.11
ARTICLE VII - EMPLOYER ADMINISTRATIVE PROVISIONS...........................7.1
7.01 Information to Administrative Committee......................7.1
7.02 No Liability.................................................7.1
7.03 Indemnity of Certain Fiduciaries.............................7.1
7.04 Employer Direction of Investment.............................7.1
7.05 Amendment to Vesting Schedule................................7.2
ARTICLE VIII - PARTICIPANT ADMINISTRATIVE PROVISIONS.......................8.1
8.01 Beneficiary Designation......................................8.1
8.02 No Beneficiary Designation/Death of Beneficiary..............8.1
8.03 Personal Data to Administrative Committee....................8.2
8.04 Address for Notification.....................................8.2
8.05 Assignment or Alienation.....................................8.2
8.06 Litigation against the Trust.................................8.2
8.07 Appeal Procedure for Denial of Benefits......................8.2
8.08 Participant Direction of Investment..........................8.3
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ARTICLE IX - ADMINISTRATIVE COMMITTEE - DUTIES WITH RESPECT TO
PARTICIPANTS' ACCOUNTS.....................................................9.1
9.01 Members' Compensation, Expenses..............................9.1
9.02 Term.........................................................9.1
9.03 Powers.......................................................9.1
9.04 General......................................................9.1
9.05 Funding Policy...............................................9.2
9.06 Manner of Action.............................................9.2
9.07 Authorized Representative....................................9.2
9.08 Interested Member............................................9.3
9.09 Individual Accounts..........................................9.3
9.10 Value of Participant's Accrued Benefit.......................9.3
9.11 Allocation and Distribution of Net Income Gain or Loss.......9.3
9.12 Individual Statement.........................................9.4
9.13 Account Charged. ............................................9.4
9.14 Unclaimed Account Procedure..................................9.4
ARTICLE X - CUSTODIAN/TRUSTEE, POWERS AND DUTIES..........................10.1
10.01 Investment Funds...........................................10.1
10.02 Investment Options.........................................10.1
10.03 Change In Investment Options...............................10.1
10.04 Voting Of Company Stock....................................10.1
10.05 Tender and Exchange Offers.................................10.2
ARTICLE XI - PROVISIONS RELATING TO INSURANCE AND INSURANCE COMPANY.......11.1
11.01 Insurance Benefit..........................................11.1
ARTICLE XII - MISCELLANEOUS...............................................12.1
12.01 Evidence...................................................12.1
12.02 No Responsibility for Employer Action......................12.1
12.03 Fiduciaries not Insurers...................................12.1
12.04 Waiver of Notice...........................................12.1
12.05 Successors.................................................12.1
12.06 Word Usage.................................................12.1
12.07 State Law..................................................12.1
12.08 Employment Not Guaranteed..................................12.2
ARTICLE XIII - EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION..................13.1
13.01 Exclusive Benefit..........................................13.1
13.02 Amendment by Employer......................................13.1
13.03 Discontinuance.............................................13.2
13.04 Full Vesting on Termination................................13.2
13.05 Merger/Direct Transfer.....................................13.2
13.06 Termination................................................13.3
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ARTICLE XIV - PROVISIONS RELATING TO CODE SECTION 401(k) AND TO CODE
SECTION 401(m)............................................................14.1
14.01 401(k) Arrangement.........................................14.1
14.02 Definitions................................................14.1
14.03 Annual Elective Deferral Limitation........................14.4
14.04 Actual Deferral Percentage ("ADP") Test....................14.4
14.05 Nondiscrimination Rules for Employer Matching Contributions/
Participant Nondeductible Contributions....................14.7
14.06 Multiple Use Limitation....................................14.10
14.07 Forfeiture of Matching Contribution........................14.10
ARTICLE XV - EXTENSION OF PLAN TO RELATED EMPLOYERS.......................15.1
15.01 Adoption by Related Employers..............................15.1
15.02 Termination of Participation...............................15.1
15.03 Authority..................................................15.1
ARTICLE XVI MERGED RELATED EMPLOYER PLANS
16.01 Applicability of Provisions to Related Employer Plans......16.1
</TABLE>
<PAGE> 6
INTEGRATED ELECTRICAL SERVICES, INC. 401(k) RETIREMENT SAVINGS PLAN
WITNESSETH:
Integrated Electrical Services, Inc., a corporation organized under the
laws of the State of Delaware, hereby establishes the Plan as of the Effective
Date for the administration and distribution of contributions made by the
Employer for the purpose of providing retirement benefits for eligible
Employees. The provisions of this Plan apply solely to an Employee whose
employment with the Employer terminates on or after the Effective Date of the
Plan. If an Employee's employment with the Employer terminates prior to the
Effective Date, that Employee is not entitled to any benefit under the Plan
except to the extent such Employee's benefit under a plan has been merged into
the Plan.
Now, therefore, in consideration of their mutual covenants, the
Employer and the Trustee agree as follows:
ARTICLE I - DEFINITIONS
1.01 "ACCOUNT" means the separate account(s) which the Administrative
Committee or the Trustee maintains for a Participant under the Plan.
1.02 "ACCOUNTING DATE" is each business day of the Plan Year on which
the principal national securities markets are open.
1.03 "ACCRUED BENEFIT" means the amount standing in a Participant's
Account(s) as of any date derived from both Employer contributions and Employee
contributions, if any.
1.04 "ADMINISTRATIVE COMMITTEE" means the Administrative Committee as
appointed pursuant to section 9.01.
1.05 "BENEFICIARY" is a person designated by a Participant (or the
Plan) who is or may become entitled to a benefit under the Plan. A Beneficiary
who becomes entitled to a benefit under the Plan remains a Beneficiary under the
Plan until the Trustee has fully distributed his benefit to him. A Beneficiary's
right to (and the Plan Administrator's, the Administrative Committee's or a
Trustee's duty to provide to the Beneficiary) information or data concerning the
Plan does not arise until he first becomes entitled to receive a benefit under
the Plan.
1.06 "BREAK IN SERVICE" means a Plan Year in which the Employee does
not complete more than 500 Hours of Service.
1.07 "CODE" means the Internal Revenue Code of 1986, as amended.
1.08 "COMPANY STOCK" means common stock issued by the Sponsor, or by a
corporation which is a member of the same controlled group of corporations,
having a combination of voting power and dividend rights equal to or in excess
of -
(a) that class of common stock of the Sponsor (or any other such
corporation) having the greatest voting power; and
1.1
<PAGE> 7
(b) that class of common stock of the Sponsor (or of any other such
corporation) having the greatest dividend rights.
1.09 "COMPANY STOCK FUND" means the total interest of the Plan invested
in Company Stock, which may be 100% if so directed by Participants.
1.10 "COMPENSATION" means W-2 wages as defined under Code Section 3401
(a) for purposes of federal income tax withholding at the source, and all
payments to an Employee in the course of the Employer's trade or business, for
which the Employer must furnish the Employee a written statement under Code
Sections 6041(d) and 6051(a)(3) (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips and bonuses). As long as the
instructions to Form W-2, Box 10, are consistent with the instructions for the
1990 or 1991 Form W-2, the Employer may treat the amount reported in Box 10 as
satisfying this definition. The Administrative Committee will determine
Compensation by disregarding any rules limiting the remuneration included as
wages based on the nature or location of the employment or services performed.
Compensation also includes elective contributions made by the Employer on the
Employee's behalf. "Elective contributions" are amounts excludible from the
Employee's gross income under Code Section 125, 402(e)(3) or 402(h) and
contributed by the Employer, at the Employee's election, to a Code Section
401(k) arrangement or a cafeteria plan. A Compensation payment includes
Compensation paid by the Employer to an Employee through another person under
the common paymaster provisions in Code Section 3121(s) and 3306(p).
Any reference in this Plan to Compensation is a reference to the
definition in this Section 1.10, unless the Plan reference specifies a
modification to this definition. The Administrative Committee will take into
account only Compensation actually paid for the relevant period.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the annual
compensation of each Employee taken into account under the Plan shall not exceed
$160,000, as adjusted by the Commissioner for increases in the cost of living in
accordance with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment
in effect for a calendar year applies to any period, not exceeding 12 months,
over which compensation is determined (determination period) beginning in such
calendar year. If a determination period consists of fewer than 12 months, the
annual compensation limit will 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.
For purposes of determining whether the Plan discriminates in favor of
Highly Compensated Employees, Compensation means Compensation as defined in this
Section 1.10, except the Employer may elect to include or to exclude elective
contributions. The Employer's election described above must be consistent and
uniform with respect to all Employees and all plans of the Employer for any
particular Plan Year. The Employer, irrespective of this clause, may elect to
exclude from this nondiscrimination definition of Compensation any items of
Compensation excludible under Code Section 414(s) and the applicable Treasury
regulations, provided such adjusted definition conforms to the nondiscrimination
requirements of those regulations.
1.2
<PAGE> 8
1.11 DETERMINATION OF TOP HEAVY STATUS. If this Plan is the only
qualified plan maintained by the Employer, the Plan is top heavy for a Plan Year
if the top heavy ratio as of the Determination Date exceeds 60%. The Top Heavy
Ratio is a fraction, the numerator of which is the sum of the present value of
Accrued Benefits of all Key Employees as of the Determination Date and the
denominator of which is a similar sum determined for all Employees. The
Administrative Committee must include in the top heavy ratio, as part of the
present value of Accrued Benefits, any contribution not made as of the
Determination Date but includible under Code Section 416 and the applicable
Treasury regulations, and distributions made within the Determination Period.
The Administrative Committee must calculate the top heavy ratio by disregarding
the Accrued Benefit (and distributions, if any, of the Accrued Benefit) of any
Non-Key Employee who was formerly a Key Employee, and by disregarding the
Accrued Benefit (including distributions, if any, of the Accrued Benefit) of an
individual who has not received credit for at least one Hour of Service with the
Employer during the Determination Period. The Administrative Committee must
calculate the top heavy ratio, including the extent to which it must take into
account distributions, rollovers and transfers, in accordance with Code Section
416 and the regulations under that Code section. If the Employer maintains other
qualified plans (including a simplified employee pension plan), or maintained
another such plan which now is terminated, this Plan is top heavy only if it is
part of the Required Aggregation Group, and the top heavy ratio for the Required
Aggregation Group and for the Permissive Aggregation Group, if any, each exceeds
60%. The Administrative Committee will calculate the top heavy ratio in the same
manner as required by the first paragraph of this Section 1.11, taking into
account all plans within the Aggregation Group. To the extent the Administrative
Committee must take into account distributions to a Participant, the
Administrative Committee must include distributions from a terminated plan which
would have been part of the Required Aggregation Group if it were in existence
on the Determination Date.
The Administrative Committee will calculate the present value of
accrued benefits under defined benefit plans or simplified employee pension
plans included within the group in accordance with the terms of those plans,
Code Section 416 and the regulations under that Code section. If a Participant
in a defined benefit plan is a Non-Key Employee, the Administrative Committee
will determine his accrued benefit under the accrual method, if any, which is
applicable uniformly to all defined benefit plans maintained by the Employer or,
if there is no uniform method, in accordance with the slowest accrual rate
permitted under the fractional rule accrual method described in Code Section
411(b)(1)(C). To calculate the present value of benefits from a defined benefit
plan, the Administrative Committee will use the actuarial assumptions (interest
and mortality only) prescribed by the defined benefit plan(s) to value benefits
for top heavy purposes. If an aggregated plan does not have a valuation date
coinciding with the Determination Date, the Administrative Committee must value
the Accrued Benefits in the aggregated plan as of the most recent valuation date
falling within the twelve-month period ending on the Determination Date, except
as Code Section 416 and applicable Treasury regulations require for the first
and second plan year of a defined benefit plan. The Administrative Committee
will calculate the top heavy ratio with reference to the Determination Dates
that fall within the same calendar year.
Definitions. For purposes of applying the provisions of this Section
1.11:
(a) "Key Employee" means, as of any Determination Date, any Employee or
former Employee (or Beneficiary of such Employee) who, for any Plan Year in the
Determination Period: (i) has Compensation in excess of 50% of the dollar amount
prescribed in Code Section 415(b)(1)(A) (relating to defined benefit plans) and
is an officer of the Employer; (ii) has Compensation in excess of the dollar
amount prescribed in Code Section 415(c)(1)(A) (relating to
1.3
<PAGE> 9
defined contribution plans) and is one of the Employees owning the ten largest
interests in the Employer; (iii) is a more than 5% owner of the Employer; or
(iv) is a more than 1% owner of the Employer and has Compensation of more than
$150,000. The constructive ownership rules of Code Section 318 (or the
principles of that section, in the case of an unincorporated Employer,) will
apply to determine ownership in the Employer. The number of officers taken into
account under clause (i) will not exceed the greater of 3 or 10% of the total
number (after application of the Code Section 414(q) exclusions) of Employees,
but no more than 50 officers. The Administrative Committee will make the
determination of who is a Key Employee in accordance with Code Section 416(I)(1)
and the regulations under that Code section.
(b) "Non-Key Employee" is an Employee who does not meet the definition
of Key Employee.
(c) "Compensation" means Compensation as determined under Section 1.10
for purposes of identifying Highly Compensated Employees.
(d) "Required Aggregation Group" means: (1) each qualified plan of the
Employer in which at least one Key Employee participates at any time during the
Determination Period; and (2) any other qualified plan of the Employer which
enables a plan described in clause (1) to meet the requirements of Code
Section 401(a)(4) or of Code Section 410.
(e) "Permissive Aggregation Group" is the Required Aggregation Group
plus any other qualified plans maintained by the Employer, but only if such
group would satisfy in the aggregate the requirements of Code Section 401(a)(4)
and of Code Section 410. The Administrative Committee will determine the
Permissive Aggregation Group.
(f) "Employer" means the Sponsor and each Participating Employer.
(g) "Determination Date" for any Plan Year is the Accounting Date of
the preceding Plan Year or, in the case of the first Plan Year of the Plan, the
last Accounting Date of that Plan Year. The "Determination Period" is the 5 year
period ending on the Determination Date.
1.12 "DISABILITY" means the Participant is totally and permanently
disabled pursuant to Title II of the Federal Social Security Act. The
Administrative Committee may adopt alternative disability standards. The Plan
considers a Participant disabled on the date the Administrative Committee
determines the Participant satisfies the definition of disability. The
Administrative Committee may require a Participant to submit to a physical
examination in order to confirm disability. The Administrative Committee will
apply the provisions of this Section in a nondiscriminatory, consistent and
uniform manner.
1.13 "EFFECTIVE DATE" of this Plan is January 1, 1999.
1.14 "ELIGIBLE CONTRIBUTIONS" means the deferral contributions
allocated to the Participant for the matching contributions allocation period.
Eligible Contributions do not include deferral contributions that are excess
deferrals under Section 14.03. For this purpose: (a) excess deferrals relate
first to deferral contributions for the Plan Year not otherwise eligible for a
matching contribution; and (2) if the Plan Year is not a calendar year, the
excess deferrals for a Plan Year are the last deferrals made for a calendar
year.
1.4
<PAGE> 10
1.15 "EMPLOYEE" means any common law employee of the Sponsor and the
Related Employers and any Leased Employee.
1.16 "EMPLOYER" means the Sponsor and each Participating Employer.
1.17 "EMPLOYMENT COMMENCEMENT DATE" means the date on which the
Employee first performs an Hour of Service.
1.18 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.19 "HIGHLY COMPENSATED EMPLOYEE" means an Employee (as determined in
Code Section 414(q)) who, during the Plan Year or during the preceding Plan
Year is more than a 5% owner of the Employer (applying the constructive
ownership rules of Code Section 318, and applying the principles of Code
Section 318, for an unincorporated entity); or who, during the preceding Plan
Year has Compensation in excess of $80,000 (as adjusted by the Commissioner of
Internal Revenue for the relevant year) and, if the Employer elects, was part
of the top-paid 20% group of Employees (based on Compensation for the preceding
Plan Year).
For purposes of this Section 1.19, "Compensation" means Compensation as
defined in Section 1.10, except any exclusions from Compensation do not apply,
and Compensation must include "elective contributions" (as defined in Section
1.10). The Administrative Committee must make the determination of who is a
Highly Compensated Employee, including the determinations of the number and
identity of the top paid 20% group, consistent with Code Section 414(q) and
regulations issued under that Code Section. The Employer may make a calendar
year data election to determine the Highly Compensated Employees for the Plan
Year, as prescribed by Treasury regulations or by other guidance published in
the Internal Revenue Bulletin. A calendar year data election must apply to all
plans of the Employer which reference the highly compensated employee definition
in Code Section 414(q).
The term "Highly Compensated Employee" also includes any former
Employee who separated from Service (or has a deemed Separation from Service, as
determined under Treasury regulations) prior to the Plan Year, performs no
Service for the Employer during the Plan Year, and was a Highly Compensated
Employee either for the separation year or any Plan Year ending on or after his
55th birthday.
1.20 "HOUR OF SERVICE" means:
(a) Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to payment,
for the performance of duties. The Administrative Committee credits Hours of
Service under this paragraph (a) to the Employee for the computation period in
which the Employee performs the duties, irrespective of when paid;
1.5
<PAGE> 11
(b) Each Hour of Service for back pay, irrespective of mitigation of
damages, to which the Employer or Related Employer has agreed or for which the
Employee has received an award. The Administrative Committee credits Hours of
Service under this paragraph (b) to the Employee for the computation period(s)
to which the award or the agreement pertains rather than for the computation
period in which the award, agreement or payment is made; and
(c) Each Hour of Service for which the Employer or Related Employer,
either directly or indirectly, pays an Employee, or for which the Employee is
entitled to payment (irrespective of whether the employment relationship is
terminated), for reasons other than for the performance of duties during a
computation period, such as leave of absence, vacation, holiday, sick leave,
illness, incapacity (including disability), layoff, jury duty or military duty.
The Administrative Committee will credit no more than 501 Hours of Service under
this paragraph (c) to an Employee on account of any single continuous period
during which the Employee does not perform any duties (whether or not such
period occurs during a single computation period). The Administrative Committee
credits Hours of Service under this paragraph (c) in accordance with the rules
of paragraphs (b) and (c) of Labor Reg. Section 2530.200b-2, which the Plan, by
this reference, specifically incorporates in full within this paragraph (c).
The Administrative Committee will not credit an Hour of Service under
more than one of the above paragraphs. A computation period for purposes of this
Section 1.20 is the Plan Year, Year of Service period, Break in Service period
or other period, as determined under the Plan provision for which the
Administrative Committee is measuring an Employee's Hours of Service. The
Administrative Committee will resolve any ambiguity with respect to the
crediting of an Hour of Service in favor of the Employee.
(A) METHOD OF CREDITING HOURS OF SERVICE. The Administrative Committee will
credit every Employee with Hours of Service on the basis of months of
employment. A Participant shall receive credit for 190 Hours of Service for each
month or partial month for which and Employee receives credit for one Hour of
Service.
(B) MATERNITY/PATERNITY LEAVE. Solely for purposes of determining whether
the Employee incurs a Break in Service under any provision of this Plan, the
Administrative Committee must credit Hours of Service during an Employee's
unpaid absence period due to maternity or paternity leave. The Administrative
Committee considers an Employee on maternity or paternity leave if the
Employee's absence is due to the Employee's pregnancy, the birth of the
Employee's child, the placement with the Employee of an adopted child, or the
care of the Employee's child immediately following the child's birth or
placement. The Administrative Committee credits Hours of Service under this
paragraph on the basis of the number of Hours of Service the Employee would
receive if he were paid during the absence period or, if the Administrative
Committee cannot determine the number of Hours of Service the Employee would
receive, on the basis of 8 hours per day during the absence period. The
Administrative Committee will credit only the number (not exceeding 501) of
Hours of Service necessary to prevent an Employee's Break in Service. The
Administrative Committee credits all Hours of Service described in this
paragraph to the computation period in which the absence period begins or, if
the Employee does not need these Hours of Service to prevent a Break in Service
in the computation period in which his absence period begins, the
Administrative Committee credits these Hours of Service to the immediately
following computation period.
1.6
<PAGE> 12
(C) QUALIFIED MILITARY SERVICE. Hour of Service also includes any Service
the Plan must credit in order to satisfy the crediting of Service requirements
of Code Section 414(u).
1.21 LEASED EMPLOYEES. The Plan treats a Leased Employee as an
Employee. A Leased Employee is an individual (who otherwise is not an Employee)
who, pursuant to a leasing agreement between the Employer or Related Employer
and any other person, has performed services for the Employer (or for the
Employer and any persons related to the Employer within the meaning of Code
Section 144(a)(3)) on a substantially full time basis for at least one year and
who performs such services under primary direction or control of the Employer
or Related Employer. If a Leased Employee is treated as an Employee by reason
of this Section 1.21 of the Plan, "Compensation" includes Compensation from the
leasing organization which is attributable to services performed for the
Employer or Related Employer.
(A) SAFE HARBOR PLAN EXCEPTION. The Plan does not treat a Leased Employee
as an Employee if the leasing organization covers the employee in a safe harbor
plan and, prior to application of this safe harbor plan exception, 20% or less
of the Employees (other than Highly Compensated Employees) are Leased
Employees. A safe harbor plan is a money purchase pension plan providing
immediate participation, full and immediate vesting, and a nonintegrated
contribution formula equal to at least 10% of the employee's compensation
without regard to employment by the leasing organization on a specified date.
The safe harbor plan must determine the 10% contribution on the basis of
compensation as defined in Code Section 415(c)(3) plus elective contributions
(as defined in Section 1.10).
(B) OTHER REQUIREMENTS. The Administrative Committee must apply this
Section 1.21 in a manner consistent with Code Sections 414(n) and 414(o) and the
regulations issued under those Code sections.
1.22 "NONFORFEITABLE" means a Participant's or Beneficiary's
unconditional claim, legally enforceable against the Plan, to the Participant's
Accrued Benefit.
1.23 "NONTRANSFERABLE ANNUITY" means an annuity which by its terms
provides that it may not be sold, assigned, discounted, pledged as collateral
for a loan or security for the performance of an obligation or for any purpose
to any person other than the insurance company. If the Plan distributes an
annuity contract, the contract must be a Nontransferable Annuity.
1.24 "PARTICIPANT" is an Employee or former Employee who has an Account
under the Plan and each other Employee who is eligible to be and becomes a
Participant in accordance with the provisions of Section 2.01.
1.25 "PARTICIPATING EMPLOYER" means each Related Employer that adopts
the Plan in accordance with the terms of Article XV.
1.26 "PLAN" means the retirement plan established by the Sponsor in the
form of this Agreement, designated as the Integrated Electrical Services, Inc.
401(k) Retirement Savings Plan.
1.27 "PLAN ADMINISTRATOR" is the Sponsor.
1.7
<PAGE> 13
1.28 "PLAN ENTRY DATE" means the Effective Date and each January 1,
April 1, July 1, October 1.
1.28 "PLAN YEAR" means the fiscal year of the Plan, a 12 consecutive
month period ending every December 31.
1.30 "RELATED EMPLOYERS" A related group is a controlled group of
corporations (as defined in Code Section 414(b)), trades or businesses (whether
or not incorporated) which are under common control (as defined in Code Section
414(c)) or an affiliated service group (as defined in Code Section 414(m) or in
Code Section 414(o)). If the Employer is a member of a related group, the
related group members shall be included for purposes of crediting Hours of
Service, determining Years of Service and Breaks in Service under Articles II
and V, applying the Coverage Test under Section 3.06(E), applying the
limitations on allocations in Part 2 of Article III, applying the top heavy
rules and the minimum allocation requirements of Article III, the definitions
of Employee, Highly Compensated Employee, Compensation and Leased Employee, and
for any other purpose required by the applicable Code section or by a Plan
provision.
1.31 "SERVICE" means any period of time the Employee is in the employ
of the Employer or a Related Employer, including any period the Employee is on
an unpaid leave of absence authorized by the Employer or a Related Employer
under a uniform, nondiscriminatory policy applicable to all Employees.
"Separation from Service" means the Employee no longer has an employment
relationship with the Employers or Related Employers.
1.32 "SERVICE FOR PREDECESSOR EMPLOYER" The Plan takes into account all
service of all Employees with any entity acquired by (either by acquisition of
stock or assets) or merged into Integrated Electrical Services, Inc. or its
Related Employers for purposes of participation under Article II and for
purposes of vesting under Article V.
1.33 "SPONSOR" means Integrated Electrical Services, Inc.
1.34 "TRUST" means the separate Trust created under the Plan.
1.35 "TRUSTEE" means American Industries Trust Company, or any
successor who in writing accepts the position of Trustee.
1.36 "TRUST FUND" means all property of every kind held or acquired by
the Plan.
1.37 "YEAR OF SERVICE" means an eligibility computation period during
which the Employee completes not less than 1,000 Hours of Service. The initial
eligibility computation period is the first 12 consecutive month period measured
from the Employment Commencement Date. The Plan measures the subsequent periods
by reference to the Plan Year, beginning with the Plan Year which includes the
first anniversary of the Employee's Employment Commencement Date. For purposes
of vesting under Section 5.03, Year of Service means any Plan Year during which
an Employee completes not less than 1,000 Hours of Service with the Employer.
* * * * * * * * * * * * * * *
1.8
<PAGE> 14
ARTICLE II - EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY. Each Employee of the Employer (other than an Excluded
Employee) is eligible to become a Participant in the Plan on the Plan Entry Date
(if employed on that date) immediately following the later of the date on which
he completes one Year of Service or attains age 21."Plan Entry Date" means the
Effective Date and each January 1, April 1, July 1, October 1 thereafter.
An Employee is an Excluded Employee if he is:
(a) a member of a collective bargaining unit, unless the collective
bargaining agreement provides otherwise. An Employee is a member of a collective
bargaining unit if he is 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 one or more employers if there is evidence
that retirement benefits were the subject of good faith bargaining between such
employee representatives and such employer or employers. The term "employee
representatives" does not include an organization more than one half of the
members of which are owners, officers or executives of the Employer;
(b) a nonresident alien who does 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));
(c) a Leased Employee; or
(d) an Employee of a Related Employer that is not a Participating Employer.
Not withstanding the above, an Employee (other than an Excluded Employee) who,
as of the effective date of a Related Employer's adoption of this Plan as a
Participating Employer, was a participant in a qualified plan of such Related
Employer shall be eligible to become a Participant under this Plan on such
adoption date, provided such other plan is either merged into this Plan,
"frozen", or terminated as of such date.
If a Participant has not separated from Service but becomes an Excluded
Employee, then during the period such a Participant is an Excluded Employee, the
Administrative Committee will limit that Participant's sharing in the allocation
of Employer contributions and Participant forfeitures, if any, under the Plan by
disregarding his Compensation paid by the Employer for services rendered in his
capacity as an Excluded Employee. However, during such period of exclusion, the
Participant, without regard to employment classification, continues to receive
credit for vesting under Article V for each included Year of Service and the
Participant's Account continues to share fully in Trust Fund allocations under
Section 9.11.
If an Excluded Employee who is not a Participant becomes eligible to participate
in the Plan by reason of a change in employment classification, he will
participate in the Plan immediately if he has satisfied the eligibility
conditions of Section 2.01 and would have been a Participant had he not been an
Excluded Employee during his period of Service. Furthermore, the Plan takes into
account all of the Participant's included Years of Service with the Employer as
an Excluded Employee for purposes of vesting credit under Article V.
2.1
<PAGE> 15
2.02 YEAR OF SERVICE - PARTICIPATION. For purposes of an Employee's
participation in the Plan under Section 2.01, the Plan takes into account all of
his Years of Service except as provided in Section 2.03.
2.03 BREAK IN SERVICE - PARTICIPATION. For purposes of participation in
the Plan, the Plan does not apply any Break in Service rule.
2.04 PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose employment
with the Employer and Related Employers terminates may re-enter the Plan on the
date of his re-employment with the Employer. An Employee who satisfies the
Plan's eligibility conditions but who terminates employment with the Employer
and Related Employers prior to becoming a Participant will become a Participant
on the later of the Plan Entry Date on which he would have entered the Plan had
he not terminated employment or the date of his re-employment with the Employer.
Any Employee who terminates employment prior to satisfying the Plan's
eligibility conditions may become a Participant upon his rehire in accordance
with the provisions of Section 2.01.
* * * * * * * * * * * * * * *
2.2
<PAGE> 16
ARTICLE III - EMPLOYER CONTRIBUTIONS AND FORFEITURES
PART 1. AMOUNT OF EMPLOYER CONTRIBUTIONS AND PLAN ALLOCATIONS: SECTIONS 3.01
THROUGH 3.06
3.01 AMOUNT.
(A) CONTRIBUTION FORMULA. For each Plan Year, the Employer will
contribute to the Trust the following amounts:
DEFERRAL CONTRIBUTIONS. The amount by which the Participants have
elected to reduce their Compensation for the Plan Year under their salary
reduction agreements on file with the Administrative Committee.
MATCHING CONTRIBUTIONS. An amount equal to a percentage the Sponsor may
from time to time establish for the Employers of the eligible Participant's
Eligible Contributions. The Sponsor will determine the amount of its matching
contributions by disregarding Participants not entitled to an allocation of
matching contributions as provided in section 3.06(B).
QUALIFIED NONELECTIVE CONTRIBUTIONS. The amount the Sponsor, in its
sole discretion, designates as qualified nonelective contributions.
NONELECTIVE CONTRIBUTIONS. For each Plan Year, the Employer will
contribute to the Trust the additional amount, if any, which the Sponsor may
from time to time deem advisable.
RESTRICTIONS ON CONTRIBUTIONS. Although the Employer may contribute to
this Plan irrespective of whether it has net profits, the Employer intends the
Plan to be a profit sharing plan for all purposes of the Code. The Employer may
not make a contribution to the Trust for any Plan Year to the extent the
contribution would exceed the Participant's Maximum Permissible Amounts. See
Part 2 of this Article III.
Notwithstanding any provision in this Article III to the contrary, the
Plan will provide contributions and Service credit with respect to qualified
military service in accordance with Code Section 414(u).
(B) RETURN OF CONTRIBUTIONS. The Employer contributes to this Plan on the
condition its contribution is not due to a mistake of fact and the Internal
Revenue Service will not disallow the deduction for its contribution. The
Trustee, upon written request from the Employer, must return to the Employer the
amount of the Employer's contribution made by the Employer by mistake of fact or
the amount of the Employer's contribution disallowed as a deduction under Code
Section 404. The Trustee will not return any portion of the Employer's
contribution under the provisions of this paragraph more than one year after:
(a) The Employer made the contribution by mistake of fact; or
(b) The disallowance of the contribution as a deduction, and then,
only to the extent
3.1
<PAGE> 17
of the disallowance.
The Trustee will not increase the amount of the Employer contribution
returnable under this Section 3.01 for any earnings attributable to the
contribution, but the Trustee will decrease the Employer contribution returnable
for any losses attributable to it. The Trustee may require the Employer to
furnish it whatever evidence the Trustee deems necessary to enable the Trustee
to confirm the amount the Employer has requested be returned is properly
returnable under ERISA.
3.02 DETERMINATION OF CONTRIBUTION. The Employer, from its records,
determines the amount of any contributions to be made by it to the Trust under
the terms of the Plan. Such contribution (excluding Deferral Contributions) may,
at the discretion of the Sponsor, be made in whole or in part in the form of
Company Stock to the extent such contribution is directed to be invested in the
Company Stock Fund.
3.03 TIME OF PAYMENT OF CONTRIBUTION. The Employer may pay its
contribution for each Plan Year in one or more installments without interest.
The Employer must make its contribution to the Plan within the time prescribed
by the Code or applicable Treasury regulations.
3.04 CONTRIBUTION ALLOCATION.
(A) METHOD OF ALLOCATION. To make allocations under the Plan, the
Administrative Committee must establish the following accounts for each
Participant: Deferral Contributions Account, Regular Matching Contributions
Account, Qualified Nonelective Contributions Account, Employer Contributions
Account.
DEFERRAL CONTRIBUTIONS. The Administrative Committee will allocate to
each Participant's Deferral Contributions Account the deferral contributions the
Employer makes to the Trust on behalf of the Participant. The Administrative
Committee will make this allocation as of the date the deferral contributions
are deposited to the Trust.
MATCHING CONTRIBUTIONS. The Administrative Committee will allocate
matching contributions as of the date the contributions is deposited to the
Trust. The matching contribution formula will be applied on a payroll-by-payroll
basis. The Administrative Committee will allocate the matching contributions to
the Matching Contributions Account of each Participant who satisfies the accrual
requirements for matching contributions specified in Section 3.06.
QUALIFIED NONELECTIVE CONTRIBUTIONS. If the Sponsor, at the time of
contribution, designates a contribution to be a qualified nonelective
contribution for the Plan Year, the Administrative Committee will allocate that
qualified nonelective contribution to the Qualified Nonelective Contributions
Account of each Participant eligible for an allocation of qualified nonelective
contributions. The Administrative Committee will make the allocation to each
eligible Participant's Account in the same ratio that the Participant's
Compensation for the Plan Year bears to the total Compensation of all eligible
Participants for the Plan Year. For purposes of allocating qualified nonelective
contributions, the term "eligible Participant" means any Participant who is a
Nonhighly Compensated Employee and who satisfies the conditions of Section 3.06.
3.2
<PAGE> 18
NONELECTIVE CONTRIBUTIONS. Subject to any restoration required under
Section 5.04, the Administrative Committee will allocate and credit each annual
Employer contribution (and Participant forfeitures, if any) to the Employer
Contributions Account of each Participant who satisfies the conditions of
Section 3.06.The Administrative Committee will make this allocation in the same
ratio that each such Participant's Compensation for the Plan Year bears to the
total Compensation of all such Participants for the Plan Year.
(B) TOP HEAVY MINIMUM ALLOCATION.
(1) MINIMUM ALLOCATION. If the Plan is top heavy in any Plan Year:
(a) Each Non-Key Employee who is a Participant and is employed
by the Employer on the last day of the Plan Year will receive a top heavy
minimum allocation for that Plan Year, irrespective of whether he satisfies the
Hours of Service condition under Section 3.06; and
(b) The top heavy minimum allocation is the lesser of 3% of the
Non-Key Employee's Compensation for the Plan Year or the highest contribution
rate for the Plan Year made on behalf of any Key Employee. However, if a defined
benefit plan maintained by the Employer which benefits a Key Employee depends on
this Plan to satisfy the anti-discrimination rules of Code Section 401(a)(4) or
the coverage rules of Code Section 410 (or another plan benefiting the Key
Employee so depends on such defined benefit plan), the top heavy minimum
allocation is 3% of the Non-Key Employee's Compensation regardless of the
contribution rate for the Key Employees.
(2) SPECIAL DEFINITIONS. For purposes of this Section 3.04(B), the
term "Participant" includes any Employee otherwise eligible to participate in
the Plan but who is not a Participant because of his failure to make elective
deferrals under a Code Section 401(k) arrangement or because of his failure to
make mandatory employee contributions. For purposes of clause (b),
"Compensation" means Compensation as defined in Section 1.10, except: (i)
Compensation does not include elective contributions; (ii) any exclusions from
Compensation (other than the exclusion of elective contributions) do not apply;
and (iii) any modification to the definition of Compensation in Section 3.06
does not apply.
(3) DETERMINING CONTRIBUTION RATES. For purposes of this Section
3.04(B), a Participant's contribution rate is the sum of Employer contributions
(not including Employer contributions to Social Security) and forfeitures
allocated to the Participant's Account for the Plan Year divided by his
Compensation for the entire Plan Year. However, for purposes of satisfying a
Participant's top heavy minimum allocation in Plan Years beginning after
December 31, 1988, a Participant's contribution rate does not include any
elective contributions under a Code Section 401(k) arrangement nor any Employer
matching contributions necessary to satisfy nondiscrimination requirements of
Code Section 401(k) or of Code Section 401(m). To determine a Participant's
contribution rate, the Administrative Committee must treat all qualified top
heavy defined contribution plans maintained by the Employer (or by any Related
Employers) as a single plan.
(4) NO ALLOCATIONS. If, for a Plan Year, there are no allocations
of Employer
3.3
<PAGE> 19
contributions or forfeitures for any Key Employee, the Plan does not require any
top heavy minimum allocation for the Plan Year, unless a top heavy minimum
allocation applies because of the maintenance by the Employer of more than one
plan.
(5) METHOD OF COMPLIANCE. The Plan will satisfy the top heavy
minimum allocation in accordance with this Section 3.04(B)(5). The
Administrative Committee first will allocate the Employer contributions (and
Participant forfeitures, if any) for the Plan Year in accordance with the
allocation formula under Section 3.04(A). The Employer then will contribute an
additional amount for the Account of any Participant entitled under this Section
3.04(B) to a top heavy minimum allocation and whose contribution rate for the
Plan Year, under this Plan and any other plan aggregated under paragraph (3), is
less than the top heavy minimum allocation. The additional amount is the amount
necessary to increase the Participant's contribution rate to the top heavy
minimum allocation. The Administrative Committee will allocate the additional
contribution to the Account of the Participant on whose behalf the Employer
makes the contribution.
3.05 FORFEITURE ALLOCATION. The amount of a Participant's Accrued
Benefit forfeited under the Plan is a Participant forfeiture. Subject to any
restoration allocation required under Sections 5.04 or 9.14 and the special
forfeiture allocation for certain excess aggregate contributions described in
Section 14.05, the Administrative Committee first will use Participant
forfeitures to pay the Plan's ordinary and necessary administrative expenses for
the Plan Year. The Administrative Committee will then allocate a Participant
forfeiture in accordance with Section 3.04, to reduce the Employer matching
contributions and nonelective contribution otherwise to be made by the Employer
for the Plan Year in which the forfeiture occurs. The Administrative Committee
will continue to hold the undistributed, non-vested portion of a terminated
Participant's Accrued Benefit in his Account solely for his benefit until a
forfeiture occurs at the time specified in Section 5.09 or if applicable, until
the time specified in Section 9.14.
3.06 ACCRUAL OF BENEFIT. The Administrative Committee will determine
the accrual of benefits (Employer contributions) on the basis of the Plan Year.
(A) COMPENSATION TAKEN INTO ACCOUNT. In allocating an Employer qualified
nonelective or nonelective contribution to a Participant's Account, the
Administrative Committee, except for purposes of determining the top heavy
minimum contribution under Section 3.04(B), will take into account only the
Compensation determined for the portion of the Plan Year in which the Employee
actually is a Participant and not an Excluded Employee.
(B) HOURS OF SERVICE REQUIREMENT. Subject to the top heavy minimum
allocation requirement of Section 3.04(B), the Administrative Committee will
not allocate any portion of an Employer contribution for a Plan Year to any
Participant's Account if the Participant does not complete a minimum of 1,000
Hours of Service during the Plan Year, unless the Participant terminates
employment during the Plan Year because of death or Disability or on or after
the attainment of Normal Retirement Age in the current Plan Year or in a prior
Plan Year. This Hours of Service requirement does not apply to an allocation of
matching contributions or deferral contributions.
(C) EMPLOYMENT REQUIREMENT. A Participant who, during a particular Plan
Year, completes
3.4
<PAGE> 20
the Hours of Service requirement under Section 3.06(B) will not share in the
allocation of Employer contributions and Participant forfeitures, if any, for
that Plan Year unless he is an Employee on the last day of that Plan Year. This
employment requirement does not apply if the Participant terminates employment
during the Plan Year because of death or Disability or on or after the
attainment of Normal Retirement Age in the current Plan Year or in a prior Plan
Year. This employment requirement does not apply to an allocation of matching
contributions or deferral contributions.
PART 2. LIMITATIONS ON ALLOCATIONS: SECTIONS 3.07 AND 3.08
3.07 LIMITATIONS ON ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. The amount of
Annual Additions which the Administrative Committee may allocate under this Plan
on a Participant's behalf for a Limitation Year may not exceed the Maximum
Permissible Amount. If the amount the Employer otherwise would contribute to the
Participant's Account would cause the Annual Additions for the Limitation Year
to exceed the Maximum Permissible Amount, the Employer will reduce the amount of
its contribution so the Annual Additions for the Limitation Year will equal the
Maximum Permissible Amount. If an allocation of Employer contributions, pursuant
to Section 3.04, would result in an Excess Amount (other than an Excess Amount
resulting from the circumstances described in Section 3.07(B)) to the
Participant's Account, the Administrative Committee will reallocate the Excess
Amount to the remaining Participants who are eligible for an allocation of
Employer contributions for the Plan Year in which the Limitation Year ends. The
Administrative Committee will make this reallocation on the basis of the
allocation method under the Plan as if the Participant whose Account otherwise
would receive the Excess Amount is not eligible for an allocation of Employer
contributions.
(A) ESTIMATION OF COMPENSATION. Prior to the determination of the
Participant's actual Compensation for a Limitation Year, the Administrative
Committee may determine the Maximum Permissible Amount on the basis of the
Participant's estimated annual Compensation for such Limitation Year. The
Administrative Committee must make this determination on a reasonable and
uniform basis for all Participants similarly situated. The Administrative
Committee must reduce any Employer contributions (including any allocation of
forfeitures) based on estimated annual Compensation by any Excess Amounts
carried over from prior years. As soon as is administratively feasible after the
end of the Limitation Year, the Administrative Committee will determine the
Maximum Permissible Amount for such Limitation Year on the basis of the
Participant's actual Compensation for such Limitation Year.
(B) DISPOSITION OF EXCESS AMOUNT. If, pursuant to Section 3.07(A), or
because of the allocation of forfeitures, there is an Excess Amount with respect
to a Participant for a Limitation Year, the Administrative Committee will
dispose of such Excess Amount as follows:
(a) The Administrative Committee will return any nondeductible
voluntary Employee contributions and earnings to the Participant to the extent
the return would reduce the Excess Amount.
3.5
<PAGE> 21
(b) If, after the application of paragraph (a), an Excess Amount
still exists, and the Plan covers the Participant at the end of the Limitation
Year, then the Administrative Committee will use the Excess Amount(s) to reduce
future Employer contributions (including any allocation of forfeitures) under
the Plan for the next Limitation Year and for each succeeding Limitation Year,
as is necessary, for the Participant. The Participant may elect to limit his
Compensation for allocation purposes to the extent necessary to reduce his
allocation for the Limitation Year to the Maximum Permissible Amount and
eliminate the Excess Amount.
(c) If, after the application of paragraph (a), an Excess Amount
still exists, and the Plan does not cover the Participant at the end of the
Limitation Year, then the Administrative Committee will hold the Excess Amount
unallocated in a suspense account. The Administrative Committee will apply the
suspense account to reduce Employer Contributions (including allocation of
forfeitures) for all remaining Participants in the next Limitation Year, and in
each succeeding Limitation Year if necessary. Neither the Employer nor any
Employee may contribute to the Plan for any Limitation Year in which the Plan is
unable to allocate fully a suspense account maintained pursuant to this
paragraph (c).
(d) The Administrative Committee will not distribute any Excess
Amount(s) to Participants or to former Participants.
(C) MORE THAN ONE PLAN. The Employer contributes under other defined
contribution plans in addition to its contributions under this Plan. If the
Administrative Committee allocated an Excess Amount to a Participant's Account
on an allocation date of this Plan which coincides with an allocation date of
the other defined contribution plan, the Administrative Committee will attribute
the total Excess Amount allocated as of such date to the other defined
contribution plan. The Administrative Committee will determine the Excess Amount
by treating the Annual Additions attributable to a welfare benefit fund as
allocated first, irrespective of the actual allocation under the welfare benefit
fund.
(D) DEFINED BENEFIT PLAN LIMITATION. If the Participant presently
participates, or has ever participated under a defined benefit plan maintained
by the Employer, then the sum of the defined benefit plan fraction and the
defined contribution plan fraction for the Participant for that Limitation Year
must not exceed 1.0. To the extent necessary to satisfy this limitation, the
Employer will reduce the Participant's contributions or allocations under the
defined contribution plan under which the Participant participates.
3.6
<PAGE> 22
3.08 DEFINITIONS - ARTICLE III. For purposes of Article III, the
following terms mean:
(a) "Annual Addition" - The sum of the following amounts allocated on
behalf of a Participant for a Limitation Year, of (i) all Employer
contributions; (ii) all forfeitures; and (iii) all Employee contributions.
Except to the extent provided in Treasury regulations, Annual Additions include
excess contributions described in Code Section 401(k), excess aggregate
contributions described in Code Section 401(m) and excess deferrals described in
Code Section 402(g), irrespective of whether the plan distributes or forfeits
such excess amounts. Annual Additions also include Excess Amounts reapplied to
reduce Employer contributions under Section 3.07. Amounts allocated after March
31, 1984, to an individual medical account (as defined in Code Section
415(l)(2)) included as part of a defined benefit plan maintained by the Employer
are Annual Additions. Furthermore, Annual Additions include contributions paid
or accrued after December 31, 1985, for taxable years ending after December 31,
1985, attributable to post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code Section 419A(d)(3)) under a
welfare benefit fund (as defined in Code Section 419(e)) maintained by the
Employer, but only for purposes of the dollar limitation applicable to the
Maximum Permissible Amount.
(b) "Compensation" - For purposes of applying the limitations of
Part 2 of this Article III, "Compensation" means Compensation as defined in
Section 1.10, except Compensation does not include any exclusion, if any, from
Compensation.
(c) "Maximum Permissible Amount" - The lesser of (i) $30,000 (or, if
greater, the $30,000 amount as adjusted under Code Section 415(d)), or (ii) 25%
of the Participant's Compensation for the Limitation Year. If there is a short
Limitation Year because of a change in Limitation Year, the Administrative
Committee will multiply the $30,000 (or adjusted) limitation by the following
fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
(d) "Employer" - The Employer that adopts this Plan and any Related
Employers. Solely for purposes of applying the limitations of Part 2 of this
Article III, the Administrative Committee will determine Related Employers by
modifying Code Section 414(b) and (c) in accordance with Code Section 415(h).
(e) "Excess Amount" - The excess of the Participant's Annual Additions
for the Limitation Year over the Maximum Permissible Amount.
(f) "Limitation Year" - The Plan Year. If the Employer amends the
Limitation Year to a different 12 consecutive month period, the new Limitation
Year must begin on a date within the Limitation Year for which the Employer
makes the amendment, creating a short Limitation Year.
3.7
<PAGE> 23
(g) "Defined contribution plan" - A retirement plan which provides
for an individual account for each participant and for benefits based solely on
the amount contributed to the participant's account, and any income, expenses,
gains and losses, and any forfeitures of accounts of other participants which
the plan may allocate to such participant's account. The Administrative
Committee must treat all defined contribution plans (whether or not terminated)
maintained by the Employer as a single plan. Solely for purposes of the
limitations of Part 2 of this Article III, the Administrative Committee will
treat employee contributions made to a defined benefit plan maintained by the
Employer as a separate defined contribution plan. The Administrative Committee
also will treat as a defined contribution plan an individual medical account (as
defined in Code Section 415(l)(2)) included as part of a defined benefit plan
maintained by the Employer and, for taxable years ending after December 31,
1985, a welfare benefit fund under Code Section 419(e) maintained by the
Employer to the extent there are post-retirement medical benefits allocated to
the separate account of a key employee (as defined in Code Section 419A(d)(3)).
(h) "Defined benefit plan" - A retirement plan which does not provide
for individual accounts for Employer contributions. The Administrative Committee
must treat all defined benefit plans (whether or not terminated) maintained by
the Employer as a single plan.
(i) "Defined benefit plan fraction" -
Projected annual benefit of the Participant under the defined benefit plan(s)
-----------------------------------------------------------------------------
The lesser of (i) 125% (subject to the "100% limitation" in paragraph (l)) of
the dollar limitation in effect under Code Section 415(b)(1)(A) for the
Limitation Year, or (ii) 140% of the Participant's average Compensation
for his high three (3) consecutive Years of Service
To determine the denominator of this fraction, the Administrative
Committee will make any adjustment required under Code Section 415(b)
and will determine a Year of Service as a Plan Year in which the
Employee completed at least 1,000 Hours of Service. The "projected
annual benefit" is the annual retirement benefit (adjusted to an
actuarially equivalent straight life annuity if the plan expresses such
benefit in a form other than a straight life annuity or qualified joint
and survivor annuity) of the Participant under the terms of the defined
benefit plan on the assumptions he continues employment until his
normal retirement age (or current age, if later) as stated in the
defined benefit plan, his compensation continues at the same rate as in
effect in the Limitation Year under consideration until the date of his
normal retirement age and all other relevant factors used to determine
benefits under the defined benefit plan remain constant as of the
current Limitation Year for all future Limitation Years.
3.8
<PAGE> 24
CURRENT ACCRUED BENEFIT. If the Participant accrued benefits in one or
more defined benefit plans maintained by the Employer which were in existence on
May 6, 1986, the dollar limitation used in the denominator of this fraction will
not be less than the Participant's Current Accrued Benefit. A Participant's
Current Accrued Benefit is the sum of the annual benefits under such defined
benefit plans which the Participant had accrued as of the end of the 1986
Limitation Year (the last Limitation Year beginning before January 1, 1987),
determined without regard to any change in the terms or conditions of the Plan
made after May 5, 1986, and without regard to any cost of living adjustment
occurring after May 5, 1986. This Current Accrued Benefit rule applies only if
the defined benefit plans individually and in the aggregate satisfied the
requirements of Code Section 415 as in effect at the end of the 1986 Limitation
Year.
(j) "Defined contribution plan fraction"
The sum, as of the close of the Limitation Year, as of the close of the
Limitation Year, of the Annual Additions to the Participant's Account under the
defined contribution plan(s)
- -------------------------------------------------------------------------------
The sum of the lesser of the following amounts determined for the Limitation
Year and for each prior Year of Service with the Employer: (i) 125% (subject to
the "100% limitation" in paragraph (l)) of the dollar limitation in effect under
Code 415(c)(1)(A) for the Limitation Year (determined without regard to the
special dollar limitations for employee stock ownership plans), or (ii) 35% of
the Participant's Compensation for the Limitation Year
For purposes of determining the defined contribution plan
fraction, the Administrative Committee will not recompute Annual
Additions in Limitation Years beginning prior to January 1, 1987, to
treat all Employee contributions as Annual Additions. If the Plan
satisfied Code Section 415 for Limitation Years beginning prior to
January 1, 1987, the Administrative Committee will redetermine the
defined contribution plan fraction and the defined benefit plan
fraction as of the end of the 1986 Limitation Year, in accordance with
this Section 3.19. If the sum of the redetermined fractions exceeds
1.0, the Administrative Committee will subtract permanently from the
numerator of the defined contribution plan fraction an amount equal to
the product of (1) the excess of the sum of the fractions over 1.0,
times (2) the denominator of the defined contribution plan fraction. In
making the adjustment, the Administrative Committee must disregard any
accrued benefit under the defined benefit plan which is in excess of
the Current Accrued Benefit. This Plan continues any transitional rules
applicable to the determination of the defined contribution plan
fraction under the Employer's Plan as of the end of the 1986 Limitation
Year.
(k) "100% limitation." If the 100% limitation applies, the
Administrative Committee must determine the denominator of the defined benefit
plan fraction and the denominator of the defined contribution plan fraction by
substituting 100% for 125%. The 100% limitation applies only if: (i) the Plan's
top heavy ratio exceeds 90%; or (ii) the Plan's top heavy ratio is greater than
60%, and the Employer does not provide extra minimum benefits which satisfy Code
Section 416(h)(2).
* * * * * * * * * * * * * * *
3.9
<PAGE> 25
ARTICLE IV - PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT ROLLOVER CONTRIBUTIONS. Any Participant who is an
Employee of an Employer (other than an Excluded Employee), with the
Administrative Committee's written consent and after filing the form prescribed
by the Administrative Committee, may contribute cash, or plan loans to the Trust
if the contribution is a "rollover contribution" which the Code permits an
employee to transfer either directly or indirectly from one qualified plan to
another qualified plan. Before accepting a rollover contribution, the Trustee
may require an Employee to furnish satisfactory evidence that the proposed
transfer is in fact a "rollover contribution" which the Code permits an employee
to make to a qualified plan. A rollover contribution is not an Annual Addition
under Part 2 of Article III.
An Employee of an Employer (other than an Excluded Employee), prior to
satisfying the Plan's eligibility conditions, may make a rollover contribution
to the Trust to the same extent and in the same manner as a Participant. If an
Employee makes a rollover contribution to the Trust prior to satisfying the
Plan's eligibility conditions, the Administrative Committee and Trustee must
treat the Employee as a Participant for all purposes of the Plan except the
Employee is not a Participant for purposes of sharing in Employer contributions
or Participant forfeitures under the Plan. If the Employee has a Separation from
Service prior to becoming a Participant, the Trustee will distribute his
Rollover Contribution Account to him as if it were an Employer Contribution
Account.
4.02 PARTICIPANT ROLLOVER CONTRIBUTION - FORFEITABILITY. A
Participant's Accrued Benefit is, at all times, 100% Nonforfeitable to the
extent the value of his Accrued Benefit is derived from his Participant rollover
contributions described in this Article IV.
4.03 PARTICIPANT ROLLOVER CONTRIBUTION - WITHDRAWAL/DISTRIBUTION. A
Participant, by giving proper notice to the Trustee, may withdraw all or any
part of the value of his Accrued Benefit derived from his Participant rollover
contributions described in this Article IV. A distribution of Participant
contributions must comply with the joint and survivor requirements described in
Article VI, if those requirements apply to the Participant. A Participant may
not exercise his right to withdraw the value of his Accrued Benefit derived from
his Participant rollover contributions more than once during any Plan Year. The
Trustee, in accordance with the direction of the Administrative Committee, will
distribute a Participant's unwithdrawn Accrued Benefit attributable to his
Participant rollover contributions in accordance with the provisions of Article
VI applicable to the distribution of the Participant's Nonforfeitable Accrued
Benefit.
4.04 PARTICIPANT CONTRIBUTION - ACCRUED BENEFIT. The Administrative
Committee must maintain a separate Account(s) in the name of each Participant
to reflect the Participant's Accrued Benefit under the Plan derived from his
Participant rollover contributions. A Participant's Accrued Benefit derived
from his Participant rollover contributions as of any applicable date is the
balance of his separate Participant rollover contribution Account(s).
* * * * * * * * * * * * * * *
4.1
<PAGE> 26
ARTICLE V - TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 NORMAL RETIREMENT AGE. A Participant's Normal Retirement Age is
59 1/2 years of age. A Participant's Accrued Benefit derived from Employer
contributions is 100% Nonforfeitable upon and after his attaining Normal
Retirement Age (if an Employee on or after that date).
5.02 PARTICIPANT DISABILITY OR DEATH. If a Participant's employment
with the Employer and Related Employers terminates as a result of death or
Disability, the Participant's Accrued Benefit derived from Employer
contributions will be 100% Nonforfeitable.
5.03 VESTING SCHEDULE.
(1) DEFERRAL CONTRIBUTIONS ACCOUNT AND QUALIFIED NONELECTIVE
CONTRIBUTIONS ACCOUNT. A Participant has a 100% Nonforfeitable interest at all
times in his Deferral Contributions Account and Qualified Nonelective
Contributions Account.
(2) MATCHING CONTRIBUTION ACCOUNT AND EMPLOYER CONTRIBUTIONS ACCOUNT.
Except as provided in Sections 5.01 and 5.02, for each Year of Service, a
Participant's Nonforfeitable percentage of his Matching Contribution Account and
Employer Contributions Account equals the percentage in the following vesting
schedule:
<TABLE>
<CAPTION>
Years of Service Percent of Nonforfeitable
Accrued Benefit
-------------------------
<S> <C>
Less than 3 . . . . . . . . . . . . . . . . . . . . 0%
3 or more . . . . . . . . . . . . . . . . . . . . . 100%
</TABLE>
5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/
RESTORATION OF FORFEITED ACCRUED BENEFIT. If, pursuant to Article VI, a
partially-vested Participant receives a cash-out distribution before he incurs a
Forfeiture Break in Service (as defined in Section 5.05), the cash-out
distribution will result in an immediate forfeiture of the nonvested portion of
the Participant's Accrued Benefit derived from Employer contributions. See
Section 5.06. A partially-vested Participant is a Participant whose
Nonforfeitable Percentage determined under Section 5.03 is less than 100%. A
cash-out distribution is a distribution of the entire present value of the
Participant's Nonforfeitable Accrued Benefit.
5.1
<PAGE> 27
(A) RESTORATION AND CONDITIONS UPON RESTORATION. A partially-vested
Participant who is re-employed by the Employer after receiving a cash-out
distribution of the Nonforfeitable percentage of his Accrued Benefit may repay
the Trustee the amount of the cash-out distribution attributable to Employer
contributions, unless the Participant no longer has a right to restoration by
reason of the conditions of this Section 5.04(A). If a partially-vested
Participant makes the cash-out distribution repayment, the Administrative
Committee, subject to the conditions of this Section 5.04(A), must restore his
Accrued Benefit attributable to Employer contributions to the same dollar amount
as the dollar amount of his Accrued Benefit on the Accounting Date, or other
valuation date, immediately preceding the date of the cash-out distribution,
unadjusted for any gains or losses occurring subsequent to that Accounting Date,
or other valuation date. Restoration of the Participant's Accrued Benefit
includes restoration of all Code Section 411(d)(6) protected benefits with
respect to that restored Accrued Benefit, in accordance with applicable Treasury
regulations. The Administrative Committee will not restore a re-employed
Participant's Accrued Benefit under this paragraph if:
(1) 5 years have elapsed since the Participant's first re-employment
date with the Employer or Related Employers following the cash-out distribution;
or
(2) The Participant incurred a Forfeiture Break in Service (as defined
in Section 5.05). This condition also applies if the Participant makes repayment
within the Plan Year in which he incurs the Forfeiture Break in Service and that
Forfeiture Break in Service would result in a complete forfeiture of the amount
the Administrative Committee otherwise would restore.
(B) TIME AND METHOD OF RESTORATION. If neither of the two conditions
preventing restoration of the Participant's Accrued Benefit applies, the
Administrative Committee will restore the Participant's Accrued Benefit as of
the Plan Year Accounting Date coincident with or immediately following the
repayment. To restore the Participant's Accrued Benefit, the Administrative
Committee, to the extent necessary, will allocate to the Participant's Account:
(1) First, the amount, if any, of Participant forfeitures the
Administrative Committee would otherwise allocate under Section 3.05; and
(2) Second, the Employer contribution for the Plan Year to the extent
made under a discretionary formula.
5.2
<PAGE> 28
To the extent the amounts described in clauses (1)and (2) are
insufficient to enable the Administrative Committee to make the required
restoration, the Employer must contribute, without regard to any requirement or
condition of Section 3.01, the additional amount necessary to enable the
Administrative Committee to make the required restoration. If, for a particular
Plan Year, the Administrative Committee must restore the Accrued Benefit of more
than one re-employed Participant, then the Administrative Committee will make
the restoration allocations to each such Participant's Account in the same
proportion that a Participant's restored amount for the Plan Year bears to the
restored amount for the Plan Year of all re-employed Participants. The
Administrative Committee will not take into account any allocation under this
Section 5.04 in applying the limitation on allocations under Part 2 of Article
III.
(C) 0% VESTED PARTICIPANT. The deemed cash-out rule applies to a 0% vested
Participant. A 0% vested Participant is a Participant whose Accrued Benefit
derived from Employer contributions is entirely forfeitable at the time of his
Separation from Service. Under the deemed cash-out rule, the Administrative
Committee will treat the 0% vested Participant as having received a cash-out
distribution on the date of the Participant's Separation from Service or, if the
Participant's Account is entitled to an allocation of Employer contributions for
the Plan Year in which he separates from Service, on the last day of that Plan
Year. For purposes of applying the restoration provisions of this Section 5.04,
the Administrative Committee will treat the 0% vested Participant as repaying
his cash-out "distribution" on the first date of his re-employment with the
Employer or Related Employers.
5.05 INCLUDED YEARS OF SERVICE - VESTING.
(A) INCLUDED YEARS OF SERVICE. For purposes of determining "Years of
Service" under Section 5.06, the Plan takes into account all Years of Service an
Employee completes with the Employer, or Related Employers and/or Predecessor
Employer.
(B) FORFEITURE BREAK IN SERVICE. For the sole purpose of determining a
Participant's Nonforfeitable percentage of his Accrued Benefit derived from
Employer contributions which accrued for his benefit prior to a Forfeiture Break
in Service, the Plan disregards any Year of Service after the Participant first
incurs a Forfeiture Break in Service. The Participant incurs a Forfeiture Break
in Service when he incurs 5 consecutive Breaks in Service.
5.06 FORFEITURE OCCURS. A Participant's forfeiture, if any, of his
Accrued Benefit derived from Employer contributions occurs under the Plan on the
earlier of:
(a) The last day of the Plan Year in which the Participant first
incurs a Forfeiture Break in Service; or
(b) The date the Participant receives a cash-out distribution or
deemed cash out distribution.
5.3
<PAGE> 29
The Administrative Committee determines the percentage of a
Participant's Accrued Benefit forfeiture, if any, under this Section 5.06 solely
by reference to the vesting schedule of Section 5.03. A Participant will not
forfeit any portion of his Accrued Benefit for any other reason or cause except
as expressly provided by this Section 5.06 or as provided under Section 9.14.
* * * * * * * * * * * * * * *
5.4
<PAGE> 30
ARTICLE VI - TIME AND METHOD OF PAYMENT OF BENEFITS
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. Unless the Participant or the
Beneficiary elects in writing to a different time or method of payment, the
Administrative Committee will direct the Trustee to commence distribution of a
Participant's Nonforfeitable Accrued Benefit in accordance with this Section
6.01. A Participant must consent, in writing, to any distribution required under
this Section 6.01 if the present value of the Participant's Nonforfeitable
Accrued Benefit, at the time of the distribution to the Participant, exceeds
$5,000 and the Participant has not attained age 62. Furthermore, the
Participant's spouse also must consent, in writing, to any distribution, for
which Section 6.04 requires the spouse's consent. For all purposes of this
Article VI, the term "annuity starting date" means the first day of the first
period for which the Plan pays an amount as an annuity or in any other form but
in no event is the "annuity starting date" earlier than a Participant's
Separation from Service. A distribution date under this Article VI, unless
otherwise specified within the Plan, is each day of the Plan Year, or as soon as
administratively practicable following that distribution date. For purposes of
the consent requirements under this Article VI, if the present value of the
Participant's Nonforfeitable Accrued Benefit, at the time of any withdrawal or
distribution, exceeds $5,000, the Administrative Committee must treat that
present value as exceeding $5,000 for purposes of all subsequent Plan
distributions to the Participant.
(A) SEPARATION FROM SERVICE FOR A REASON OTHER THAN DEATH.
(1) PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT NOT EXCEEDING
$5,000. If the Participant's Separation from Service is for any reason other
than death, the Administrative Committee will direct the Trustee to distribute
the Participant's Nonforfeitable Accrued Benefit in a lump sum as soon as
administratively practicable following the Participant's Separation from
Service, but in no event later than the 60th day following the close of the Plan
Year in which the Participant attains Normal Retirement Age.
(2) PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEEDS $5,000. If
the Participant's Separation from Service is for any reason other than death,
the Administrative Committee will direct the Trustee to commence distribution of
the Participant's Nonforfeitable Accrued Benefit in a form and at the time
elected by the Participant, pursuant to Section 6.03. In the absence of an
election by the Participant, the Administrative Committee will direct the
Trustee to distribute the Participant's Nonforfeitable Accrued Benefit in the
normal annuity form of distribution required under Section 6.04, on the 60th day
following the close of the Plan Year in which the latest of the following events
occurs: (a) the Participant attains age 62; or (b) the Participant's Separation
from Service.
(3) DISABILITY. If the Participant's Separation from Service is
because of his Disability, the Administrative Committee will direct the Trustee
to pay the Participant's Nonforfeitable Accrued Benefit in the automatic annuity
form, unless an optional form is properly elected, at the same time as any other
Separation from Service, subject to the notice and consent requirements of this
Article VI and to the applicable mandatory commencement dates described in
Paragraph (1).
6.1
<PAGE> 31
(B) REQUIRED BEGINNING DATE
TIMING OF REQUIRED DISTRIBUTION. If any distribution commencement date
described under Paragraph (A) of this Section 6.01, either by Plan provision or
by Participant election (or nonelection), is later than the Participant's
Required Beginning Date, the Administrative Committee instead must direct the
Trustee to make distribution on the Participant's Required Beginning Date,
subject to the transitional election, if applicable, under Section 6.03(D). A
Participant's Required Beginning Date is the April 1 following the close of the
calendar year in which the Participant attains age 70 1/2 if the Participant is
a more than 5% owner with respect to the Plan Year ending in that calendar year.
For any other Participant, his Required Beginning Date is the April 1 following
the close of the calendar year in which the Participant separates from Service
or, if later, the April 1 following the close of the calendar year in which the
Participant attains age 70 1/2. A mandatory distribution at the Participant's
Required Beginning Date will be made pursuant to the provisions of this Article
VI.
(C) DEATH OF THE PARTICIPANT. In the event of a Participant's death prior
to the annuity starting date, the Administrative Committee will direct the
Trustee, in accordance with this Section 6.01(C), to distribute to the
Participant's Beneficiary the Participant's Nonforfeitable Accrued Benefit
remaining in the Trust at the time of the Participant's death. Subject to the
requirements of Section 6.04, the Administrative Committee will determine the
death benefit by reducing the Participant's Nonforfeitable Accrued Benefit by
any security interest the Plan has against that Nonforfeitable Accrued Benefit
by reason of an outstanding Participant loan.
(1) DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT DOES NOT
EXCEED $5,000. The Administrative Committee, subject to the requirements of
Section 6.04, must direct the Trustee to distribute the deceased Participant's
Nonforfeitable Accrued Benefit in a single cash sum, as soon as administratively
practicable following the Participant's death or, if later, the date on which
the Administrative Committee receives notification of or otherwise confirms the
Participant's death.
(2) DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEEDS
$5,000. The Administrative Committee will direct the Trustee to distribute the
deceased Participant's Nonforfeitable Accrued Benefit at the time and in the
form elected by the Participant or, if applicable by the Beneficiary, as
permitted under this Article VI. In the absence of an election, subject to the
requirements of Section 6.04, the Administrative Committee will direct the
Trustee to distribute the Participant's undistributed Nonforfeitable Accrued
Benefit in a lump sum as soon as administratively practicable on or after the
first distribution date following the close of the Plan Year in which the
Participant's death occurs or, if later, the first distribution date following
the date the Administrative Committee receives notification of or otherwise
confirms the Participant's death.
(D) DEFAULT ON A LOAN. If a Participant defaults on a loan made pursuant
to a loan policy adopted by the Administrative Committee pursuant to Section
9.04, the Plan treats the default as a distributable event. The Trustee, at the
time of the default, will reduce the Participant's
6.2
<PAGE> 32
Nonforfeitable Accrued Benefit by the lesser of the amount in default (plus
accrued interest) or the Plan's security interest in that Nonforfeitable Accrued
Benefit. To the extent the loan is attributable to the Participant's Deferral
Contributions Account or Qualified Matching Contributions Account or Qualified
Nonelective Contributions Account, the Trustee will not reduce the Participant's
Nonforfeitable Accrued Benefit unless the Participant has separated from Service
or unless the Participant has attained age 59 1/2.
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. Subject to the annuity
distribution requirements, if any, prescribed by Section 6.04, and any
restrictions prescribed by Section 6.03, a Participant or Beneficiary may elect
distribution under one of the following methods: (a) by payment in a lump sum;
(b) by payment in monthly, quarterly or annual installments over a fixed
reasonable period of time, not exceeding the life expectancy of the Participant,
or the joint life and last survivor expectancy of the Participant and his
Beneficiary; or (c) by payment in a life annuity, a joint and 50% or 100%
survivor annuity, or a life annuity with a guaranteed payment of 5, 10, 15 or 20
years.
The distribution options permitted under this Section 6.02 are
available only if the present value of the Participant Nonforfeitable Accrued
Benefit, at the time of distribution begins to the Participant, exceeds $5,000.
To facilitate annuity or installment payments under this Article VI, the
Administrative Committee shall direct the Trustee to purchase a Nontransferable
Annuity contract. Under an installment distribution, the Participant or
Beneficiary, at any time, may elect to accelerate the payment of all, or any
portion, of the Participant's unpaid Nonforfeitable Accrued Benefit, subject to
the requirements of Section 6.04.
6.3
<PAGE> 33
(A) MINIMUM DISTRIBUTION REQUIREMENTS FOR PARTICIPANTS. The Administrative
Committee may not direct the Trustee to distribute the Participant's
Nonforfeitable Accrued Benefit, nor may the Participant elect to have the
Trustee distribute his Nonforfeitable Accrued Benefit, under a method of payment
which, as of the Required Beginning Date, does not satisfy the minimum
distribution requirements under Code Section 401(a)(9) and the applicable
Treasury regulations. The minimum distribution for a calendar year equals the
Participant's Nonforfeitable Accrued Benefit as of the latest valuation date
preceding the beginning of the calendar year divided by the Participant's life
expectancy or, if applicable, the joint and last survivor expectancy of the
Participant and his designated Beneficiary (as determined under Article VIII,
subject to the requirements of the Code Section 401(a)(9) regulations). The
Administrative Committee will increase the Participant's Nonforfeitable Accrued
Benefit, as determined on the relevant valuation date, for contributions or
forfeitures allocated after the valuation date and by December 31 of the
valuation calendar year, and will decrease the valuation by distributions made
after the valuation date and by December 31 of the valuation calendar year. For
purposes of this valuation, the Administrative Committee will treat any portion
of the minimum distribution for the first distribution calendar year made after
the close of that year as a distribution occurring in that first distribution
calendar year. In computing a minimum distribution, the Administrative Committee
must use the unisex life expectancy multiples under Treas. Reg. Section 1.72-9.
The Administrative Committee, only upon the Participant's written request, will
compute the minimum distribution for a calendar year subsequent to the first
calendar year for which the Plan requires a minimum distribution by
redetermining the applicable life expectancy. However, the Administrative
Committee may not redetermine the joint life and last survivor expectancy of the
Participant and a nonspouse designated Beneficiary in a manner which takes into
account any adjustment to a life expectancy other than the Participant's life
expectancy.
If the Participant's spouse is not his designated Beneficiary, a method
of payment to the Participant (whether by Participant election or by
Administrative Committee direction) may not provide more than incidental
benefits to the Beneficiary. The Plan must satisfy the Minimum Distribution
Incidental Benefit ("MDIB") requirement in the Treasury regulations issued under
Code Section 401(a)(9) for distributions made on or after the Participant's
Required Beginning Date and before the Participant's death. To satisfy the MDIB
requirement, the Administrative Committee will compute the minimum distribution
required by this Section 6.02(A) by substituting the applicable MDIB divisor for
the applicable life expectancy factor, if the MDIB divisor is a lesser number.
Following the Participant's death, the Administrative Committee will compute the
minimum distribution required by this Section 6.02(A) solely on the basis of the
applicable life expectancy factor and will disregard the MDIB factor.
The minimum distribution for the first distribution calendar year is
due by the Participant's Required Beginning Date. The minimum distribution for
each subsequent distribution calendar year, including the calendar year in which
the Participant's Required Beginning Date occurs, is due by December 31 of that
year. If the Participant receives distribution in the form of a Nontransferable
Annuity Contract, the distribution satisfies this Section 6.02(A) if the
contract complies with the requirements of Code Section 401(a)(9) and the
applicable Treasury regulations.
6.4
<PAGE> 34
(B) MINIMUM DISTRIBUTION REQUIREMENTS FOR BENEFICIARIES. The method of
distribution to the Participant's Beneficiary must satisfy Code Section
401(a)(9) and the applicable Treasury regulations. If the Participant's death
occurs after his Required Beginning Date or, if earlier, the date the
Participant commences an irrevocable annuity pursuant to Section 6.04, the
method of payment to the Beneficiary must provide for completion of payment over
a period which does not exceed the payment period which had commenced for the
Participant. If the Participant's death occurs prior to his Required Beginning
Date, and the Participant had not commenced an irrevocable annuity pursuant to
Section 6.04, the method of payment to the Beneficiary, subject to Section 6.04,
must provide for completion of payment to the Beneficiary over a period not
exceeding: (i) 5 years after the date of the Participant's death; or (ii) if the
Beneficiary is a designated Beneficiary, the designated Beneficiary's life
expectancy. The Administrative Committee may not direct payment of the
Participant's Nonforfeitable Accrued Benefit over a period described in clause
(ii) unless the Trustee will commence payment to the designated Beneficiary no
later than the December 31 following the close of the calendar year in which the
Participant's death occurred or, if later, and the designated Beneficiary is the
Participant's surviving spouse, December 31 of the calendar year in which the
Participant would have attained age 701/2. If the Trustee will make distribution
in accordance with clause (ii), the minimum distribution for a calendar year
equals the Participant's Nonforfeitable Accrued Benefit as of the latest
valuation date preceding the beginning of the calendar year divided by the
designated Beneficiary's life expectancy. The Administrative Committee must use
the unisex life expectancy multiples under Treas. Reg. Section 1.72-9 for
purposes of applying this paragraph. The Administrative Committee, only upon the
written request of the Participant or of the Participant's surviving spouse,
will recalculate the life expectancy of the Participant's surviving spouse not
more frequently than annually, but may not recalculate the life expectancy of a
nonspouse designated Beneficiary after the Trustee commences payment to the
designated Beneficiary. The Administrative Committee will apply this paragraph
by treating any amount paid to the Participant's child, which becomes payable to
the Participant's surviving spouse upon the child's attaining the age of
majority, as paid to the Participant's surviving spouse. Upon the Beneficiary's
written request, the Administrative Committee must direct the Trustee to
accelerate payment of all, or any portion, of the Participant's unpaid Accrued
Benefit, as soon as administratively practicable following the effective date of
that request.
6.03 BENEFIT PAYMENT ELECTIONS. Not earlier than 90 days, but not later
than 30 days, before the Participant's annuity starting date, the Administrative
Committee must provide a benefit notice to a Participant who is eligible to make
an election under this Section 6.03. The benefit notice must explain the
optional forms of benefit in the Plan, including the material features and
relative values of those options, and the Participant's right to defer
distribution until he attains age 62.
6.5
<PAGE> 35
If a Participant or Beneficiary makes an election prescribed by this
Section 6.03, the Administrative Committee will direct the Trustee to distribute
the Participant's Nonforfeitable Accrued Benefit in accordance with that
election. Any election under this Section 6.03 is subject to the requirements of
Section 6.02 and of Section 6.04. The Participant or Beneficiary must make an
election under this Section 6.03 by filing his election with the Administrative
Committee at any time before the Trustee otherwise would commence to pay a
Participant's Accrued Benefit in accordance with the requirements of Article VI.
(A) PARTICIPANT ELECTIONS AFTER SEPARATION FROM SERVICE. If the present
value of a Participant's Nonforfeitable Accrued Benefit exceeds $5,000, subject
to the further provisions of the Plan, he may elect to have the Trustee commence
distribution as of any distribution date following his Separation from Service.
The Participant may reconsider an election at any time prior to the annuity
starting date and elect to commence distribution as of any other distribution
date, but not earlier than the date described in the first sentence of this
Paragraph (A). Following his attainment of Normal Retirement Age, a Participant
who has separated from Service may elect distribution as of any distribution
date, irrespective of the restrictions otherwise applicable under this Section
6.03(A). If the Participant is partially-vested in his Accrued Benefit, an
election under this Paragraph (A) to distribute prior to the Participant's
incurring a Forfeiture Break in Service (as defined in Section 5.08), must be in
the form of a cash-out distribution (as defined in Article V). A Participant may
not receive a cash-out distribution if, prior to the time the Trustee actually
makes the cash-out distribution, the Participant returns to employment with the
Employer or Related Employer.
(B) PARTICIPANT ELECTIONS PRIOR TO SEPARATION FROM SERVICE.
(1) AGE 59 1/2 WITHDRAWALS. A Participant, until he separates from
service, has a continuing election to receive all or any portion of his
Qualified Nonelective Contributions Account, Deferral Contributions Account,
Regular Matching Contributions and Employee Contributions Account if he has
attained age 59 1/2.
(2) FINANCIAL HARDSHIP WITHDRAWALS. A Participant, until he separates
from Service, has a continuing election to receive all or any part of the
Non-forfeitable portion of his Regular Matching Contributions Account or his
Employer Contributions Account, or his Deferral Contributions Account (excluding
any Trust earnings thereon) if he satisfies the conditions for hardship as
described in paragraph (5).
(3) ROLLOVER ACCOUNTS. A Participant, until he separates from Service,
has a continuing election to receive all or any part of his Rollover
Contributions Account.
(4) PROCEDURE. A Participant must make an election under this Section
6.03(B) on a form prescribed by the Administrative Committee at any time during
the Plan Year for which his election is to be effective. A Participant's spouse
must consent to such distribution by making a valid waiver election as provided
in Section 6.06. In his written election, the Participant must specify the
percentage or dollar amount he wishes the Trustee to distribute to him. The
Participant's election relates solely to the percentage or dollar amount
specified in his election form and his right to elect to receive an amount, if
any, for a particular Plan Year greater than the
6.6
<PAGE> 36
dollar amount or percentage specified in his election form terminates on the
Accounting Date. The Trustee must make a distribution to a Participant in
accordance with his election under this Section 6.03(B) within the 90 day period
(or as soon as administratively practicable) after the Participant files his
written election with the Trustee. The Trustee will distribute the balance of
the Participant's Accrued Benefit not distributed pursuant to his election(s) in
accordance with the other distribution provisions of this Plan.
(5) DEFINITION OF HARDSHIP. For purposes of this Section 6.03(B), a
hardship distribution must be on account of one or more of the following
immediate and heavy financial needs: (1) medical expenses described in Code
Section 213(d) incurred by the Participant, by the Participant's spouse, or by
any of the Participant's dependents or necessary for such persons to obtain such
care; (2) costs directly related to the purchase (excluding mortgage payments)
of a principal residence for the Participant; (3) the payment of post-secondary
education tuition, related educational fees and room and board expenses for the
next 12-month period, for the Participant, for the Participant's spouse, or for
any of the Participant's dependents; (4) to prevent the eviction of the
Participant from his principal residence or the foreclosure on the mortgage of
the Participant's principal residence; or (5) any other event designated by
Treasury regulations for the safe harbor definition of hardship.
RESTRICTIONS. The following restrictions apply to a Participant who
receives a hardship distribution: (a) the Participant may not make elective
deferrals or employee contributions to the Plan for the 12-month period
following the date of his hardship distribution; (b) the distribution is not in
excess of the amount of the immediate and heavy financial need (including any
amounts necessary to pay any federal, state or local income taxes or penalties
reasonably anticipated to result from the distribution); (c) the Participant
must have obtained all distributions, other than hardship distributions, and all
nontaxable loans currently available under this Plan and all other qualified
plans maintained by the Employer; and (d) the Participant agrees to limit
elective deferrals under this Plan and under any other qualified plan maintained
by the Employer, for the Participant's taxable year immediately following the
taxable year of the hardship distribution, to the 402(g) limitation (as
described in Section 14.03), reduced by the amount of the Participant's elective
deferrals made in the taxable year of the hardship distribution. The suspension
of elective deferrals and employee contributions described in clause (a) also
must apply to all other qualified plans and to all nonqualified plans of
deferred compensation maintained by the Employer, other than any mandatory
employee contribution portion of a defined benefit plan, including stock option,
stock purchase and other similar plans, but not including health or welfare
benefit plans (other than the cash or deferred arrangement portion of a
cafeteria plan).
EARNINGS. A hardship distribution may not include earnings on an
Employee's elective deferrals, and may not include qualified matching
contributions and qualified nonelective contributions, nor any earnings on such
contributions, irrespective of when credited.
(C) DEATH BENEFIT ELECTIONS. If the present value of the deceased
Participant's Nonforfeitable Accrued Benefit exceeds $5,000, the Participant's
Beneficiary may elect to have the Trustee distribute the Participant's
Nonforfeitable Accrued Benefit in a form and within a period permitted under
Section 6.02. The Beneficiary's election is subject to any restrictions
designated in writing by the Participant and not revoked as of his date of
death.
6.7
<PAGE> 37
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES.
(A) JOINT AND SURVIVOR ANNUITY. The Administrative Committee must direct
the Trustee to distribute a married or unmarried Participant's Nonforfeitable
Accrued Benefit in the form of a qualified joint and survivor annuity, unless
the Participant makes a valid waiver election as (and within the period)
described in Section 6.05. If, as of the annuity starting date, the Participant
is married, a qualified joint and survivor annuity is an immediate annuity which
is purchasable with the Participant's Nonforfeitable Accrued Benefit and which
provides a life annuity for the Participant and a survivor annuity payable for
the remaining life of the Participant's surviving spouse equal to 50% of the
amount of the annuity payable during the life of the Participant. If, as of the
annuity starting date, the Participant is not married, a qualified joint and
survivor annuity is an immediate life annuity for the Participant which is
purchasable with the Participant's Nonforfeitable Accrued Benefit. Upon a
Participant's separation from service, the Administrative Committee, without
Participant or spousal consent, must direct the Trustee to pay the Participant's
Nonforfeitable Accrued Benefit in a lump sum, in lieu of a qualified joint and
survivor annuity, in accordance with Section 6.01, if the Participant's
Nonforfeitable Accrued Benefit is not greater than $5,000. This Section 6.04(A)
applies only to a Participant who has completed at least one Hour of Service
with the Employer after August 22, 1984.
(B) PRERETIREMENT SURVIVOR ANNUITY. If a married Participant dies prior to
his annuity starting date, the Administrative Committee will direct the Trustee
to distribute a portion of the Participant's Nonforfeitable Accrued Benefit to
the Participant's surviving spouse in the form of a preretirement survivor
annuity, unless the Participant has a valid waiver election (as described in
Section 6.06) in effect. A preretirement survivor annuity is an annuity which is
purchasable with 50% of the Participant's Nonforfeitable Accrued Benefit
(determined as of the date of the Participant's death) and which is payable for
the life of the Participant's surviving spouse. The value of the preretirement
survivor annuity is attributable to Employer contributions and to Employee
contributions in the same proportion as the Participant's Nonforfeitable Accrued
Benefit is attributable to those contributions. The portion of the Participant's
Nonforfeitable Accrued Benefit not payable under this paragraph is payable to
the Participant's Beneficiary, in accordance with the other provisions of this
Article VI. If the present value of the preretirement survivor annuity does not
exceed $5,000, the Administrative Committee, on or before the annuity starting
date, must direct the Trustee to make a lump sum distribution to the
Participant's surviving spouse, in lieu of a preretirement survivor annuity.
6.8
<PAGE> 38
(C) SURVIVING SPOUSE ELECTIONS. If the present value of the preretirement
survivor annuity exceeds $5,000, the Participant's surviving spouse may elect to
have the Trustee commence payment of the preretirement survivor annuity at any
time following the date of the Participant's death, but not later than the
mandatory distribution periods described in Section 6.02, and may elect any of
the forms of payment described in Section 6.02, in lieu of the preretirement
survivor annuity. In the absence of an election by the surviving spouse, the
Administrative Committee must direct the Trustee to distribute the preretirement
survivor annuity on the first distribution date following the close of the Plan
Year in which the latest of the following events occurs: (i) the Participant's
death; (ii) the date the Administrative Committee receives notification of or
otherwise confirms the Participant's death; or (iii) the date the Participant
would have attained age 62.
(D) SPECIAL RULES. If the Participant has in effect a valid waiver election
regarding the qualified joint and survivor annuity or the preretirement survivor
annuity, the Administrative Committee must direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with Sections 6.01,
6.02 and 6.03. The Administrative Committee will reduce the Participant's
Nonforfeitable Accrued Benefit by any security interest (pursuant to any offset
rights authorized by Section 10.03[B]) held by the Plan by reason of a
Participant loan to determine the value of the Participant's Nonforfeitable
Accrued Benefit distributable in the form of a qualified joint and survivor
annuity or preretirement survivor annuity, provided any post-August 18, 1985,
loan satisfied the spousal consent requirement described in Section 10.03[B] of
the Plan. For purposes of applying this Article VI, the Administrative Committee
treats a former spouse as the Participant's spouse or surviving spouse to the
extent provided under a qualified domestic relations order described in Section
6.07. The provisions of this Section 6.04, and of Sections 6.05 and 6.06, apply
separately to the portion of the Participant's Nonforfeitable Accrued Benefit
subject to the qualified domestic relations order and to the portion of the
Participant's Nonforfeitable Accrued Benefit not subject to that order.
6.05 WAIVER ELECTION - QUALIFIED JOINT AND SURVIVOR ANNUITY. At least
30 days (but not earlier than 90 days), before the Participant's annuity
starting date, the Administrative Committee must provide the Participant a
written explanation of the terms and conditions of the qualified joint and
survivor annuity, the Participant's right to make, and the effect of, an
election to waive the joint and survivor form of benefit, the rights of the
Participant's spouse regarding the waiver election and the Participant's right
to make, and the effect of, a revocation of a waiver election. The Plan does not
limit the number of times the Participant may revoke a waiver of the qualified
joint and survivor annuity or make a new waiver during the election period. The
Participant (and his spouse, if the Participant is married), may revoke an
election to receive a particular form of benefit at any time until the annuity
starting date. The Participant (and his spouse, if applicable) may waive the
30-day election period if the distribution of the elected form of benefit
commences more than 7 days after the Administrative Committee provides the
Participant (and his spouse, if applicable) the written explanation.
6.9
<PAGE> 39
A married Participant's waiver election is not valid unless (a) the
Participant's spouse (to whom the survivor annuity is payable under the
qualified joint and survivor annuity), after the Participant has received the
written explanation described in this Section 6.05, has consented in writing to
the waiver election, the spouse's consent acknowledges the effect of the
election, and a notary public or the Plan Administrator (or his representative)
witnesses the spouse's consent, (b) the spouse consents to the alternate form of
payment designated by the Participant or to any change in that designated form
of payment, and (c) unless the spouse is the Participant's sole primary
Beneficiary, the spouse consents to the Participant's Beneficiary designation or
to any change in the Participant's Beneficiary designation. The spouse's consent
to a waiver of the qualified joint and survivor annuity is irrevocable, unless
the Participant revokes the waiver election. The spouse may execute a blanket
consent to any form of payment designation or to any Beneficiary designation
made by the Participant, if the spouse acknowledges the right to limit that
consent to a specific designation but, in writing, waives that right. The
consent requirements of this Section 6.05 apply to a former spouse of the
Participant, to the extent required under a qualified domestic relations order
described in Section 6.07.
The Administrative Committee will accept as valid a waiver election
which does not satisfy the spousal consent requirements if the Administrative
Committee establishes the Participant does not have a spouse, the Administrative
Committee is not able to locate the Participant's spouse, the Participant is
legally separated or has been abandoned (within the meaning of State law) and
the Participant has a court order to that effect, or other circumstances exist
under which the Secretary of the Treasury will excuse the consent requirement.
If the Participant's spouse is legally incompetent to give consent, the spouse's
legal guardian (even if the guardian is the Participant) may give consent.
6.06 WAIVER ELECTION - PRERETIREMENT SURVIVOR ANNUITY. The
Administrative Committee must provide a written explanation of the preretirement
survivor annuity to each married Participant, within the following period which
ends last: (1) the period beginning on the first day of the Plan Year in which
the Participant attains age 32 and ending on the last day of the Plan Year in
which the Participant attains age 34; (2) a reasonable period after an Employee
becomes a Participant; (3) a reasonable period after the joint and survivor
rules become applicable to the Participant; or (4) a reasonable period after a
fully subsidized preretirement survivor annuity no longer satisfies the
requirements for a fully subsidized benefit. A reasonable period described in
clauses (2), (3) and (4) is the period beginning one year before and ending one
year after the applicable event. If the Participant separates from Service
before attaining age 35, clauses (1), (2), (3) and (4) do not apply and the
Administrative Committee must provide the written explanation within the period
beginning one year before and ending one year after the Separation from Service.
The written explanation must describe, in a manner consistent with Treasury
regulations, the terms and conditions of the preretirement survivor annuity
comparable to the explanation of the qualified joint and survivor annuity
required under Section 6.05. The Plan does not limit the number of times the
Participant may revoke a waiver of the preretirement survivor annuity or make a
new waiver during the election period. The election period for waiver of the
preretirement survivor annuity ends on the date of the Participant's death.
A Participant's waiver election of the preretirement survivor annuity
is not valid unless (a) the Participant makes the waiver election no earlier
than the first day of the Plan Year in
6.10
<PAGE> 40
which he attains age 35 and (b) the Participant's spouse (to whom the
preretirement survivor annuity is payable) satisfies the consent requirements
described in Section 6.05, except the spouse need not consent to the form of
benefit payable to the designated Beneficiary. The spouse's consent to the
waiver of the preretirement survivor annuity is irrevocable, unless the
Participant revokes the waiver election. Irrespective of the time of election
requirement described in clause (a), if the Participant separates from Service
prior to the first day of the Plan Year in which he attains age 35, the
Administrative Committee will accept a waiver election as respects the
Participant's Accrued Benefit attributable to his Service prior to his
Separation from Service. Furthermore, if a Participant who has not separated
from Service makes a valid waiver election, except for the timing requirement of
clause (a), the Administrative Committee will accept that election as valid, but
only until the first day of the Plan Year in which the Participant attains age
35. A waiver election described in this paragraph is not valid unless made after
the Participant has received the written explanation described in this Section
6.06.
6.07 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing contained
in this Plan prevents the Trustee, in accordance with the direction of the
Administrative Committee, from complying with the provisions of a Qualified
Domestic Relations Order (as defined in Code Section 414(p)). This Plan
specifically permits distribution to an alternate payee under a qualified
domestic relations order at any time, irrespective of whether the Participant
has attained his earliest retirement age (as defined under Code Section 414(p))
under the Plan. A distribution to an alternate payee prior to the Participant's
attainment of earliest retirement age is available only if: (1) the order
specifies distribution at that time or permits an agreement between the Plan and
the alternate payee to authorize an earlier distribution; and (2) if the present
value of the alternate payee's benefits under the Plan exceeds $5,000, and the
order requires, the alternate payee consents to any distribution occurring prior
to the Participant's attainment of earliest retirement age. Nothing in this
Section 6.07 gives a Participant a right to receive distribution at a time
otherwise not permitted under the Plan nor does it permit the alternate payee to
receive a form of payment not otherwise permitted under the Plan.
The Administrative Committee must establish reasonable procedures to
determine the qualified status of a domestic relations order. Upon receiving a
domestic relations order, the Administrative Committee promptly will notify the
Participant and any alternate payee named in the order, in writing, of the
receipt of the order and the Plan's procedures for determining the qualified
status of the order. Within a reasonable period of time after receiving the
domestic relations order, the Administrative Committee must determine the
qualified status of the order and must notify the Participant and each alternate
payee, in writing, of its determination. The Administrative Committee must
provide notice under this paragraph by mailing to the individual's address
specified in the domestic relations order, or in a manner consistent with
Department of Labor regulations.
6.11
<PAGE> 41
If any portion of the Participant's Nonforfeitable Accrued Benefit is
payable during the period the Administrative Committee is making its
determination of the qualified status of the domestic relations order, the
Administrative Committee must make a separate accounting of the amounts payable.
If the Administrative Committee determines the order is a qualified domestic
relations order within 18 months of the date amounts first are payable following
receipt of the order, the Administrative Committee will direct the Trustee to
distribute the payable amounts in accordance with the order. If the
Administrative Committee does not make its determination of the qualified status
of the order within the 18-month determination period, the Administrative
Committee will direct the Trustee to distribute the payable amounts in the
manner the Plan would distribute if the order did not exist and will apply the
order prospectively if the Administrative Committee later determines the order
is a qualified domestic relations order.
For distributions made on or after January 1, 1993 and
notwithstanding any provision of the Plan to the contrary that would otherwise
limit a distributee's election under this Section, a distributee may elect, at
the time and in the manner prescribed by the Plan 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.
(a) "Eligible rollover distribution." An eligible rollover
distribution is 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: 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 expectancies) of the
distributee and the distributee's designated beneficiary, or for a specified
period of ten years or more; any distribution to the extent such distribution is
required under Code Section 401(a)(9); and the portion of any distribution that
is not includible in gross income (determined without regard to the exclusion of
net unrealized appreciation with respect to employer securities).
(b) "Eligible retirement plan." An eligible retirement plan is 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 the surviving spouse, an eligible
retirement plan is an individual retirement account or individual retirement
annuity.
(c) "Distributee." A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving spouse and
the 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), are distributees with regard to the interest of the spouse or former
spouse.
(c) "Direct rollover." A direct rollover is a payment by the Plan
to the eligible retirement plan specified by the distributee.
* * * * * * * * * * * * * * *
6.12
<PAGE> 42
ARTICLE VII - EMPLOYER ADMINISTRATIVE PROVISIONS
7.01 INFORMATION TO ADMINISTRATIVE COMMITTEE. The Employer must supply
current information to the Administrative Committee as to the name, date of
birth, date of employment, annual compensation, leaves of absence, Years of
Service and date of termination of employment of each Employee who is, or who
will be eligible to become, a Participant under the Plan, together with any
other information which the Administrative Committee considers necessary. The
Employer's records as to the current information the Employer furnishes to the
Administrative Committee are conclusive as to all persons.
7.02 NO LIABILITY. The Employer assumes no obligation or responsibility
to any of its Employees, Participants or Beneficiaries for any act of, or
failure to act, on the part of its Administrative Committee (unless the Employer
is the Administrative Committee).
7.03 INDEMNITY OF CERTAIN FIDUCIARIES. The Employer indemnifies and
saves harmless the Plan Administrator and the members of the Administrative
Committee, and each of them, from and against any and all loss resulting from
liability to which the Plan Administrator and the Administrative Committee, or
the members of the Administrative Committee, may be subjected by reason of any
act or conduct (except willful misconduct or gross negligence) in their official
capacities in the administration of this Trust or Plan or both, including all
expenses reasonably incurred in their defense, in case the Employer fails to
provide such defense. The indemnification provisions of this Section 7.03 do not
relieve the Plan Administrator or any Administrative Committee member from any
liability he may have under ERISA for breach of a fiduciary duty. Furthermore,
the Plan Administrator and the Administrative Committee members and the Employer
may execute a letter agreement further delineating the indemnification agreement
of this Section 7.03, provided the letter agreement must be consistent with and
does not violate ERISA. The indemnification provisions of this Section 7.03
extend to the Trustee (or to a Custodian, if any) solely to the extent provided
by a letter agreement executed by the Trustee (or Custodian) and the Employer.
7.04 EMPLOYER DIRECTION OF INVESTMENT. The Administrative Committee has
the right to direct the Trustee with respect to the investment and re-investment
of assets comprising the Trust Fund only if the Trustee consents in writing to
permit such direction. If the Trustee consents to Administrative Committee
direction of investment, the Trustee and the Employer must execute a letter
agreement as a part of this Plan containing such conditions, limitations and
other provisions they deem appropriate before the Trustee will follow any
Administrative Committee direction as respects the investment or re-investment
of any part of the Trust Fund.
7.1
<PAGE> 43
7.05 AMENDMENT TO VESTING SCHEDULE. Though the Sponsor reserves the
right to amend the vesting schedule at any time, the Administrative Committee
will not apply the amended vesting schedule to reduce the Nonforfeitable
percentage of any Participant's Accrued Benefit derived from Employer
contributions (determined as of the later of the date the Employer adopts the
amendment, or the date the amendment becomes effective) to a percentage less
than the Nonforfeitable percentage computed under the Plan without regard to the
amendment. An amended vesting schedule will apply to a Participant only if the
Participant receives credit for at least one Hour of Service after the new
schedule becomes effective.
If the Sponsor makes a permissible amendment to the vesting schedule,
each Participant having at least 3 Years of Service with the Employer may elect
to have the percentage of his Nonforfeitable Accrued Benefit computed under the
Plan without regard to the amendment. The Participant must file his election
with the Administrative Committee within 60 days of the latest of (a) the
Employer's adoption of the amendment; (b) the effective date of the amendment;
or (c) his receipt of a copy of the amendment. The election described in this
Section 7.05 does not apply to a Participant if the amended vesting schedule
provides for vesting at least as rapid at all times as the vesting schedule in
effect prior to the amendment. For purposes of this Section 7.05, an amendment
to the vesting schedule includes any Plan amendment which directly or indirectly
affects the computation of the Nonforfeitable percentage of an Employee's rights
to his Employer derived Accrued Benefit.
* * * * * * * * * * * * * * *
7.2
<PAGE> 44
ARTICLE VIII - PARTICIPANT ADMINISTRATIVE PROVISIONS
8.01 BENEFICIARY DESIGNATION. Any Participant may from time to time
designate, in writing, any person or persons, contingently or successively, to
whom the Trustee will pay his Nonforfeitable Accrued Benefit (including any life
insurance proceeds payable to the Participant's Account) in the event of his
death and the Participant may designate the form and method of payment. The
Administrative Committee will prescribe the form for the written designation of
Beneficiary and, upon the Participant's filing the form with the Administrative
Committee, the form effectively revokes all designations filed prior to that
date by the same Participant. A Participant's marriage will automatically revoke
any previously filed designation and a divorce will automatically revoke the
designation of the Participant's former spouse as his Beneficiary except to the
extent provided otherwise in a Qualified Domestic Relations Order.
(A) COORDINATION WITH SURVIVOR REQUIREMENTS. If the joint and survivor
requirements of Article VI apply to the Participant, this Section 8.01 does not
impose any special spousal consent requirements on the Participant's Beneficiary
designation. However, in the absence of spousal consent (as required by Article
VI) to the Participant's Beneficiary designation: (1) any waiver of the joint
and survivor annuity or of the preretirement survivor annuity is not valid; and
(2) if the Participant dies prior to his annuity starting date, the
Participant's Beneficiary designation will apply only to the portion of the
death benefit which is not payable as a preretirement survivor annuity.
Regarding clause (2), if the Participant's surviving spouse is a primary
Beneficiary under the Participant's Beneficiary designation, the Trustee will
satisfy the spouse's interest in the Participant's death benefit first from the
portion which is payable as a preretirement survivor annuity.
8.02 NO BENEFICIARY DESIGNATION/DEATH OF BENEFICIARY. If a Participant
fails to name a Beneficiary in accordance with Section 8.01, or if the
Beneficiary named by a Participant predeceases him, then the Trustee will pay
the Participant's Nonforfeitable Accrued Benefit in accordance with Section 6.02
in the following order of priority to:
(a) The Participant's surviving spouse;
(b) The Participant's estate.
If the Beneficiary does not predecease the Participant, but dies prior
to distribution of the Participant's entire Nonforfeitable Accrued Benefit, the
Trustee will pay the remaining Nonforfeitable Accrued Benefit to the
Beneficiary's estate. The Administrative Committee will direct the Trustee as to
the method and to whom the Trustee will make payment under this Section 8.02.
8.1
<PAGE> 45
8.03 PERSONAL DATA TO ADMINISTRATIVE COMMITTEE. Each Participant and
each Beneficiary of a deceased Participant must furnish to the Administrative
Committee such evidence, data or information as the Administrative Committee
considers necessary or desirable for the purpose of administering the Plan. The
provisions of this Plan are effective for the benefit of each Participant upon
the condition precedent that each Participant will furnish promptly full, true
and complete evidence, data and information when requested by the Administrative
Committee, provided the Administrative Committee advises each Participant of the
effect of his failure to comply with its request.
8.04 ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary of
a deceased Participant must file with the Administrative Committee from time to
time, in writing, his post office address and any change of post office address
Any communication, statement or notice addressed to a Participant, or
Beneficiary, at his last post office address filed with the Administrative
Committee, or as shown on the records of the Employer, binds the Participant, or
Beneficiary, for all purposes of this Plan.
8.05 ASSIGNMENT OR ALIENATION. Subject to Code Section 414(p) relating
to qualified domestic relations orders, neither a Participant nor a Beneficiary
may anticipate, assign or alienate (either at law or in equity) any benefit
provided under the Plan, and the Trustee will not recognize any such
anticipation, assignment or alienation. Furthermore, a benefit under the Plan is
not subject to attachment, garnishment, levy, execution or other legal or
equitable process.
8.06 LITIGATION AGAINST THE TRUST. A fiduciary may receive
reimbursement of expenses properly and actually incurred in the performance of
his duties with the Plan.
8.07 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. A Participant or a
Beneficiary ("Claimant") may file with the Administrative Committee a written
claim for benefits, if the Participant or Beneficiary determines the
distribution procedures of the Plan have not provided him his proper
Nonforfeitable Accrued Benefit. The Administrative Committee must render a
decision on the claim within 60 days of the Claimant's written claim for
benefits. The Plan Administrator must provide adequate notice in writing to the
Claimant whose claim for benefits under the Plan the Administrative Committee
has denied. The Plan Administrator's notice to the Claimant must set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which the
Administrative Committee based its denial;
(c) A description of any additional material and information needed
for the Claimant to perfect his claim and an explanation of why the material or
information is needed; and
8.2
<PAGE> 46
(d) That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Administrative Committee within 75 days
after receipt of the Plan Administrator's notice of denial of benefits. The Plan
Administrator's notice must further advise the Claimant that his failure to
appeal the action to the Administrative Committee in writing within the 75-day
period will render the Administrative Committee's determination final, binding
and conclusive.
If the Claimant should appeal to the Administrative Committee, he, or
his duly authorized representative, may submit, in writing, whatever issues and
comments he, or his duly authorized representative, feels are pertinent. The
Claimant, or his duly authorized representative, may review pertinent Plan
documents. The Administrative Committee will re-examine all facts related to the
appeal and make a final determination as to whether the denial of benefits is
justified under the circumstances. The Administrative Committee must advise the
Claimant of its decision within 60 days of the Claimant's written request for
review, unless special circumstances (such as a hearing) would make the
rendering of a decision within the 60-day limit unfeasible, but in no event may
the Administrative Committee render a decision respecting a denial for a claim
for benefits later than 120 days after its receipt of a request for review.
The Plan Administrator's notice of denial of benefits must identify the
name of each member of the Administrative Committee and the name and address of
the Administrative Committee member to whom the Claimant may forward his appeal.
8.08 PARTICIPANT DIRECTION OF INVESTMENT. A Participant has the right
to direct the Trustee with respect to the investment or re-investment of the
assets comprising the Participant's individual Account only if the Trustee
consents to such direction. If the Trustee consents to Participant direction of
investment, the Trustee will accept direction from each Participant in such form
as a part of this Plan, containing such conditions, limitations and other
provisions the parties deem appropriate. The Trustee or, with the Trustee's
consent, the Administrative Committee, may establish procedures, incorporated
specifically as part of this Plan, relating to Participant direction of
investment under this Section 8.08. The Trustee will maintain a segregated
investment Account to the extent a Participant's Account is subject to
Participant self-direction. The Trustee is not liable for any loss, nor is the
Trustee liable for any breach, resulting from a Participant's direction of the
investment of any part of his directed Account.
The Administrative Committee, to the extent provided in a written loan
policy adopted under Section 9.04, will treat a loan made to a Participant as a
Participant direction of investment under this Section 8.10. To the extent of
the loan outstanding at any time, the borrowing Participant's Account alone
shares in any interest paid on the loan, and it alone bears any expense or loss
it incurs in connection with the loan. The Trustee may retain any principal or
interest paid on the borrowing Participant's loan in an interest bearing
segregated Account on behalf of the borrowing Participant until the Trustee (or
the Named Fiduciary, in the case of a nondiscretionary Trustee) deems it
appropriate to add the amount paid to the Participant's separate Account under
the Plan.
8.3
<PAGE> 47
The Administrative Committee or duly authorized individuals appointed
by the Administrative Committee shall choose the allowable investment options
under the Plan.
* * * * * * * * * * * * * * *
8.4
<PAGE> 48
ARTICLE IX - ADMINISTRATIVE COMMITTEE - DUTIES WITH RESPECT TO
PARTICIPANTS' ACCOUNTS
9.01 MEMBERS' COMPENSATION, EXPENSES. The Sponsor must appoint an
Administrative Committee to administer the Plan, the members of which may or may
not be Participants in the Plan, or which may be the Plan Administrator acting
alone. In the absence of an Administrative Committee appointment, the Plan
Administrator assumes the powers, duties and responsibilities of the
Administrative Committee. The members of the Administrative Committee will serve
without compensation for services as such, but the Employer will pay all
expenses of the Administrative Committee, except to the extent the Trust
properly pays for such expenses.
9.02 TERM. Each member of the Administrative Committee serves until the
appointment of his successor or resignation or ceasing to be an Employee,
whichever occurs first.
9.03 POWERS. In case of a vacancy in the membership of the
Administrative Committee, the remaining members of the Administrative Committee
may exercise any and all of the powers, authority, duties and discretion
conferred upon the Administrative Committee pending the filling of the vacancy.
9.04 GENERAL. The Administrative Committee has the following powers and
duties:
(a) To select a Secretary, who need not be a member of the
Administrative Committee;
(b) To determine the rights of eligibility of an Employee to
participate in the Plan, the value of a Participant's Accrued Benefit and the
Nonforfeitable percentage of each Participant's Accrued Benefit;
(c) To adopt rules of procedure and regulations necessary for the
proper and efficient administration of the Plan provided the rules are not
inconsistent with the terms of this Agreement;
(d) To construe and enforce the terms of the Plan, including
determining eligibility of Participant's rights as to benefits and the amount of
benefits, and the rules and regulations it adopts, including interpretation of
the Plan documents and documents related to the Plan's operation;
(e) To direct the Trustee as respects the crediting and distribution
of the Trust;
(f) To review and render decisions respecting a claim for (or denial
of a claim for) a benefit under the Plan;
(g) To furnish the Employer with information which the Employer may
require for tax or other purposes;
9.1
<PAGE> 49
(h) To engage the service of agents who may or may not be Employees of
the Employer whom it may deem advisable to assist it with the performance of its
duties;
(i) To engage the services of an Investment Manager or Managers (as
defined in ERISA Section 3(38)), each of whom will have full power and
authority to manage, acquire or dispose (or direct the Trustee with respect to
acquisition or disposition) of any Plan asset under its control;
(j) To establish, in its sole discretion, a nondiscriminatory policy
(see Section 9.04(A)) which the Trustee must observe in making loans, if any, to
Participants and Beneficiaries; and
(k) To establish and maintain a funding standard account and to make
credits and charges to the account to the extent required by and in accordance
with the provisions of the Code.
The Administrative Committee must exercise all of its powers, duties
and discretion under the Plan in a uniform and nondiscriminatory manner.
(A) LOAN POLICY. If the Administrative Committee adopts a loan policy,
pursuant to paragraph (j), the loan policy must be a written document and must
include: (1) the identity of the person or positions authorized to administer
the participant loan program; (2) a procedure for applying for the loan; (3) the
criteria for approving or denying a loan; (4) the limitations, if any, on the
types and amounts of loans available; (5) the procedure for determining a
reasonable rate of interest; (6) the types of collateral which may secure the
loan; and (7) the events constituting default and the steps the Plan will take
to preserve plan assets in the event of default. This Section 9.04 specifically
incorporates a written loan policy as part of the Employer's Plan.
9.05 FUNDING POLICY. The Administrative Committee will review, not less
often than annually, all pertinent Employee information and Plan data in order
to establish the funding policy of the Plan and to determine the appropriate
methods of carrying out the Plan's objectives. The Administrative Committee must
communicate periodically, as it deems appropriate, to the Trustee and to any
Plan Investment Manager the Plan's short-term and long-term financial needs so
investment policy can be coordinated with Plan financial requirements.
9.06 MANNER OF ACTION. The decision of a majority of the members
appointed and qualified controls.
9.07 AUTHORIZED REPRESENTATIVE. The Administrative Committee may
authorize any one of its members, or its Secretary, to sign on its behalf any
notices, directions, applications, certificates, consents, approvals, waivers,
letters or other documents. The Administrative Committee must evidence this
authority by an instrument signed by all members and filed with the Trustee.
9.2
<PAGE> 50
9.08 INTERESTED MEMBER. No member of the Administrative Committee may
decide or determine any matter concerning the distribution, nature or method of
settlement of his own benefits under the Plan, except in exercising an election
available to that member in his capacity as a Participant, unless the Plan
Administrator is acting alone in the capacity of the Administrative Committee.
9.09 INDIVIDUAL ACCOUNTS. The Administrative Committee will maintain,
or direct the Trustee to maintain, a separate Account or multiple Accounts, in
the name of each Participant to reflect the Participant's Accrued Benefit under
the Plan. If a Participant re-enters the Plan subsequent to his having a
Forfeiture Break in Service, the Administrative Committee, or the Trustee, must
maintain a separate Account for the Participant's pre-Forfeiture Break in
Service Accrued Benefit and a separate Account for his post-Forfeiture Break in
Service Accrued Benefit, unless the Participant's entire Accrued Benefit under
the Plan is 100% Nonforfeitable.
The Administrative Committee will make its allocations, or request the
Trustee to make its allocations, to the Accounts of the Participants in
accordance with the provisions of Section 9.11. The Administrative Committee may
direct the Trustee to maintain a temporary segregated investment Account in the
name of a Participant to prevent a distortion of income, gain or loss
allocations under Section 9.11. The Administrative Committee must maintain
records of its activities.
9.10 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. The value of each
Participant's Accrued Benefit consists of that proportion of the net worth (at
fair market value) of the Employer's Trust Fund which the net credit balance in
his Account bears to the total net credit balance in the Accounts of all
Participants.
For purposes of a distribution, withdrawal or loan under the Plan, the
value of a Participant's Accrued Benefit is its value as of the date of the
distribution.
9.11 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. A
"valuation date" under this Plan is each Accounting Date and each interim
valuation date as established by the Administrative Committee. As of each
valuation date the Administrative Committee must adjust Accounts to reflect net
income, gain or loss since the last valuation date. The valuation period is the
period beginning the day after the last valuation date and ending on the current
valuation date.
(A) TRUST FUND ACCOUNTS. The allocation provisions of this paragraph apply
to all Participant Accounts. The Administrative Committee first will adjust the
Participant Accounts, as those Accounts stood at the beginning of the current
valuation period, by reducing the Accounts for any forfeitures arising under
Section 5.06 or under Section 9.14 and for amounts charged during the valuation
period to the Accounts in accordance with Section 9.13 (relating to
distributions). The Administrative Committee then, subject to the restoration
allocation requirements of Section 5.04 or of Section 9.14, will allocate the
net income, gain or loss pro rata to the adjusted Participant Accounts. The
allocable net income, gain or loss is the net income (or net loss), including
the increase or decrease in the fair market value of assets, since the last
valuation date.
9.3
<PAGE> 51
(B) ADDITIONAL RULES. An Excess Amount or suspense account described in
Part 2 of Article III does not share in the allocation of net income, gain or
loss described in this Section 9.11. This Section 9.11 applies solely to the
allocation of net income, gain or loss of the Trust. The Administrative
Committee will allocate the Employer contributions and Participant forfeitures,
if any, in accordance with Article III.
9.12 INDIVIDUAL STATEMENT. As soon as practicable after the Accounting
Date of each Plan Year, but within the time prescribed by ERISA and the
regulations under ERISA, the Plan Administrator will deliver to each Participant
(and to each Beneficiary) a statement reflecting the condition of his Accrued
Benefit in the Trust as of that date and such other information ERISA requires
be furnished the Participant or Beneficiary. No Participant, except a member of
the Administrative Committee, has the right to inspect the records reflecting
the Account of any other Participant.
9.13 ACCOUNT CHARGED. The Administrative Committee will charge a
Participant's Account for all distributions made from that Account to the
Participant, to his Beneficiary or to an alternate payee. The Administrative
Committee also will charge a Participant's Account for any administrative
expenses incurred by the Plan directly related to that Account.
9.14 UNCLAIMED ACCOUNT PROCEDURE. The Plan does not require either the
Trustee or the Administrative Committee to search for, or to ascertain the
whereabouts of, any Participant or Beneficiary.
* * * * * * * * * * * * * * *
9.4
<PAGE> 52
ARTICLE X - INVESTMENT PROVISIONS
10.01 INVESTMENT FUNDS. For the investment of amounts contributed
to the Plan, the Trustee shall maintain those investment funds as
selected by the Administrative Committee and as set forth from time to
time on Appendix C hereto, which is made a part of the Plan for all
purposes. The Administrative Committee may direct the Trustee to invest
one or more of such funds with a specified insurance company, mutual
fund or appoint an Investment Manager to manage the same and may also
direct the Trustee to maintain new, delete or "freeze" existing
investments funds from time to time.
10.02 INVESTMENT OPTIONS. Each Participant's contributions and the
Employer's contributions made on behalf of such Participant shall be
invested by the Trustee in one or more of the investment funds provided
as specified by the Participant (or Beneficiary). Separate elections
may not be applicable with respect to all his Accounts. If no
investment election is made by a Participant, he shall be deemed to
have elected the default option set forth on Appendix C.
10.03 CHANGE IN INVESTMENT OPTION. An investment election made by
a Participant shall be deemed to be a continuing one until changed in
accordance with this Section 10.03. A Participant may change his
investment election with respect to the current balance of all his
Accounts and/or his and the Employer's matching contributions in
accordance with the Plan's administrative procedures. Separate
elections may be made for current account balances and for future
contributions.
10.04 VOTING OF COMPANY STOCK. The Trustee shall vote the shares
of Company Stock held by the Plan in the manner directed by the
Administrative Committee, which shall deliver instructions to the
Trustee directing it how to vote such shares at lest ten days prior to
the date such vote shall be required. In the event the Administrative
Committee fails to deliver such instructions, such failure shall
constitute an instruction to the Trustee to not vote such shares.
10.1
<PAGE> 53
10.05 TENDER AND EXCHANGE OFFERS. The provisions of this Section shall apply
in the event that a tender offer, which is subject to Section 14(d)(1)
of the Securities Exchange Act of 1934, as amended, is made of shares
of Company Stock or an offer to exchange securities of another company
for shares of Company Stock, which is subject to the Securities Act of
1933, as amended, is made. Upon such a tender or exchange offer
occurring, the Sponsor and Administrative Committee shall be
Responsible for their best efforts to notify each affected Participant
and to cause to be distributed to each Participant such information as
will be distributed to the shareholders of the Sponsor generally in
connection with any such tender or exchange offer and a form by which
the Participant may direct in writing the Trustee as to what action, as
set forth below, to take on behalf of that Participant with respect to
the shares of Company Stock allocated to his Accounts under the Plan.
If the Trustee does not receive such written directions from a
Participant such failure to provide written directions shall constitute
an instruction to the Trustee to not tender or offer to exchange any
shares of the Company Stock held in the Participant's Accounts.
(a) Cash Tender Offer. In connection with a cash
tender offer, a Participant may direct the
Trustee to tender any or all shares of Company
Stock held in the Participant's Accounts. Any
cash received by the Trustee as a result of such
tender shall be reinvested by the Trustee as
directed by the Participant and pending any such
direction, the Trustee shall invest the cash in
the investment fund which is a money market fund
or, if there is no such fund, in short-term
interest bearing investments as directed by the
Administrative Committee.
(b) Exchange Offer. In connection with an exchange
offer, a Participant may direct the Trustee to
offer for exchange any or all shares of Company
Stock held in the Participant's Accounts. Any
property received by the Trustee in connection
with such exchange shall be held by the trustee
in a separate investment fund for the affected
Participants; however, if such property does not
constitute "employer securities" within the
meaning of Code Section 409(1), the Trustee shall
sell such property and reinvest the proceeds in
the investment fund which is a money market fund
or, if there is on such fund, in such short-term
investments as directed by the Administrative
Committee.
10.2
<PAGE> 54
(c) Tender and Exchange Offer. In connection with a
combination tender and exchange offer, a
Participant may direct the Trustee to tender and
offer for exchange any or all shares of Company
Stock held in the Participant's Accounts with any
cash received by the Trustee as a result of such
tender treated as provided in (a) above and any
property received by the Trustee in connection
with the exchange treated as provided in (b)
above.
A tender or exchange offer direction given by a Participant may be
revoked by the Participant by completion of the form prescribed
therefor by the Administrative Committee provided such form is filed
with the Trustee at least (two) business days prior to the
withdrawal-date-deadlines provided for in the regulations with respect
to tender or exchange offers prescribed by the Securities and Exchange
Commission.
The Trustee shall use its best efforts to effect on a uniform
and nondiscriminatory basis the sale or exchange of the shares of
Company Stock as directed by the Participants. However, neither the
Administrative Committee nor the Trustee insures that all or any part
of the shares of Company Stock directed by a Participant to be tendered
or exchanged will be accepted under the tender or exchange offer. Any
such shares of Company Stock not so accepted shall remain in the
Participant's accounts and the Participant shall continue to have the
same rights with respect to such shares as he had immediately prior to
the Trustee's tendering of the shares.
If a tender or exchange offer is made, the Administrative
Committee shall not adopt such rules, prescribe the use of such special
administrative forms and procedures, delegate such authority, take such
action and execute such instruments or documents and do every other act
or thing as shall be necessary or in its judgement proper for the
implementation of this Section.
Notwithstanding anything in the Plan to the contrary, in
administering the tendering or exchange of shares pursuant to the
applicable provisions of the Plan, it is intended that the
confidentiality of the tenders or exchanges, as the case may be, made
by Participants pursuant to the provisions of the Plan shall be
maintained by the Administrative Committee and the Trustee.
* * * * * * * * * * * * * * *
10.3
<PAGE> 55
ARTICLE XI - PROVISIONS RELATING TO INSURANCE AND INSURANCE
COMPANY
11.01 INSURANCE BENEFIT. The Plan does not provide Incidental Life
Insurance Benefits for Participants.
* * * * * * * * * * * * * * *
11.1
<PAGE> 56
ARTICLE XII - MISCELLANEOUS
12.01 EVIDENCE. Anyone required to give evidence under the terms of the
Plan may do so by certificate, affidavit, document or other information which
the person to act in reliance may consider pertinent, reliable and genuine, and
to have been signed, made or presented by the proper party or parties. The
Administrative Committee and the Trustee are fully protected in acting and
relying upon any evidence described under the immediately preceding sentence.
12.02 NO RESPONSIBILITY FOR EMPLOYER ACTION. Neither the Trustee nor
the Administrative Committee has any obligation or responsibility with respect
to any action required by the Plan to be taken by the Employer, any Participant
or eligible Employee, or for the failure of any of the above persons to act or
make any payment or contribution, or to otherwise provide any benefit
contemplated under this Plan. Furthermore, the Plan does not require the Trustee
or the Administrative Committee to collect any contribution required under the
Plan, or to determine the correctness of the amount of any Employer
contribution. Neither the Trustee nor the Administrative Committee need inquire
into or be responsible for any action or failure to act on the part of the
others, or on the part of any other person who has any responsibility regarding
the management, administration or operation of the Plan, whether by the express
terms of the Plan or by a separate agreement authorized by the Plan or by the
applicable provisions of ERISA. Any action required of a corporate Employer must
be by its Board of Directors or its designate.
12.03 FIDUCIARIES NOT INSURERS. The Trustee, the Administrative
Committee, the Plan Administrator and the Employer in no way guarantee the Trust
Fund from loss or depreciation. The Employer does not guarantee the payment of
any money which may be or becomes due to any person from the Trust Fund. The
liability of the Administrative Committee and the Trustee to make any payment
from the Trust Fund at any time and all times is limited to the then available
assets of the Trust.
12.04 WAIVER OF NOTICE. Any person entitled to notice under the Plan
may waive the notice, unless the Code or Treasury regulations prescribe the
notice or ERISA specifically or impliedly prohibits such a waiver.
12.05 SUCCESSORS. The Plan is binding upon all persons entitled to
benefits under the Plan, their respective heirs and legal representatives, upon
the Employer, its successors and assigns, and upon the Trustee, the
Administrative Committee, the Plan Administrator and their successors.
12.06 WORD USAGE. Words used in the masculine also apply to the
feminine where applicable, and wherever the context of the Employer's Plan
dictates, the plural includes the singular and the singular includes the plural.
12.07 STATE LAW. Texas law will determine all questions arising with
respect to the provisions of this Agreement except to the extent superseded by
Federal law.
12.1
<PAGE> 57
12.08 EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan, or
with respect to the establishment of the Trust, or any modification or amendment
to the Plan or Trust, or in the creation of any Account, or the payment of any
benefit, gives any Employee, Employee-Participant or any Beneficiary any right
to continue employment, any legal or equitable right against the Employer, or
Employee of the Employer, or against the Trustee, or its agents or employees, or
against the Plan Administrator, except as expressly provided by the Plan, the
Trust, ERISA or by a separate agreement.
* * * * * * * * * * * * * * *
12.2
<PAGE> 58
ARTICLE XIII - EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
13.01 EXCLUSIVE BENEFIT. Except as provided under Article III, the
Employer has no beneficial interest in any asset of the Trust and no part of any
asset in the Trust may ever revert to or be repaid to an Employer, either
directly or indirectly; nor, prior to the satisfaction of all liabilities with
respect to the Participants and their Beneficiaries under the Plan, may any part
of the corpus or income of the Trust Fund, or any asset of the Trust, be (at any
time) used for, or diverted to, purposes other than the exclusive benefit of the
Participants or their Beneficiaries. However, if the Commissioner of Internal
Revenue, upon the Employer's request for initial approval of this Plan,
determines that the Trust created under the Plan is not a qualified trust exempt
from Federal income tax, then (and only then) the Trustee, upon written notice
from the Employer, will return the Employer's contributions (and increment
attributable to the contributions) to the Employer. The Trustee must make the
return of the Employer contribution under this Section 13.01 within one year of
a final disposition of the Employer's request for initial approval of the Plan.
The Employer's Plan and Trust will terminate upon the Trustee's return of the
Employer's contributions.
13.02 AMENDMENT BY EMPLOYER. The Sponsor, by action of its Board of
Directors or Chief Executive Officer, has the right at any time and from time to
time:
(a) To amend this Agreement in any manner it deems necessary or
advisable in order to qualify (or maintain qualification of) this Plan
and the Trust created under it under the provisions of Code Section
401(a).
(b) To amend the Plan to allow the Plan to operate under a waiver
of the minimum funding requirement; and
(c) To amend this Agreement in any other manner.
Further, the Administrative Committee may also amend this Plan subject
to the foregoing and provided such amendment does not materially increase the
obligation of the Employer under this Plan.
No amendment may authorize or permit any of the Trust Fund (other than
the part which 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 amendment may cause or permit
any portion of the Trust Fund to revert to or become a property of the Employer.
The Employer must make all amendments in writing. Each amendment must state the
date to which it is either retroactively or prospectively effective.
(A) CODE SECTION 411(d)(6) PROTECTED BENEFITS. An amendment (including the
adoption of this Plan as a restatement of an existing plan) may not decrease a
Participant's Accrued Benefit, except to the extent permitted under Code Section
412(c)(8), and may not reduce or eliminate Code Section 411(d)(6) protected
benefits determined immediately prior to the adoption date (or, if later, the
effective date) of the amendment. An amendment reduces or eliminates Code
Section 411(d)(6) protected benefits if the amendment has the effect of either
(1) eliminating or reducing an early retirement benefit or a retirement-type
subsidy (as defined in Treasury regulations), or (2) except as provided by
Treasury
13.1
<PAGE> 59
regulations, eliminating an optional form of benefit. The Administrative
Committee must disregard an amendment to the extent application of the amendment
would fail to satisfy this paragraph. If the Administrative Committee must
disregard an amendment because the amendment would violate clause (1) or clause
(2), the Administrative Committee must maintain a schedule of the early
retirement option or other optional forms of benefit the Plan must continue for
the affected Participants.
13.03 DISCONTINUANCE. The Sponsor has the right, at any time, to
suspend or discontinue its contributions under the Plan, and to terminate, at
any time, this Plan and the Trust created under this Agreement. The Plan will
terminate upon the first to occur of the following:
(a) The date terminated by action of the Sponsor;
(b) The dissolution or merger of the Sponsor, unless the successor
makes provision to continue the Plan, in which event the successor must
substitute itself as the Sponsor under this Plan. Any termination of the Plan
resulting from this paragraph (b) is not effective until compliance with any
applicable notice requirements under ERISA.
13.04 FULL VESTING ON TERMINATION. Upon either full or partial
termination of the Plan, or, if applicable, upon complete discontinuance of
profit sharing plan contributions to the Plan, an affected Participant's right
to his Accrued Benefit is 100% Nonforfeitable, irrespective of the
Nonforfeitable percentage which otherwise would apply under Article V.
13.05 MERGER/DIRECT TRANSFER. The Trustee may not consent to, or be a
party to, any merger or consolidation with another plan, or to a transfer of
assets or liabilities to another plan, unless immediately after the merger,
consolidation or transfer, the surviving Plan provides each Participant a
benefit equal to or greater than the benefit each Participant would have
received had the Plan terminated immediately before the merger or consolidation
or transfer. The Trustee possesses the specific authority to enter into merger
agreements or direct transfer of assets agreements with the trustees of other
retirement plans described in Code Section 401(a), including an elective
transfer, and to accept the direct transfer of plan assets, or to transfer plan
assets, as a party to any such agreement.
With the approval of the Administrative Committee, the Trustee may
accept a direct transfer of plan assets or loan on behalf of an Employee prior
to the date the Employee satisfies the Plan's eligibility conditions. If the
Trustee accepts such a direct transfer of plan assets, the Administrative
Committee and Trustee must treat the Employee as a Participant for all purposes
of the Plan except the Employee is not a Participant for purposes of matching
contributions or sharing in Employer contributions under the Plan until he
actually becomes a Participant in the Plan.
In the event of a merger to this Plan of the assets of a prior plan
maintained by an entity whose stock or assets were acquired by the Sponsor or
Related Employer of the Sponsor, then any benefits required to be protected
pursuant to Code Section 411(d)(6) shall be set forth in Appendix B to this Plan
and shall be applicable only to Employees of the Related Employer who had
benefits merged into this Plan.
13.2
<PAGE> 60
(A) ELECTIVE TRANSFERS. The Trustee, after August 9, 1988, may not consent
to, or be a party to a merger, consolidation or transfer of assets with a
defined benefit plan, except with respect to an elective transfer, or unless the
transferred benefits are in the form of paid-up individual annuity contracts
guaranteeing the payment of the transferred benefits in accordance with the
terms of the transferor plan and in a manner consistent with the Code and with
ERISA. The Trustee will hold, administer and distribute the transferred assets
as a part of the Trust Fund and the Trustee must maintain a separate Employer
contribution Account for the benefit of the Employee on whose behalf the Trustee
accepted the transfer in order to reflect the value of the transferred assets.
Unless a transfer of assets to this Plan is an elective transfer, the Plan will
preserve all Code Section 411(d)(6) protected benefits with respect to those
transferred assets, in the manner described in Section 13.02. A transfer is an
elective transfer if: (1) the transfer satisfies the first paragraph of this
Section 13.05; (2) the transfer is voluntary, under a fully informed election by
the Participant; (3) the Participant has an alternative that retains his Code
Section 411(d)(6) protected benefits (including an option to leave his benefit
in the transferor plan, if that plan is not terminating); (4) the transfer
satisfies the applicable spousal consent requirements of the Code; (5) the
transferor plan satisfies the joint and survivor notice requirements of the
Code, if the Participant's transferred benefit is subject to those requirements;
(6) the Participant has a right to immediate distribution from the transferor
plan, in lieu of the elective transfer; (7) the transferred benefit is at least
the greater of the single sum distribution provided by the transferor plan for
which the Participant is eligible or the present value of the Participant's
accrued benefit under the transferor plan payable at the plan's normal
retirement age; (8) the Participant has a 100% Nonforfeitable interest in the
transferred benefit; and (9) the transfer otherwise satisfies applicable
Treasury regulations. An elective transfer may occur between qualified plans of
any type.
(B) DISTRIBUTION RESTRICTIONS UNDER CODE SECTION 401(k). If the Plan
receives a direct transfer (by merger or otherwise) of elective contributions
(or amounts treated as elective contributions) under a Plan with a Code Section
401(k) arrangement, the distribution restrictions of Code Section Section
401(k)(2) and (10) continue to apply to those transferred elective
contributions.
13.06 TERMINATION. Upon termination of the Plan, the distribution
provisions of Article VI remain operative, with the following exceptions:
(1) if the present value of the Participant's Nonforfeitable Accrued
Benefit does not exceed $5,000, the Administrative Committee will
direct the Trustee to distribute the Participant's Nonforfeitable
Accrued Benefit to him in lump sum as soon as administratively
practicable after the Plan terminates; and
(2) if the present value of the Participant's Nonforfeitable Accrued
Benefit exceeds $5,000, the Participant or the Beneficiary, in addition
to the distribution events permitted under Article VI, may elect to
have the Trustee commence distribution of this Nonforfeitable Accrued
Benefit as soon as administratively practicable after the Plan
terminates.
To liquidate the Trust, the Administrative Committee will purchase a
deferred annuity contract for each Participant which protects the Participant's
distribution rights under the Plan, if the Participant's Nonforfeitable Accrued
Benefit exceeds $5,000 and the Participant does not elect an
13.3
<PAGE> 61
immediate distribution pursuant to Paragraph (2).
The Trust will continue until the Trustee in accordance with the
direction of the Administrative Committee has distributed all of the benefits
under the Plan. On each valuation date, the Administrative Committee will credit
any part of a Participant's Accrued Benefit retained in the Trust with its
proportionate share of the Trust's income, expenses, gains and losses, both
realized and unrealized. Upon termination of the Plan, the amount, if any , in a
suspense account under Article III will revert to the Employer, subject to the
conditions of the Treasury regulations permitting such a reversion. A resolution
or amendment to freeze all future benefit accrual but otherwise to continue
maintenance of this Plan, is not a termination for purposes of this Section
13.06.
DISTRIBUTION RESTRICTIONS UNDER CODE 401(k). The portion of the
Participant's Nonforfeitable Accrued Benefit attributable to elective
contributions under a Code Section 401(k) arrangement (or to amounts treated
under the Code 401(k) arrangement as elective contributions) is not
distributable on account of Plan termination, as described in Section 13.06,
unless: (a) the Participant otherwise entitled under the Plan to a distribution
of that portion of his Nonforfeitable Accrued Benefit; or (b) the Plan
termination occurs without the establishment of a successor plan. A successor
plan under clause (b) is a defined contribution plan (other than an ESOP
maintained by the Employer (or by a related employer) at the time of the
termination of the Plan or within the period ending twelve months after the
final disposition of assets. A distribution made after March 31, 1988, pursuant
to clause (b), must be of a lump sum distribution to the Participant of his
Nonforfeitable Accrued Benefit.
13.4
<PAGE> 62
ARTICLE XIV - PROVISIONS RELATING TO CODE SECTION 401(k) AND TO CODE SECTION
401(m)
14.01 401(k) ARRANGEMENT. The Employer makes the deferral contributions
described in Section 3.01 pursuant to a 401(k) arrangement. An Employee who is
eligible to participate in the Plan may file a salary reduction agreement with
the Administrative Committee. The salary reduction agreement may not be
effective earlier than the following date which occurs last: (i) the Employee's
Plan Entry Date (or, in the case of a reemployed Employee, his reparticipation
date under Article II); (ii) the execution date of the Employee's salary
reduction agreement; (iii) the date the Employer adopts the Code Section 401(k)
arrangement by executing the Plan; or (iv) the effective date of the Code
Section 401(k) arrangement. The salary reduction agreement will apply only to
Compensation which becomes currently available to the Employee after the
effective date of the salary reduction agreement. The Employer will apply a
reduction election to all Compensation (and to increases in such Compensation)
unless the Employee specifies in his salary reduction agreement to limit the
election to certain Compensation.
An Employee's salary reduction contributions for the Plan Year, subject
to the elective deferral limitation of Section 14.03, may not be less than 1%
nor exceed 15% (in whole percentage) of his Compensation for the applicable
period. An Employee may modify his salary reduction agreement, either to reduce
or to increase the amount of deferral contributions, as of any Entry Date. The
Employee will make this modification by filing a new salary reduction agreement
with the Administrative Committee within 30 days of such Entry Date or other
time period the Administrative Committee deems appropriate. An Employee may
revoke a salary reduction agreement as of any Entry Date. An Employee who
revokes his salary reduction agreement may file a new salary reduction agreement
effective as of any Entry Date. An employee who does not elect to make a salary
reduction agreement upon his initial Entry Date may make a salary reduction
election on any subsequent Entry Date. Any Employee's salary reductions
agreement shall remain in effect from year to year until modified or revoked by
the Participant.
14.02 DEFINITIONS. For purposes of this Article XIV:
(a) "Highly Compensated Employee" means an Eligible Employee who
satisfies the definition in Section 1.07 of the Plan.
(b) "Nonhighly Compensated Employee" means an Eligible Employee who
is not a Highly Compensated Employee and who is not a family member treated as a
Highly Compensated Employee.
14.1
<PAGE> 63
(c) "Eligible Employee" means, for purposes of the ADP test described
in Section 14.04, an Employee who is eligible to participate in the Code Section
401(k) arrangement, irrespective of whether the Employer actually makes deferral
contributions on behalf of the Employee. For purposes of the ACP test described
in Section 14.05, an "Eligible Employee" means a Participant who is eligible to
receive an allocation of matching contributions (or would be eligible if he made
the type of contributions necessary to receive an allocation of matching
contributions) and a Participant who is eligible to make employee contributions,
irrespective of whether he actually makes employee contributions. An Employee
continues to be an Eligible Employee during a period the Plan suspends the
Employee's right to make elective deferrals or nondeductible contributions
following a hardship distribution.
(d) "Highly Compensated Group" means the group of Eligible Employees
who are Highly Compensated Employees for the Plan Year.
(e) "Nonhighly Compensated Group" means the group of Eligible
Employees who are Nonhighly Compensated Employees for the Plan Year.
(f) "Compensation" means, except as specifically provided under this
Article XIV, Compensation as defined for nondiscrimination purposes in Section
1.10 of the Plan. To compute an Employee's ADP or ACP, the Administrative
Committee may limit Compensation taken into account to Compensation received
only for the portion of the Plan Year in which the Employee was an Eligible
Employee and only for the portion of the Plan Year in which the Plan or the Code
Section 401(k) arrangement was in effect.
(g) "Deferral contributions" means the sum of the deferral
contributions the Employer contributes to the Trust on behalf of an Eligible
Employee, pursuant to Section 3.01.
(h) "Elective deferrals" are the deferral contributions the Employer
contributes to the Trust at the election of an Eligible Employee. If the Code
Section 401(k) arrangement includes a cash or deferred feature, any portion of
a cash or deferred contribution contributed to the Trust because of the
Employee's failure to make a cash election is an elective deferral, but any
portion of a cash or deferred contribution over which the Employee does not
have a cash election is not an elective deferral. Elective deferrals do not
include amounts which have become currently available to the Employee prior to
the election nor amounts designated as employee contributions at the time of
deferral or contribution.
(i) "Matching contributions" are contributions made by the Employer
on account of elective deferrals under a Code Section 401(k) arrangement or on
account of employee contributions. Matching contributions also include
Participant forfeitures allocated on account of such elective deferrals or
employee contributions.
(j) "Nonelective contributions" are contributions made by the
Employer which are not subject to a deferral election by an Employee and which
are not matching contributions.
14.2
<PAGE> 64
(k) "Qualified matching contributions" are matching contributions
which are 100% Nonforfeitable at all times and which are subject to the
distribution restrictions described in paragraph (m). Matching contributions are
not 100% Nonforfeitable at all times if the Employee has a 100% Nonforfeitable
interest because of his Years of Service taken into account under a vesting
schedule.
(l) "Qualified nonelective contributions" are nonelective
contributions which are 100% Nonforfeitable at all times and which are subject
to the distribution restrictions described in paragraph (m). Nonelective
contributions are not 100% Nonforfeitable at all times if the Employee has a
100% Nonforfeitable interest because of his Years of Service taken into account
under a vesting schedule. Any nonelective contributions allocated to a
Participant's Qualified Nonelective Contributions Account under the Plan
automatically satisfy the definition of qualified nonelective contributions.
(m) "Distribution restrictions" means the Employee may not receive a
distribution of the specified contributions (nor earnings on those
contributions) except in the event of (1) the Participant's death, disability,
termination of employment, attainment of age 59, (2) financial hardship
satisfying the requirements of Code Section 401(k) and the applicable Treasury
regulations, (3) plan termination, without establishment of a successor defined
contribution plan (other than an ESOP), (4) a sale of substantially all of the
assets (within the meaning of Code Section 409(d)(2)) used in a trade or
business, but only to an employee who continues employment with the corporation
acquiring those assets, or (5) a sale by a corporation of its interest in a
subsidiary (within the meaning of Code Section 409(d)(3)), but only to an
employee who continues employment with the subsidiary. For Plan Years beginning
after December 31, 1988, a distribution on account of financial hardship, as
described in clause (2), may not include earnings on elective deferrals credited
as of a date later than December 31, 1988, and may not include qualified
matching contributions and qualified nonelective contributions, nor any earnings
on such contributions, credited after December 31, 1988. A plan does not violate
the distribution restrictions if, instead of the December 31, 1988, date in the
preceding sentence, the plan specifies a date not later than the end of the last
Plan Year ending before July 1, 1989. A distribution described in clauses (3),
(4) or (5), if made after March 31, 1988, must be a lump sum distribution, as
required under Code Section 401(k)(10).
(n) "Employee contributions" are contributions made by a Participant
on an after-tax basis, whether voluntary or mandatory, and designated, at the
time of contribution, as an employee (or nondeductible) contribution. Elective
deferrals and deferral contributions are not employee contributions.
14.3
<PAGE> 65
14.03 ANNUAL ELECTIVE DEFERRAL LIMITATION.
(A) ANNUAL ELECTIVE DEFERRAL LIMITATION. An Employee's elective deferrals
for a calendar year may not exceed the IRC 402(g) limitation. If the Employer
determines the Employee's elective deferrals to the Plan for a calendar year
would exceed the 402(g) limitation, the Employer will not make any additional
elective deferrals with respect to that Employee for the remainder of that
calendar year, paying in cash to the Employee any amounts which would result in
the Employee's elective deferrals for the calendar year exceeding the 402(g)
limitation. If the Administrative Committee determines an Employee's elective
deferrals already contributed to the Plan for a calendar year exceed the 402(g)
limitation, the Administrative Committee will distribute the amount in excess of
the 402(g) limitation (the "excess deferral"), as adjusted for allocable income,
no later than April 15 of the following calendar year. If the Administrative
Committee distributes the excess deferral by the appropriate April 15, it may
make the distribution irrespective of any other provision under this Plan or
under the Code. The Administrative Committee will reduce the amount of excess
deferrals for a calendar year distributable to the Employee by the amount of
excess contributions (as determined in Section 14.04), if any, previously
distributed to the Employee for the Plan Year beginning in that calendar year.
If an Employee participates in another plan under which he makes
elective deferrals pursuant to a Code Section 401(k) arrangement, elective
deferrals under a Simplified Employee Pension, or salary reduction contributions
to a tax-sheltered annuity, irrespective of whether the Employer maintains the
other plan, he may provide the Administrative Committee a written claim for
excess deferrals made for a calendar year. The Employee must submit the claim no
later than the March 1 following the close of the particular calendar year and
the claim must specify the amount of the Employee's elective deferrals under
this Plan which are excess deferrals. If the Administrative Committee receives a
timely claim, it will distribute the excess deferral (as adjusted for allocable
income) the Employee has assigned to this Plan, in accordance with the
distribution procedure described in the immediately preceding paragraph.
(B) ALLOCABLE INCOME. For purposes of making a distribution of excess
deferrals, allocable income means net income or net loss allocable to the excess
deferrals for the calendar year in which the Employee made the excess deferral,
determined in a manner which is uniform, nondiscriminatory and reasonably
reflective of the manner used by the Plan to allocate income to Participant's
accounts.
14.04 ACTUAL DEFERRAL PERCENTAGE ("ADP") TEST. For each Plan Year,
the Administrative Committee must determine whether the Plan's Code Section
401(k) arrangement satisfies either of the following ADP tests:
(i) The average ADP for the Highly Compensated Group does not exceed
1.25 times the average ADP of the Nonhighly Compensated Group; or
14.4
<PAGE> 66
(ii) The average ADP for the Highly Compensated Group does not exceed
the average ADP for the Nonhighly Compensated Group by more than two percentage
points (or the lesser percentage permitted by the multiple use limitation in
Section 14.06) and the average ADP for the Highly Compensated Group is not more
than twice the average ADP for the Nonhighly Compensated Group.
(A) CALCULATION OF ADP. The average ADP for a group is the average of the
separate ADPs calculated for each Eligible Employee who is a member of that
group. An Eligible Employee's ADP for a Plan Year is the ratio of the Eligible
Employee's deferral contributions for the Plan Year to the Employee's
Compensation for the Plan Year. A Nonhighly Compensated Employee's ADP does not
include elective deferrals made to this Plan or to any other Plan maintained by
the Employer, to the extent such elective deferrals exceed the 402(g) limitation
described in Section 14.03. In determining whether the Plan's Code Section
401(k) arrangement satisfies either ADP test, the Administrative Committee will
use the average ADP of the Nonhighly Compensated Group for the Plan Year
preceding the Plan Year of the calculation, unless the Employer elects to use
the current Plan Year's average ADP of the Nonhighly Compensated Group. An
Employer may not change an election to use current average ADP except as the
Treasury otherwise may provide.
(B) SPECIAL AGGREGATION RULE FOR HIGHLY COMPENSATED EMPLOYEES. To
determine the ADP of any Highly Compensated Employee, the deferral
contributions taken into account must include any elective deferrals made by
the Highly Compensated Employee under any other Code Section 401(k) arrangement
maintained by the Employer, unless the elective deferrals are to an ESOP. If
the plans containing the Code Section 401(k) arrangements have different plan
years, the Administrative Committee will determine the combined deferral
contributions on the basis of the plan years ending in the same calendar year.
(C) AGGREGATION OF CERTAIN CODE SECTION 401(k) ARRANGEMENTS. If the
Employer treats two plans as a unit for coverage or nondiscrimination purposes,
the Employer must combine the Code Section 401(k) arrangements under such plans
to determine whether either plan satisfies the ADP test. This aggregation rule
applies to the ADP determination for all Eligible Employees, irrespective of
whether an Eligible Employee is a Highly Compensated Employee or a Nonhighly
Compensated Employee. For Plan Years beginning after December 31, 1989, an
aggregation of Code Section 401(k) arrangements under this paragraph does not
apply to plans which have different plan years and, for Plan Years beginning
after December 31, 1988, the Administrative Committee may not aggregate an ESOP
(or the ESOP portion of a plan) with a non-ESOP plan (or non-ESOP portion of a
plan).
14.5
<PAGE> 67
(D) CHARACTERIZATION OF EXCESS CONTRIBUTIONS. If, pursuant to this Section
14.04, the Administrative Committee has elected to include qualified matching
contributions in the average ADP, the Administrative Committee will treat excess
contributions as attributable proportionately to deferral contributions and to
qualified matching contributions allocated on the basis of those deferral
contributions. If the total amount of a Highly Compensated Employee's excess
contributions for the Plan Year exceeds his deferral contributions or qualified
matching contributions for the Plan Year, the Administrative Committee will
treat the remaining portion of his excess contributions as attributable to
qualified nonelective contributions. The Administrative Committee will reduce
the amount of excess contributions for a Plan Year distributable to a Highly
Compensated Employee by the amount of excess deferrals (as determined in Section
14.03), if any, previously distributed to that Employee for the Employee's
taxable year ending in that Plan Year.
(E) DISTRIBUTION OF EXCESS CONTRIBUTIONS. If the Administrative Committee
determines the Plan fails to satisfy the ADP test for a Plan Year, the Trustee,
as directed by the Administrative Committee, must distribute the excess
contributions, as adjusted for allocable income, during the next Plan Year.
However, the Employer will incur an excise tax equal to 10% of the amount of
excess contributions for a Plan Year not distributed to the appropriate Highly
Compensated Employees during the first 2 1/2 months of that next Plan Year. The
excess contributions are the amount of deferral contributions made by the Highly
Compensated Employees which causes the Plan to fail to satisfy the ADP test. The
Administrative Committee will determine the amount of the excess contributions
by starting with the Highly Compensated Employee(s) who has the greatest ADP,
reducing his ADP (but not below the next highest ADP), then, if necessary,
reducing the ADP of the Highly Compensated Employee(s) at the next highest ADP,
including the ADP of the Highly Compensated Employee(s) whose ADP the
Administrative Committee already has reduced (but not below the next highest
ADP), and continuing in this manner until the average ADP for the Highly
Compensated Group satisfies the ADP test.
After the Administrative Committee has determined the excess
contribution amount, the trustee, as directed by the Administrative Committee,
then will distribute to each Highly Compensated Employee his respective share(s)
of the excess contributions. The Administrative Committee will determine the
respective share(s) of excess contributions by starting with the Highly
Compensated Employee(s) who has the highest elective contributions, reducing his
elective contributions (but not below the next highest level of elective
contributions), then, if necessary, reducing the elective contributions of the
Highly Compensated Employee(s) at the next highest level of elective
contributions including the elective contributions of me Highly Compensated
Employee(s) whose elective contributions the Administrative Committee already
has reduced (but not below the next highest level of elective contributions),
and continuing in this manner until the Trustee has distributed all excess
contributions.
(F) ALLOCABLE INCOME. To determine the amount of the corrective
distribution required under this Section 14.04, the Administrative Committee
must calculate the allocable income for the Plan Year in which the excess
contributions arose. "Allocable income" means net income or net loss. To
calculate allocable income for the Plan Year, the Administrative Committee will
use a uniform and nondiscriminatory method which reasonably reflects the manner
used by the Plan to allocate income to Participants' Accounts.
14.6
<PAGE> 68
(G) CORRECTION OF ANNUAL ADDITIONS LIMITATION. If, as a result of a
reasonable error in determining the amount of elective deferrals an Employee may
make without violating the limitations of Part 2 of Article III, an Excess
Amount results, the Administrative Committee will return the Excess Amount (as
adjusted for allocable income) attributable to the elective deferrals. The
Administrative Committee will make this distribution before taking any
corrective steps pursuant to Section 3.07. The Administrative Committee will
disregard any elective deferrals returned under this Section 14.04(G) for
purposes of Sections 14.03, 14.04 and 14.05.
14.05 NONDISCRIMINATION RULES FOR EMPLOYER MATCHING
CONTRIBUTIONS/PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. For Plan Years beginning
after December 31, 1986, the Administrative Committee must determine whether the
annual Employer matching contributions (other than qualified matching
contributions used in the ADP test), if any, and the Employee contributions, if
any, satisfy either of the following average contribution percentage ("ACP")
tests:
(i) The ACP for the Highly Compensated Group does not exceed 1.25
times the ACP of the Nonhighly Compensated Group; or
(ii) The ACP for the Highly Compensated Group does not exceed the ACP
for the Nonhighly Compensated Group by more than two percentage points (or the
lesser percentage permitted by the multiple use limitation in Section 14.06) and
the ACP for the Highly Compensated Group is not more than twice the ACP for the
Nonhighly Compensated Group.
(A) CALCULATION OF ACP. The average contribution percentage for a group is
the average of the separate contribution percentages calculated for each
Eligible Employee who is a member of that group. An Eligible Employee's
contribution percentage for a Plan Year is the ratio of the Eligible Employee's
aggregate contributions for the Plan Year to the Employee's Compensation for the
Plan Year. "Aggregate contributions" are matching contributions (other than
qualified matching contributions used in the ADP test) and employee
contributions. For aggregated family members treated as a single Highly
Compensated Employee, the contribution percentage of the family unit is the
contribution percentage determined by combining the aggregate contributions and
Compensation of all aggregated family members.
14.7
<PAGE> 69
The Administrative Committee, in a manner consistent with Treasury
regulations, may determine the contribution percentages of the Eligible
Employees by taking into account qualified nonelective contributions (other than
qualified nonelective contributions used in the ADP test) or elective deferrals,
or both, made to this Plan or to any other qualified Plan maintained by the
Employer. The Administrative Committee may not include qualified nonelective
contributions in the ACP test unless the allocation of nonelective contributions
is nondiscriminatory when the Administrative Committee takes into account all
nonelective contributions (including the qualified nonelective contributions)
and also when the Administrative Committee takes into account only the
nonelective contributions not used in either the ADP test or the ACP test. The
Administrative Committee may not include elective deferrals in the ACP test,
unless the Plan which includes the elective deferrals satisfies the ADP test
both with and without the elective deferrals included in this ACP test. For Plan
Years beginning after December 31, 1989, the Administrative Committee may not
include in the ACP test any qualified nonelective contributions or elective
deferrals under another qualified plan unless that plan has the same plan year
as this Plan. The Administrative Committee must maintain records to demonstrate
compliance with the ACP test, including the extent to which the Plan used
qualified nonelective contributions or elective deferrals to satisfy the test.
(B) SPECIAL AGGREGATION RULE FOR HIGHLY COMPENSATED EMPLOYEES. To
determine the contribution percentage of any Highly Compensated Employee, the
aggregate contributions taken into account must include any matching
contributions (other than qualified matching contributions used in the ADP
test) and any employee contributions made on his behalf to any other plan
maintained by the Employer, unless the other plan is an ESOP. If the plans have
different plan years, the Administrative Committee will determine the combined
aggregate contributions on the basis of the plan years ending in the same
calendar year.
(C) AGGREGATION OF CERTAIN PLANS. If the Employer treats two plans as a
unit for coverage or nondiscrimination purposes, the Employer must combine the
plans to determine whether either plan satisfies the ACP test. This aggregation
rule applies to the contribution percentage determination for all Eligible
Employees, irrespective of whether an Eligible Employee is a Highly Compensated
Employee or a Nonhighly Compensated Employee. For Plan Years beginning after
December 31, 1989, an aggregation of plans under this paragraph does not apply
to plans which have different plan years and, for Plan Years beginning after
December 31, 1988, the Administrative Committee may not aggregate an ESOP (or
the ESOP portion of a plan) with a non-ESOP plan (or non-ESOP portion of a
plan).
14.8
<PAGE> 70
(D) DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS. The Administrative
Committee will determine excess aggregate contributions after determining excess
deferrals under Section 14.03 and excess contributions under Section 14.04. If
the Administrative Committee determines the Plan fails to satisfy the ACP test
for a Plan Year, it must distribute the excess aggregate contributions, as
adjusted for allocable income, during the next Plan Year. However, the Employer
will incur an excise tax equal to 10% of the amount of excess aggregate
contributions for a Plan Year not distributed to the appropriate Highly
Compensated Employees during the first 2? months of that next Plan Year. The
excess aggregate contributions are the amount of aggregate contributions
allocated on behalf of the Highly Compensated Employees which causes the Plan to
fail to satisfy the ACP test. The Administrative Committee will distribute to
each Highly Compensated Employee his respective share of the excess aggregate
contributions. The Administrative Committee will determine the respective shares
of excess aggregate contributions by starting with the Highly Compensated
Employee(s) who has the greatest contribution percentage, reducing his
contribution percentage (but not below the next highest contribution
percentage), then, if necessary, reducing the contribution percentage of the
Highly Compensated Employee(s) at the next highest contribution percentage level
(including the contribution percentage of the Highly Compensated Employee(s)
whose contribution percentage the Administrative Committee already has reduced),
and continuing in this manner until the ACP for the Highly Compensated Group
satisfies the ACP test. If the Highly Compensated Employee is part of an
aggregated family group, the Administrative Committee, in accordance with the
applicable Treasury regulations, will determine each aggregated family member's
allocable share of the excess aggregate contributions assigned to the family
unit.
(E) ALLOCABLE INCOME. To determine the amount of the corrective
distribution required under this Section 14.05, the Administrative Committee
must calculate the allocable income for the Plan Year in which the excess
aggregate contributions arose. "Allocable income" means net income or net
loss. The Administrative Committee will determine allocable income in the
same manner as described in Section 14.04(F) for excess contributions.
(F) CHARACTERIZATION OF EXCESS AGGREGATE CONTRIBUTIONS. The Administrative
Committee will treat a Highly Compensated Employee's allocable share of excess
aggregate contributions in the following priority: (1) first as attributable to
his employee contributions which are voluntary contributions, if any; (2) then
as matching contributions allocable with respect to excess contributions
determined under the ADP test; (3) then on a pro rata basis to matching
contributions and to the deferral contributions relating to those matching
contributions which the Administrative Committee has included in the ACP test;
(4) then on a pro rata basis to Employee contributions which are mandatory
contributions, if any, and to the matching contributions allocated on the basis
of those mandatory contributions; and (5) last to qualified nonelective
contributions used in the ACP test. To the extent the Highly Compensated
Employee's excess aggregate contributions are attributable to matching
contributions, and he is not 100% vested in his Accrued Benefit attributable to
matching contributions, the Administrative Committee will distribute only the
vested portion and forfeit the nonvested portion. The vested portion of the
Highly Compensated Employee's excess aggregate contributions attributable to
Employer matching contributions is the total amount of such excess aggregate
contributions (as adjusted for allocable income) multiplied by his vested
percentage (determined as of the last day of the Plan Year for which the
Employer made the matching
14.9
<PAGE> 71
contribution). The Plan will allocate forfeited excess aggregate contributions
to reduce Employer matching contributions for the Plan Year in which the
forfeiture occurs.
14.06 MULTIPLE USE LIMITATION. For Plan Years beginning after December
31, 1988, if at least one Highly Compensated Employee is includible in the ADP
test and in the ACP test, the sum of the Highly Compensated Group's ADP and ACP
may not exceed the multiple use limitation.
The multiple use limitation is the sum of (i) and (ii):
(i) 125% of the greater of: (a) the ADP of the Nonhighly Compensated
Group under the Code Section 401(k) arrangement; or (b) the ACP of the Nonhighly
Compensated Group for the Plan Year beginning with or within the Plan Year of
the Code Section 401(k) arrangement.
(ii) 2% plus the lesser of (i)(a) or (i)(b), but no more than
twice the lesser of (i)(a) or (i)(b).
The Administrative Committee, in lieu of determining the multiple use
limitation as the sum of (i) and (ii), may elect to determine the multiple use
limitation as the sum of (iii) and (iv):
(iii) 125% of the lesser of: (a) the ADP of the Nonhighly Compensated
Group under the Code Section 401(k) arrangement; or (b) the ACP of the Nonhighly
Compensated Group for the Plan Year beginning with or within the Plan Year of
the Code Section 401(k) arrangement.
(iv) 2% plus the greater of (iii)(a) or (iii)(b), but no more than
twice the greater of (iii)(a) or (iii)(b).
The Administrative Committee will determine whether the Plan satisfies
the multiple use limitation after applying the ADP test under Section 14.04 and
the ACP test under Section 14.05 and after making any corrective distributions
required by those Sections. If, after applying this Section 14.06, the
Administrative Committee determines the Plan has failed to satisfy the multiple
use limitation, the Administrative Committee will correct the failure by
treating the excess amount as excess contributions under Section 14.04 or as
excess aggregate contributions under Section 14.05, as it determines in its sole
discretion. This Section 14.06 does not apply unless, prior to application of
the multiple use limitation, the ADP and the ACP of the Highly Compensated Group
each exceeds 125% of the respective percentages for the Nonhighly Compensated
Group.
14.07 FORFEITURE OF MATCHING CONTRIBUTION. A Participant will forfeit
any matching contribution attributable to an excess contribution or to an excess
aggregate contribution unless distributed pursuant to Sections 14.04 or 14.05 of
the Plan.
14.10
<PAGE> 72
ARTICLE XV - EXTENSION OF PLAN TO RELATED EMPLOYERS
15.01 ADOPTION BY RELATED EMPLOYERS. By executing an Adoption
Agreement, any Related Employer may adopt the Plan with the approval of the
Administrative Committee or Sponsor and qualify its Employees to become
Participants thereunder by taking proper corporate action to adopt the Plan and
making such contributions to the Trust Fund as the Sponsor or the board of
directors of the Related Employer may require. The Sponsor shall maintain an
Appendix A attached to this Plan which details the dates of participation for
each such Related Employer.
In addition, the Administrative Committee or Sponsor may approve the
merger of any qualified defined contribution plan of a Related Employer into the
Plan upon such terms and conditions as it may establish.
15.02 TERMINATION OF PARTICIPATION. The Plan will terminate with
respect to any Related Employer that has adopted the Plan pursuant to this
Section if the Related Employer ceases to be a Related Employer, revokes its
adoption of the Plan by appropriate corporate action, permanently discontinues
its contributions for its Employees, is judicially declared bankrupt, makes a
general assignment for the benefit of creditors, or is dissolved.
15.03 AUTHORITY. The Sponsor or Administrative Committee shall have
the sole right to amend the Plan and shall act as the agent for each Related
Employer that adopts the Plan for all purposes of administration thereof.
15.1
<PAGE> 73
ARTICLE XVI MERGED RELATED EMPLOYER PLANS
16.01 APPLICABILITY OF PROVISIONS TO RELATED EMPLOYER PLANS. In the
event of a merger of a Related Employer's qualified plan into this Plan, the
provisions of this Plan which are intended to comply with changes in the law
made by the Uniformed Services Employment and Reemployment Rights Act of 1994,
Uruguay Round Agreements Act of 1994 (GATT), Small Business Job Protection Act
of 1996, Taxpayer Relief Act of 1997 or any other applicable law, shall be
deemed for all purposes to be in effect under such Related Employer's merged
plan as of the applicable effective date(s) as set forth in such laws.
16.1
<PAGE> 74
IN WITNESS WHEREOF, the Sponsor and the following Participating
Employers have executed this Plan and Trust this _____________ day of
_____________, 1998, effective for all purposes as provided above.
INTEGRATED ELECTRICAL SERVICES, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Senior Vice President
-------------------------------
ACE ELECTRIC, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
ALADDIN WARD ELECTRIC & AIR, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Secretary
-------------------------------
AMBER ELECTRIC, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
<PAGE> 75
BEXAR ELECTRIC COMPANY, LTD. / CALHOUN ELECTRIC COMPANY, LTD.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
CYPRESS ELECTRICAL CONTRACTORS, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Secretary
-------------------------------
DANIEL ELECTRICAL CONTRACTORS, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
FLORIDA INDUSTRIAL ELECTRIC, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
<PAGE> 76
HATFIELD REYNOLDS ELECTRICAL COMPANY
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
HAYMAKER ELECTRIC, LTD.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
HOUSTON-STAFFORD ELECTRIC, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
HOWARD BROTHERS ELECTRIC CO., INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Secretary
-------------------------------
<PAGE> 77
H.R. ALLEN, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
J.W. GRAY ELECTRIC CO., INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
HAYNES ELECTRICAL SUPPLY, INC d/b/a
KEY ELECTRICAL SUPPLY, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
MARK HENDERSON, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
<PAGE> 78
MENNINGA ELECTRIC, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
MILLS ELECTRICAL CONTRACTORS, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
MUTH ELECTRIC, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
PAULIN ELECTRIC COMPANY, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
<PAGE> 79
POLLOCK SUMMIT ELECTRIC, LP
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
RODGERS ELECTRIC COMPANY, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
THOMAS POPP & COMPANY
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
THURMAN & O'CONNELL CORP.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
<PAGE> 80
WRIGHT ELECTRICAL CONTRACTING, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
MID-STATES ELECTRIC COMPANY, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
ARC ELECTRIC, INCORPORATED
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
BRINK ELECTRIC CONSTRUCTION CO., INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
<PAGE> 81
DAVIS ELECTRICAL CONSTRUCTORS, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
ELECTRO-TECH, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
GOSS ELECTRIC COMPANY, INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
RAINES ELECTRIC CO., INC.
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
<PAGE> 82
T & H ELECTRICAL CORPORATION
By: /s/ JOHN F. WOMBWELL
-------------------------------
Name: John F. Wombwell
-------------------------------
Title: Vice President and Assistant Secretary
-------------------------------
<PAGE> 83
APPENDIX A
SCHEDULE OF PARTICIPATING EMPLOYERS
<TABLE>
<S> <C>
Name of Participating Employer Date of Participation
- --------------------------------------------------------------------------------
Ace Electric, Inc. January 1, 1999
Aladdin Ward Electric & Air, Inc. January 1, 1999
Amber Electric, Inc. January 1, 1999
Bexar Electric Company, Ltd. / Calhoun Electric Company, Ltd. January 1, 1999
Cypress Electrical Contractors, Inc. January 1, 1999
Daniel Electrical Contractors, Inc. January 1, 1999
Florida Industrial Electric, Inc. January 1, 1999
Hatfield Reynolds Electrical Company January 1, 1999
Haymaker Electric, Ltd. January 1, 1999
Houston-Stafford Electric, Inc. January 1, 1999
Howard Brothers Electric Co., Inc. January 1, 1999
H.R. Allen, Inc. January 1, 1999
J.W. Gray Electric Co., Inc. January 1, 1999
Key Electrical Supply, Inc. January 1, 1999
Mark Henderson, Inc. January 1, 1999
Menninga Electric, Inc. January 1, 1999
Mills Electrical Contractors, Inc. January 1, 1999
Muth Electric, Inc. January 1, 1999
Paulin Electric Company, Inc. January 1, 1999
</TABLE>
<PAGE> 84
<TABLE>
<S> <C>
Pollock Summit Electric, LP January 1, 1999
Rodgers Electric Company, Inc. January 1, 1999
Thomas Popp & Company January 1, 1999
Thurman & O'Connell Corp. January 1, 1999
Wright Electrical Contracting, Inc. January 1, 1999
Mid-States Electric Company, Inc. January 1, 1999
ARC Electric, Incorporated January 1, 1999
Brink Electric Construction Co., Inc. January 1, 1999
Davis Electrical Constructors, Inc. January 1, 1999
Electro-Tech, Inc. January 1, 1999
Goss Electric Company, Inc. January 1, 1999
Raines Electric Co., Inc. January 1, 1999
T & H Electrical Corporation January 1, 1999
</TABLE>
<PAGE> 85
APPENDIX B
SCHEDULE OF IRC SECTION 411(d)(6) PURSUANT TO SECTION 13.05 OF THE
PLAN
<PAGE> 86
APPENDIX C
INVESTMENT FUNDS
The following Funds are available as investments under the Plan:
1. American Industries Trust Company Short Term Income Fund
2. Fidelity Advisor Government Investment Fund Class T
3. Fidelity Advisor Government Equity Income Fund Class T
4. American Industries Composite Employee Benefit Trust Equity 500 Index
Fund
5. The American Growth Fund Fund of America
6. MFS Capital Opportunities Fund
7. Janus Worldwide Fund
8. Integrated Electrical Services, Inc. Common Stock
9. Strategically Managed & Allocated Retirement Trusts Funds Moderately
Conservative, Moderately Aggressive and Aggressive
In the event a Participant fails to direct the Trustee as to how to invest any
or all of his Account under the Plan, the Trustee shall invest that portion of
the Participant's Account in the American Industries Trust Company Short Term
Income Fund.
The investments of this Appendix C may be updated from time to time by the
Administrative Committee.
