SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-1298
ADVANCED TECHNICAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-1581582
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 MANSELL CT. EAST, SUITE 505
ROSWELL, GEORGIA 30076
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 993-0291
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $0.01 par value Nasdaq / National Market System
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 [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on May 19, 2000 was $20,436,496 (3,987,609 shares at $5.125 per
share, the closing price of the registrant's common stock on the Nasdaq National
Market on May 19, 2000). As of that date, 5,325,583 shares of the Company's
Common Stock were outstanding.
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PART I
ITEM 1. BUSINESS
GENERAL
Advanced Technical Products, Inc. ("ATP" or the "Company") is a Delaware
corporation that manufactures a variety of products in the following principal
business segments: (i) Aerospace and Defense, (ii) Commercial Composites, (iii)
Structural Core Materials and (iv) Other Commercial Products. Such products are
manufactured through five business units, Marion Composites, Intellitec, Lincoln
Composites, Alcore and Lunn Industries. The Aerospace and Defense segment
designs, develops and manufactures advanced composite material products,
including radomes, aircraft components, missile and satellite composite
structures, engine components, rocket motor cases, pressure vessels, relocatable
shelters, missile launch tubes, torque shafts and fuel tanks, as well as a wide
range of integrated defense systems including electro-optical systems, chemical
detection systems, ordnance delivery systems and light-weight camouflage
systems. The Commercial Composites segment produces natural gas vehicle ("NGV")
fuel tanks, products used in the exploration and production of oil and gas and
other composite-based commercial products. The Structural Core Materials segment
produces aluminum honeycomb products used by the aerospace and defense
industries as well as industrial, transportation and construction customers. The
Other Commercial Products segment primarily consists of a manufacturer of
electrical power switching products for specialty vehicles including
recreational vehicles, motor homes, conversion vans, over-the-road trucks and
leisure boats. See Note 4 to the Consolidated Financial Statements of the
Company for a summary of selected financial data of each reportable business
segment.
On October 31, 1997, TPG Holdings, Inc., a Delaware corporation ("TPG"),
merged with Lunn Industries, Inc., a Delaware corporation ("Lunn"), under the
name "Advanced Technical Products, Inc." Lunn was originally incorporated in New
York in 1948 and was reincorporated in Delaware in 1987. TPG was formed in 1995
to acquire the business and assets of three operating units of the Brunswick
Technical Group (the "Brunswick Business"), which was completed on April 28,
1995.
On May 29, 1998, ATP acquired all of the capital stock of Brigantine SA, a
manufacturer of honeycomb products and engineered panels located in France. The
acquired company, renamed Alcore Brigantine, operates as a subsidiary of Alcore,
Inc., a division of the Company. The acquisition has expanded the Company's
access to the European aerospace and commercial markets.
AEROSPACE AND DEFENSE SEGMENT
COMPOSITE BASED PRODUCTS
RADOMES. One of ATP's principal products is high-performance radomes. A
radome is the housing, usually made of composite materials, that shelters the
antenna assembly of a radar set on an airplane, rocket or missile. Management
believes that ATP has approximately a 75% share of the domestic high-performance
radome market and is the sole supplier of radomes for aircraft such as the EA6B,
AV-8B, B-1, B-1B, C-5B, C-17, F-4, F-5, F-14, F-15, F-16 and the F/A-18.
Additionally, ATP owns ceramic radome manufacturing technology which enables it
to manufacture high temperature, high performance radomes for interceptor
missile applications. Management believes that ATP has been the sole supplier of
Patriot Missile radomes for the past 12 years.
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Sales of radomes for each of 1999, 1998 and 1997 constituted 9.0%, 7.8% and
16.7%, respectively, of the total consolidated revenues of ATP.
AIRCRAFT COMPONENTS. ATP manufactures composite materials and products for
aerospace and defense applications and is a leading manufacturer of advanced
composite aircraft structures. ATP currently fabricates flap assemblies,
winglets and landing gear doors for the C-17. Management believes the C-17 is a
high-priority program for the U.S. Air Force and that the production of these
C-17 components will provide a stable stream of revenue for ATP for the
foreseeable future.
ATP also manufactures composite-based canopies, fuel tanks, wing and floor
panels, fairings and other aircraft components. ATP has participated in
developmental projects that include the successful application of radar
absorbing materials and structures, frequency selective surfaces and low
observable applications.
ATP's program to supply flap track fairings to The Aerostructures Corporation
is currently in production, and over 50 shipsets have been delivered. These
parts are installed on the Airbus A330 and A340 aircraft. This "life of the
program" contract is anticipated to cover approximately 500 aircraft.
In February 1998, ATP entered into a long-term production alliance with GE
Aircraft Engines pursuant to which ATP is manufacturing a composite inlet device
for the GE F414-400 turbofan engine to be used in the U.S. Navy's newest
fighter, the F/A-18E/F "Super Hornet." In June 1998, GE placed an order with an
estimated value of $65 million over five years as the initial step in the GE-ATP
alliance. ATP has been delivering product under the order since late 1998.
Sales of aircraft components for each of 1999, 1998 and 1997 constituted
19.6%, 16.2% and 8.8%, respectively, of the total consolidated revenues of ATP.
ROCKET MOTOR CASES. ATP manufactures a variety of rocket motor cases used in
solid propellant propulsion systems that are incorporated into strategic
(long-range) and tactical missile systems as well as orbiting commercial
satellites and deep-space penetration spacecraft. ATP manufactures rocket motor
cases for use in strategic missiles such as the D-5 Trident II, as well as for
tactical missile systems such as the PAC-3 Anti-Missile missile. ATP also
manufactures the ORBUS-21D rocket motor case, which is used in conjunction with
the space shuttle and other unmanned launch vehicles to place satellites into
Earth's orbit, and is also used on deep space missions.
PRESSURE VESSELS. ATP produces filament wound pressure vessels that are used
predominantly in aircraft, launch vehicles and space applications where weight
minimization is critical. These high-performance pressure vessels are typically
used as a storage container for pressurized helium, nitrogen, xenon and other
gases which are used in critical system applications, including emergency power,
crew capsule impact and flotation, maneuvering, environmental, fuel feed and
purge systems. ATP has been a leader in the integration of filament winding
technology in combination with metal liners that results in vessels that meet or
exceed structural requirements. A number of existing pressure vessel
configurations are currently qualified by prime contractors and the military.
This qualification minimizes competition for follow-on orders and provides a
variety of products that can be offered for new applications with minimal
capital investment and production lead time.
FUEL TANKS. External fuel tanks are used by the military to provide aircraft
with additional operating range. The military requires all-composite external
fuel tanks because they offer a significant weight advantage and improved crash
survivability, greater safety in a fire, and improved gunfire protection.
Management believes that ATP is currently the only qualified producer of the
tank liner for the 230-Gallon AH-64/UH-60 Fuel Tank, which is used by the U.S.
Army. In October 1998, ATP received a contract for the production of the
480-gallon external fuel tanks for the F/A-18E/F. Deliveries extend through 2001
under the current contract.
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VEHICLE/MISSILE STRUCTURES. ATP's vehicle/missile structure product line
includes composite products used for various structural applications such as
launch vehicles, space, marine and aircraft applications. Products more recently
included in this product line are missile warheads, radar housings, missile
structures, aircraft and missile control surfaces and aircraft engine ducts.
These structures must be light weight and have excellent structural properties
in order to replace conventional metal products. These projects are usually
obtained from various aerospace and defense companies and government
laboratories that need to develop prototype hardware to demonstrate capabilities
of advanced composites.
TUBULAR PRODUCTS. ATP's tubular product line includes missile launch tubes
and torque shafts. The primary products in the launch tube line include the
Multiple Launch Rocket System (MLRS) and the launch canister for the submarine
based Tomahawk Missile. While management believes that the MLRS program is
important to the U.S. Army as an effective, low-cost weapon system, the Army has
a large inventory of these missiles, and the funding level for this program
remains low. Composites offer desirable properties for torque shafts for various
aerospace and defense applications and are presently being used in the V-22
Osprey and Boeing Vertol's 234 helicopter. ATP has firm orders for the V-22
Osprey that ATP anticipates delivering in 2002.
RESIN TRANSFER MOLDING. Resin transfer molding (RTM) is the fabrication of a
composite component formed by pumping resin into a mold containing reinforcement
material. The rough product is then removed from the mold and finished. While
use of this manufacturing process is primarily driven by its lower cost, recent
advances in materials and equipment have helped to make the process a viable
choice for fabricating composite aircraft and military structures. ATP supplies
over 90 parts on the Air Force Air Superiority Fighter, the F-22, and is the
only qualified non-prime supplier of RTM components for the Navy's F/A-18E/F.
In addition to serving as a supplier to the manufacturers of military
aircraft, ATP is also providing components for commercial aircraft and engine
components, producing over 15,000 jet and turbine engine components annually.
ATP continues to grow this manufacturing process and is expanding into
diversified liquid molding processes, such as Vacuum Assisted Resin Transfer
Molding (VARTM), for a wide variety of applications in support of its aerospace
and defense customer base.
METAL BONDING. ATP supplies metal bonded products through its Lunn Industries
division. ATP possesses the technology and qualifications required by The Boeing
Company for Phosphoric Acid Anodizing (PAA) and structural bonding to BAC 5555.
This PAA capability allows ATP to service the commercial aircraft market.
Numerous other qualifications allow ATP to provide products and services to the
spaceflight, defense and industrial markets. ATP metal bonded products can be
found in the Boeing 777, 747, 757, 767 and 727 commercial aircraft as well as
numerous defense and satellite applications.
OTHER DEFENSE SYSTEMS
CHEMICAL DEFENSE. ATP continues its role as an industry leader in the
Chemical Defense market. In 1999, ATP entered into a unique Partnership
Agreement with the U.S. Army's Soldier and Biological Chemical Command (SBCCOM).
All subsequent contracts awarded by SBCCOM to ATP will include an individually
designed and tailored Partnering Agreement geared toward successful contract
performance and continuous product and process improvement. Management believes
that this agreement is evidence of ATP's strong position in this market and the
confidence developed between the Company and its customer.
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ATP is a leader in the remote chemical detection sector, which management
expects to be a growth market for the next several years, based on the latest
U.S. defense budgets. ATP's M21 Remote Chemical Sensing Device was successfully
deployed during the Gulf War, and ATP is currently performing under a contract
to develop the next generation remote sensor, the Joint Services Lightweight
Standoff Chemical Agent Detector (JSLSCAD). The JSLSCAD contract, awarded in
1997, consists of a cost-plus development phase worth slightly over $30 million
over four years, plus options for production units potentially worth over $200
million.
During 1999, the Company continued production on the Improved Chemical Agent
Monitor (ICAM), a monitoring system designed to detect surface contamination on
a wide variety of objects. Full-scale production of the ICAM is expected to
continue through 2002.
ATP is also actively involved in the development and production of
collective protection systems. Collective protection systems provide a clean and
over-pressured environment for soldiers to conduct their missions. Management
believes that ATP's collective protection systems, such as the internally
developed Bio-Chem Filter Blower Unit (BFBU), are the collective protection
systems of choice for several of the next generation vehicle systems. ATP is
continuing its production of the M28 Deployable Medical Collective Protection
Equipment (CPE). This product assures a clean environment for field hospital
units for both the U.S. Army and U.S. Air Force. Production of the M28 CPE is
expected to continue through the first half of 2000.
With the need for lighter weight vehicles in the medium sized brigade, ATP
also has developed the Chemical Agent Filter Unit (CAFU) which has been geared
to meet the needs of this new Army initiative.
To support the need for an integrated battlespace, ATP was awarded the
production effort for the Multi-Purpose Integrated Chemical Agent Detector
(MICAD) as a subcontractor to Lockheed Martin. This system integrates the data
from a host of detectors and automatically assembles and communicates the
condition of the battlespace. Production began in late 1999 with deliveries
expected to continue through 2001.
Sales of chemical defense systems and related products for each of 1999, 1998
and 1997 constituted 19.4%, 10.1% and 4.3%, respectively, of the total
consolidated revenues of ATP.
SHELTERS/SHELTER INTEGRATION. ATP designs, develops and produces mobile
military shelters and has developed leading design and automated production
capabilities for honeycomb as well as foam and beam sandwich panel construction
relocatable shelters. Management believes that most of the shelters in the
inventory of the Department of Defense (DOD) were designed and produced by ATP
or its predecessors. ATP currently produces the Multi-Purpose Maintenance & Shop
Van (MMSV) for Stewart & Stevenson. This foam and beam shelter is mounted on
Stewart & Stevenson's 2 1/2 ton Light Medium Tactical Vehicle (LMTV) currently
being fielded by the U.S. Army.
In the past year, ATP has broadened its product line with production of the
unique Chemical Biological Protection System Shelter (CBPSS), initial award of
Type III & IV Cargo Bed Covers (CBC), and introduction of the patents pending
Height Reducible Electronic Enclosure (HREE). Designed for mounting on the U.S.
Army's newest 2 1/2 ton truck, management believes that the HREE affords
tremendous improvement in warfighter mobility and logistics.
Sales of shelters and shelter integration products for each of 1999, 1998 and
1997 constituted 5.8%, 16.2% and 12.2%, respectively, of the total consolidated
revenues of ATP.
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ORDNANCE. ATP has been the sole manufacturer of the Volcano launcher system.
Customers for this system include the U.S. Army and other defense prime
contractors. The Company's current focus is on support to fielded systems and
the development of alternative applications of this proven delivery system.
Sales of ordnance delivery system components for each of 1999, 1998 and 1997
constituted 0.3%, 2.0%, and 18.9%, respectively, of the total consolidated
revenues of ATP.
TACTICAL DECEPTION. ATP is a leading producer of tactical deception products
for the U.S. Armed Forces and other military customers and has delivered
approximately one million modules of U.S. military Lightweight Camouflage Screen
Systems (LCSS). In 1999, the Company continued production of LCSS for the U.S.
Army Communications Electronics Command. This production is expected to continue
through mid-year 2000.
COMMERCIAL COMPOSITES SEGMENT
NATURAL GAS VEHICLE FUEL TANKS
ATP continues to maintain the dominant market share in the delivery of
all-composite fuel tanks that contain compressed natural gas for use as a
vehicle fuel. In 1999, the Company delivered its 30,000th NGV tank. The demand
for NGVs in North America continues to be driven by the public's demand for
replacement of diesel buses and their pollution rich exhaust fumes, and federal
legislation which provides incentives or tax credits for the use of alternative
fueled vehicles. Increased emphasis on reducing the country's dependence on
foreign oil imports and increasing fuel prices continue to associate national
security and economic benefits with greater use of domestic natural gas. Primary
customers include original equipment manufacturers (OEMs) that design and build
light duty sedans, transit buses, school buses and high fuel use fleet vehicles.
Other customers include vehicle up-fitters or modifiers who install natural gas
fueling and storage components to existing vehicles. ATP performs particularly
valuable custom design work to allow ease of tank installation and mounting
provisions. The Company believes that its background in aerospace projects
provides the foundation for the successful design, development and production of
fuel storage systems (versus tanks alone) that can contain natural gas or
hydrogen in a fashion that couples very high reliability with light weight. The
international market continues to offer increased revenue potential. In 1999,
the Company delivered products for natural gas vehicles used throughout North
America. Products were also delivered to customers in Japan, Mexico, Europe and
some developing countries.
OIL AND GAS EXPLORATION PRODUCTS
Current deepwater oil completion and production technology utilizes heavy
steel riser systems that require expensive tensioning and buoyancy systems, and
whose designs are often governed by fatigue considerations. Composite marine
risers provide advantages over conventional steel risers because composite
materials are lighter weight, more fatigue and corrosion resistant, better
thermal insulators and can be designed for improved structural and mechanical
performance. Overall, production platform cost reductions are possible as a
result of the lower weight and greater compliance of composite risers, along
with improvements in system reliability. ATP is currently completing the
development of a composite rigid riser for use in deepwater oil production in
partnership with Shell, Conoco and Amoco. Related technology is also being
applied to drilling risers and high pressure auxiliary lines.
ATP applied the NGV all-composite tank technology to develop an accumulator
tank for the Production Riser Tensioning system on off-shore platforms. There
are as many as four accumulators per well, and the new platforms have in excess
of 25 wells per platform. The all-composite accumulator is lighter weight,
non-corrosive and competitively priced with all-steel accumulators. The ATP
accumulator meets ASME Code X and management believes that currently there is
not a qualified competitor for this product. These accumulators offer some
significant advantages for the platform, and, as a result, the related revenue
is expected to increase significantly over the next several years.
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STRUCTURAL CORE MATERIALS SEGMENT
ATP manufactures aluminum and non-metallic honeycomb products through its
Alcore division for use in the aerospace and aircraft industries. Aluminum
honeycomb is a lightweight cellular material composed of hexagonal cells. The
most prominent characteristics of aluminum honeycomb products are high
strength-to-weight ratios, fatigue resistance, energy absorption, sound
dampening, heat exchange, radio frequency shielding, machinability, airflow
directionalization and corrosion resistance. Among Alcore's line of products is
PAA-CORE(R), a phosphoric acid anodized honeycomb product. PAA-CORE(R)
(TRADEMARK), qualified to Boeing specifications as BMS 4-4 and 4-6, has recently
been designated as the material of choice for all new metal bonded structures at
The Boeing Company, and management believes it is becoming the material of
choice of other commercial and military aircraft industries.
Since 1994, Alcore has expanded beyond the aerospace market into a number of
non-aerospace markets. Applications for high performance, low cost commercial
products have been developed for manufacturers of "clean rooms" for computer
chip manufacturing and bio-medical research centers, laminated panels for luxury
cruise ship cabins and numerous architectural uses. Alcore's honeycomb products
are utilized by manufacturers of rail car doors for municipal transit systems,
and, due to unique crush characteristics and energy absorbing qualities, by the
nuclear and energy absorption industries. The acquisition of Alcore Brigantine
SA, the Company's French subsidiary, has increased Alcore's participation in the
commercial and aerospace markets in the European Community.
Sales of honeycomb products for each of 1999, 1998 and 1997 constituted
10.9%, 13.7% and 2.1%, respectively, of the total consolidated revenues of ATP.
These include revenues reported subsequent to the date of the acquisition of
Alcore (October 31, 1997) and Alcore Brigantine SA (May 29, 1998).
OTHER COMMERCIAL PRODUCTS SEGMENT
The Company's specialty vehicle electronics group is engaged in the design
and manufacture of electronic products for the specialty vehicle market that are
primarily used to distribute and control electrical power throughout the
vehicle. This market includes recreational vehicles (RVs), conversion vans,
trucks, buses, boats and other vehicles. Currently, ATP sells approximately 250
different products, most of which have been introduced to meet a customer's
request to solve a particular problem.
ATP's products fall into three main categories: battery run-down protection
and charging, power switching and control, and 120 volt AC power management.
Many of the battery run-down protection and charging products are centered
around ATP's patented disconnect relay. The power switching and distribution
products center on ATP's unique patented multiplex system. ATP's patented 120
volt AC power management products are used in RVs to minimize the overloading of
circuit breakers. Management believes that all major motor home OEM's and all
but one of the major van converters currently utilize ATP's electrical products.
ATP is currently directing efforts at increasing its market penetration into
the truck, bus and marine industries and increasing sales to major vehicle fleet
operators. During 1998, ATP entered into an agreement with Waltco Truck
Equipment Co., one of the world's largest manufacturers of lift gates, to be
their exclusive source of electronic and electrical components. The initial
products include a unique weatherproof "Super Switch", and a controller to
prevent damage to the electro-hydraulic pump motor caused by overuse of the lift
gate. Also, ATP supplies unique energy management systems to Fleetwood
Enterprises and to Winnebago Industries, the two largest manufacturers of motor
homes. Management believes that approximately half of all motor homes built are
now installed with ATP's energy management systems.
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The Company supplies its Programmable Multiplex Control (PMC) for production
buses to Marshall Bus in the United Kingdom. Prototype buses using this system
have been built in the U.S. and are currently being road tested. The PMC, a new
system that simplifies wiring in transportation and commuter buses worldwide, is
the world's first user programmable multiplex system intended for use in
vehicles. A patent on this system has been issued. The system is also suitable
for other specialty vehicles, such as emergency and maintenance equipment.
During 1999, the Company signed an exclusive agreement with Horton Ambulance,
a premier emergency vehicle builder, to supply electronics for all Horton
emergency vehicles. Production started in the beginning of 2000. The Company
also continued to make major inroads to the fleet market by supplying its
battery run-down protection for use on all new Federal Express trucks being
built.
COMPETITION AND MARKETS
ATP competes with many manufacturers that, depending on the product involved,
range from large diversified enterprises to smaller companies specializing in
particular products. Management believes that factors that affect ATP's
competitive posture are the quality of products and services, the ability to
employ certain technologies and pricing strategies. ATP competes by defining and
understanding customer and market needs, using its technology base to develop
new product applications that meet those needs, communicating and demonstrating
the technical advantage of its products and building long-term relationships
with its customers.
There are many companies that compete with ATP in the aerospace and defense
industry. While ATP's management believes that it has an approximate 75% share
of the domestic high-performance radome market and is a leading supplier of
radomes in the domestic and international markets, ATP competes with a number of
other companies in the production of composite based products used in the
aerospace and defense industries. Also, ATP believes it is a leader in the
design and production of chemical detection equipment. While ATP's market share
varies with respect to its other aerospace and defense products such as rocket
motor cases, fuel tanks and pressure vessels, ATP overall has only a minor share
of the total aerospace and defense markets.
Some of ATP's commercial products are highly specialized and face less
competition in their respective markets. ATP's management believes that ATP has
approximately 90% of the NGV all-composite fuel tank market and is a leading
supplier of battery run-down protection and the power switching and control
devices for the motor home and van conversion OEM markets. Additionally, while
there are numerous producers of standard drill pipe and casing and fiberglass
tubulars, management believes that ATP has a leading position in the application
of advanced composites in the oil and gas industry.
MARKETING AND CUSTOMERS
ATP markets its aerospace and defense products directly to its customers
through its sales force, active membership in various industry groups, and by
participation in industry trade shows. ATP's aerospace and defense products are
sold primarily to agencies of the United States government and to commercial
customers in the aerospace industry. In 1999, sales to the United States
government either directly or by subcontract constituted 62% of ATP's total
consolidated revenue. Major customers include
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The Boeing Company and Lockheed Martin Corporation. Combined aerospace component
sales to these customers, most of which are included above as United States
government sales by subcontract, represented approximately 24% of ATP's total
consolidated revenues during 1999. ATP's aerospace and defense products are
generally designed and developed to customer specifications.
ATP markets and sells NGV fuel tanks and specialty vehicle electronics
primarily to vehicle manufacturers. ATP sells a significant majority of its
specialty vehicle products to a few major customers, the loss of any of which
would have an adverse impact on ATP's specialty vehicle products group.
In the commercial composites business, it is necessary to carry a reasonable
raw material and finished goods inventory to allow for a rapid customer
response. The average days sales outstanding of accounts receivable for the
commercial products run somewhat longer than for comparable aerospace and
defense products. Also, there is a greater risk of bad debt associated with
commercial products.
The Company provides warranties on products for material and workmanship
based on standard industry practice. Though ATP has endeavored to design an
extremely safe and durable product, the NGV tank and production riser have a
potential for greater product liability than standard aerospace and defense
products. ATP believes that it has adequate product liability insurance to
offset these risks.
PATENTS
ATP owns numerous patents and patent applications, some of which, together
with licenses under patents owned by others, are utilized in its operations.
While such patents and licenses are, in the aggregate, important to the
operation of ATP's business, no existing patent, license or other similar
intellectual property right is of such importance that its loss or termination
would, in the opinion of management, materially affect ATP's business.
BACKLOG
ATP's total backlog of contracts as of December 31, 1999 was approximately
$591 million as compared to approximately $585 million as of December 31, 1998.
These backlogs include options or unreleased orders of approximately $433
million in 1999 and $394 million in 1998. The backlog predominantly relates to
the aerospace and defense segment.
GOVERNMENT CONTRACTS
Because the United States government is a primary customer, ATP's revenues
are directly affected by the government's budget process, and inadequate funding
of the operation and maintenance portion of the DOD budget or a reduction in the
budgeted amount for certain programs could have an adverse impact on the revenue
of ATP. All government contracts, and, in general, subcontracts thereunder are
subject to termination in whole or in part at the convenience of the United
States government as well as for default. Long-term government contracts and
related orders are subject to cancellation if appropriations for subsequent
performance periods become unavailable. However, with respect to most contracts
involving the military, ATP would be entitled to receive cancellation payments
upon cancellation of such contracts.
RAW MATERIALS AND SUPPLIES
Raw materials essential to the conduct of all of ATP's business segments
generally are available at competitive prices. To date, ATP has not experienced
significant difficulties in its ability to obtain raw materials and other
supplies needed in its manufacturing processes, nor does ATP expect such
difficulties
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to arise in the future. ATP ordinarily acquires components and materials through
purchase orders typically covering ATP's requirements for periods averaging 90
to 120 days.
RESEARCH AND DEVELOPMENT
Excluding costs reimbursed under federally funded research and development
contracts, ATP has spent $808,000, $864,000 and $1,063,000 for each of 1999,
1998 and 1997, respectively, on research and development. The research and
development expenses predominantly relate to the aerospace and defense segment.
SEASONALITY
The United States government's fiscal year begins on October 1, and contracts
and options on contracts are generally awarded just prior to its year end. The
lead time to perform the necessary design work, procure materials and begin
production is generally several months, and this can create a period of low
production, revenue and profits in the first half of each fiscal year of ATP.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."
FOREIGN OPERATIONS
Sales to customers outside the United States totaled approximately 11.5%,
13.6% and 7.1% of ATP's total revenues for each of 1999, 1998 and 1997,
respectively. See Note 4 to the Consolidated Financial Statements of the Company
for additional disclosure of geographical financial data.
ENVIRONMENTAL REGULATION
ATP's operations are subject to numerous local, state and federal laws and
regulations concerning the containment and disposal of hazardous materials,
pursuant to which ATP has incurred compliance costs. Such costs to date have not
been material. As described in greater detail under "Item 3. Legal Proceedings",
ATP has received notice that its Lunn Industries operation has been identified
as a potentially responsible party for certain environmental cleanup expenses
associated with a municipal Landfill in Babylon, New York. ATP at present cannot
predict with precision what exposure it may face in this matter, but, otherwise
does not presently anticipate the need for significant expenditures to ensure
continued compliance with current environmental protection laws. Regulations in
this area are subject to change and there can be no assurance that future laws
or regulations will not have a material adverse effect on ATP.
EMPLOYEES
At December 31, 1999, ATP had 1,610 employees. Approximately 37% of ATP's
employees are covered by four separate collective bargaining agreements with
various international and local unions. ATP's management considers employee
relations generally to be good and believes that the probability is remote that
renegotiating these contracts will have a material adverse effect on its
business.
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ITEM 2. PROPERTIES
ATP's principal executive offices are located in Roswell, Georgia. ATP
maintains various facilities nationwide and considers all of its facilities to
be in relatively good operating condition and adequate for their present uses.
ATP believes that it has sufficient capacity to meet its current and anticipated
manufacturing requirements. The following table sets forth ATP's principal
manufacturing plants:
APPROXIMATE LEASED
SQUARE OR
FOOTAGE OWNED
----------- ---------
Marion Composites Division:
Marion, Virginia .................................. 1,019,000 Owned
Intellitec Division:
Deland, Florida ................................... 353,000 Owned
Lincoln Composites Division:
Lincoln, Nebraska ................................. 226,000 Owned
Lincoln, Nebraska ................................. 126,000 Leased
Lunn Industries Division:
Glen Cove, New York ............................... 93,000 Leased
Alcore Division:
Belcamp, Maryland ................................. 90,000 Owned
Edgewood, Maryland ................................ 110,000 Leased
Anglet, France .................................... 70,000 Leased
The manufacturing facilities of the Marion Composites Division and the Lunn
Industries Division are used exclusively in connection with ATP's aerospace and
defense segments. While predominantly used in connection with ATP's aerospace
and defense segments, the facilities of the Intellitec Division and the Lincoln
Composites Division are used to some extent in connection with ATP's commercial
segments. The Alcore Division facilities are used exclusively in connection with
ATP's structural core materials segment.
ATP pays approximately $1,110,000 in annual rental expense with respect to
its principal leased facilities, of which approximately $295,000 relates to
facilities in Lincoln, Nebraska, $275,000 relates to facilities in Glen Cove,
New York, $480,000 relates to facilities in Edgewood, Maryland and $60,000
relates to facilities in Anglet, France. ATP earns approximately $250,000 in
rental income on certain of its Deland, Florida facilities.
Leases covering ATP's leased facilities expire at varying dates generally
within the next 15 years. ATP anticipates no difficulty in either retaining
occupancy through lease renewals, month-to-month occupancy or purchases of
leased facilities, or replacing the leased facilities with equivalent
facilities.
During the first quarter of 1998, the Company entered into a ten year lease
agreement for a facility located in Edgewood, Maryland, into which the existing
Jessup, Maryland operation is being moved. The Company has subleased part of the
Jessup facility and anticipates subleasing the entire facility once it has
completely vacated the premises. Management has estimated the amount of its
remaining lease obligation costs in excess of anticipated future sublease income
to be $425,000 at December 31, 1999, and has recorded such amount as general and
administrative expenses in 1999.
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1999, Lunn Industries, Inc., a division of the Company, in
conjunction with numerous other parties, has been identified as a potentially
responsible party (PRP) at an inactive site in Babylon, New York identified by
the New York State Department of Environmental Conservation for remediation
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 (CERCLA). As a PRP, the Company may be required to pay a portion of the
costs of evaluation and cleanup of this site. Lawsuits and claims involving
additional environmental matters may arise from time to time. The New York
Attorney General's investigation of the inactive CERCLA site in Babylon, New
York is in a very preliminary stage, and as a result, management has based its
assessment of potential liability and remediation costs on currently available
facts, the number of PRPs identified, documentation available, currently
anticipated and reasonably identifiable remediation costs, existing technology,
presently enacted laws and regulations and other factors. While the Company may
have rights of contribution or reimbursement under insurance policies, such
issues are not factors in management's estimation of liability. Based on the
foregoing factors, management believes that it is unlikely that the identified
matter at the inactive Babylon, New York site will have a material adverse
affect on the Company's consolidated financial position, results of operations
or cash flows.
During January 2000, the Company learned of possible accounting and financial
reporting irregularities at its subsidiary, Alcore, when certain financial
records were seized in connection with a search warrant issued by the United
States District Court - District of Maryland as part of a governmental
investigation. Additionally, the Company has been notified of an investigation
by the United States Securities and Exchange Commission regarding these matters.
The Company and management are cooperating fully, and because the investigations
are in the early stages, their outcomes are uncertain at this time.
ATP is not a party to any other legal proceedings, other than routine claims
and lawsuits arising in the ordinary course of its business. ATP does not
believe that such claims and lawsuits, individually or in the aggregate, will
have a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows. Compliance with federal, state, local and
foreign laws and regulations pertaining to the discharge of materials into the
environment, or otherwise relating to the protection of the environment, has not
had, and is not anticipated to have, a material effect upon the cash flows,
earnings or competitive position of ATP.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 21, 1999, at the Annual Meeting of the Company's shareholders,
the Company's shareholders approved an Agreement and Plan of Merger, dated
September 3, 1999, between the Company and two affiliates of The Veritas Capital
Fund, LP ("Veritas"): ATP Acquisition Corp. and ATP Holding Corp. (the
"September Merger Agreement"), which contemplated ATP Holding Corp's acquisition
of the Company. A total of 4,430,450, or 85.1% of the outstanding shares of the
Company's common stock outstanding at the time of the Annual Meeting, voted in
favor of approval of this Agreement, 30,863 voted against approval and 1,438
abstained.
The September Merger Agreement specified that the shareholders of the
Company would receive $14.50 per share in cash without interest. Due to certain
developments which occurred at the Company since October 21, 1999, the parties
mutually agreed to terminate the September Merger Agreement without liability to
any of the parties. These developments included: (i) the decrease in the
Company's revenues and earnings due primarily to the decrease in revenues and
earnings at Alcore in the fourth
12
<PAGE>
quarter of 1999, (ii) the Company's receipt of notification that it may be
deemed a potentially responsible party for some portion of the cleanup costs
associated under applicable environmental statutes with the municipal landfill
site in Babylon, New York and (iii) the pending governmental investigation into
Alcore. On January 28, 2000, ATP entered into a new merger agreement with
Veritas (the "January 2000 Merger Agreement") pursuant to which, if such January
2000 Merger Agreement was approved by the Company's shareholders and
consummated, the shareholders of the Company would receive $12.75 per share in
cash, without interest. The January 2000 Merger Agreement gives Veritas the
right to terminate the merger at any time during a ten day period (the "Optional
Termination Period") after delivery of the audited financial statements of ATP
for the year ended December 31, 1999 (the "Audited Financials"). ATP delivered
the Audited Financials together with updated disclosures regarding the Company
and its business to representatives of Veritas on May 18, 2000. If Veritas
terminates the merger during the Optional Termination Period, the Company must
reimburse Veritas for its expenses incurred in connection with the proposed
transaction up to a maximum amount of $750,000. If Veritas does not terminate
the agreement during the Optional Termination Period, it will be obligated to
pay ATP a cash amount of $3,000,000 if Veritas does not obtain financing and
close the transaction on or before the earlier of ten days after the approval of
the new merger agreement by ATP's shareholders or June 30, 2000. There can be no
assurance that the proposed transaction will be completed.
At the Annual Meeting, the Company's shareholders also ratified the 1998
Advanced Technical Products, Inc. Employee Stock Purchase Plan. A total of
4,341,483 or 97.3.% of the shares of the Company's common stock present in
person or represented by proxy at the Annual Meeting, voted in favor of
ratification, 110,791 voted against ratification and 10,477 abstained.
At the Annual Meeting, the Company's shareholders also elected Messrs.
Garrett L. Dominy and Sam P. Douglass as Class II Directors. A total of
4,926,065, or 99.6% of the shares of the Company's common stock present in
person or represented by proxy at the Annual Meeting, voted in favor of the
election of Mr. Dominy, and 19,039 withheld, and 4,925,949, or 99.6% of the
shares of the Company's common stock present in person or represented by proxy
at the Annual Meeting, voted in favor of the election of Mr. Douglass, and
19,155 withheld.
Messrs. Alan W. Baldwin's, Robert C. Sigrist's and Lawrence E. Wesneski's
terms of office as Class I Directors continued after the Annual Meeting. Messrs.
James S. Carter's, Gary L. Forbes' and John M. Simon's terms of office as Class
III Directors continued after the Annual Meeting.
At the Annual Meeting, the Company's shareholders also ratified the
appointment of KPMG LLP as the Company's independent public accountants for
1999. A total of 4,940,015, or 99.9% of the shares of the Company's common stock
present in person or represented by proxy at the Annual Meeting, voted in favor
of ratification, 1,814 voted against ratification and 3,275 abstained.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ATP's common stock is traded on the National Market System of the Nasdaq
Stock Market, Inc. under the symbol "ATPX" (ATPXE as of late April 2000). The
following table sets forth the high and low sales prices of ATP common stock for
the calendar quarters indicated, as reported by the Nasdaq Stock Market, Inc.:
ATP COMMON STOCK
MARKET PRICE
-------------------------
FISCAL YEAR ENDED DECEMBER 31, HIGH LOW
--------- ---------
1999
First Quarter ....................... $ 11.000 $ 7.500
Second Quarter ...................... $ 14.250 $ 8.875
Third Quarter ....................... $ 13.875 $ 10.750
Fourth Quarter ...................... $ 14.000 $ 12.875
1998
First Quarter ....................... $ 14.875 $ 11.000
Second Quarter ...................... $ 15.313 $ 11.000
Third Quarter ....................... $ 13.250 $ 5.500
Fourth Quarter ...................... $ 10.000 $ 5.500
On May 19, 2000, ATP had approximately 1,600 stockholders of record. The last
reported sales price of ATP's common stock on such date was $5.125.
ATP has not paid dividends on its common stock and does not currently intend
to pay any cash dividends in the foreseeable future. The determination of the
amount of future cash dividends to be declared and paid on the common stock of
ATP, if any, will depend upon ATP's financial condition, earnings and cash flow
from operations, the level of its capital expenditures, its future business
prospects and other factors that the Board of Directors of ATP deems relevant.
In addition, ATP's debt agreements contain covenants restricting the payment of
cash dividends to ATP's common stockholders.
14
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data presented below as of and for the periods
ending April 28, 1995 through December 31, 1999, have been derived from the
audited financial statements of ATP, TPG and Brunswick Technical Group, the
assets of which were acquired by TPG on April 28, 1995 pursuant to the
acquisition of the Brunswick Business.
The information presented below should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements of ATP and related notes and
other financial information included elsewhere in this Annual Report on Form
10-K.
<TABLE>
<CAPTION>
BRUNSWICK
ATP TPG TECHNICAL GROUP
---------------------------------- ---------------------------- -------------
AS OF AND AS OF AND
AS OF AND AS OF AND FOR THE EIGHT FOR THE FOUR
FOR THE YEAR ENDED FOR THE YEAR MONTHS MONTHS
---------------------------------- ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, APRIL 28,
(AMOUNTS ARE IN THOUSANDS, EXCEPT EPS DATA) 1999 1998 1997 1996 1995 1995
--------- --------- --------- ------------ ------------ ------------
As Restated (3)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ....................................... $ 179,162 $ 164,424 $ 119,433 $ 126,534 $ 79,172 $ 28,416
Cost of revenues ............................... 149,007 128,414 91,312 94,365 61,738 27,354
--------- --------- --------- ------------ ------------ ------------
Gross profit ................................... 30,155 36,010 28,121 32,169 17,434 1,062
General and administrative
expenses ................................... 30,424 25,929 19,006 21,758 12,123 1,350
--------- --------- --------- ------------ ------------ ------------
Operating income (loss) ........................ (269) 10,081 9,115 10,411 5,311 (288)
Interest expense (1) ........................... 3,965 3,579 2,273 2,377 1,892 --
--------- --------- --------- ------------ ------------ ------------
Income (loss) before income
taxes and extraordinary item ................ (4,234) 6,502 6,842 8,034 3,419 (288)
Income tax expense (benefit) ................... (1,074) 2,503 2,634 3,093 1,312 (112)
--------- --------- --------- ------------ ------------ ------------
Income (loss) before extra-
ordinary item .............................. (3,160) 3,999 4,208 4,941 2,107 (176)
Extraordinary item (2) ......................... -- -- -- 667 -- --
--------- --------- --------- ------------ ------------ ------------
Net income (loss) .............................. $ (3,160) $ 3,999 $ 4,208 $ 4,274 $ 2,107 $ (176)
========= ========= ========= ============ ============ ============
EPS DATA:
Earnings (loss) per share - basic .............. $ (0.61) $ 0.74 $ 0.99 $ 1.06 $ 0.52 N/A
Earnings (loss) per share - diluted ............ $ (0.61) $ 0.71 $ 0.95 $ 1.03 $ 0.52 N/A
BALANCE SHEET DATA:
Working capital ................................ $ 18,874 $ 22,499 $ 21,208 $ 18,462 $ 17,558 $ 26,868
Total assets ................................... 106,552 104,463 85,684 44,723 38,911 53,358
Long-term debt and capital lease
obligations, including current portion ..... 28,606 26,402 19,216 17,222 17,926 --
Redeemable 8% cumulative
preferred stock ............................ 1,000 1,000 1,000 1,000 1,000 --
Common shareholders' equity .................... 27,816 30,109 26,494 7,018 2,919 --
</TABLE>
(1) Prior to April 29, 1995, the Brunswick Technical Group was included as
part of Brunswick's consolidated financial statements. Brunswick did not
allocate any debt or interest expense to the Brunswick Technical Group.
(2) Reflects an extraordinary loss from debt refinancing, net of an income tax
benefit of $418,000.
(3) The 1998 amounts have been restated to reflect results of the Company's
investigation into possible financial and accounting irregularities at
Alcore (See Note 2 to the Consolidated Financial Statements).
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of ATP and related notes contained elsewhere
in this Annual Report on Form 10-K.
TPG was formed in 1995 to acquire the Brunswick Business, which
acquisition was completed on April 28, 1995. The selected consolidated financial
data for 1995 presents the four month period prior to the acquisition of the
Brunswick Business and the eight month period subsequent to such acquisition.
On October 31, 1997, TPG merged with Lunn under the name "Advanced
Technical Products, Inc." Immediately after the merger, the former stockholders
of Lunn owned approximately 26% of ATP and the former stockholders of TPG owned
approximately 74% of ATP. For accounting purposes, the merger was treated as a
purchase of Lunn by TPG and the results of operations of Lunn since November 1,
1997 have been included in the consolidated financial statements of ATP.
On May 29, 1998, ATP acquired all of the capital stock of Brigantine SA, a
manufacturer of honeycomb products and engineered panels located in France. The
acquired company, renamed Alcore Brigantine SA, operates as a subsidiary of
Alcore, Inc., a division of the Company. The acquisition has expanded the
Company's access to the European aerospace and commercial markets. The Company's
consolidated financial statements include the operating results for Alcore
Brigantine SA since the date of the acquisition.
Historically, approximately 60% to 80% of ATP's products and services have
been sold to the United States government through prime contracts directly with
governmental agencies, primarily the DOD, or through subcontracts with other
governmental contractors. During the mid-1980s, the defense industry began to be
negatively impacted by a perceived reduction of threats from the former Soviet
Union and affiliated countries in eastern Europe. In addition, increased
competition for the United States federal budget dollars resulted in a reduction
in real dollars in the United States defense budget over the last decade.
Defense spending has recently begun to stabilize in the United States, and
management of ATP believes that budgeted procurement spending will increase
slightly over the next few years.
The contraction of the United States defense budget over the last decade
and the resulting excess capacity and intensified competition among defense
contractors has resulted in significant industry consolidation. ATP's strategy
includes the pursuit of acquisitions which will increase its revenue base and
improve its cost competitiveness through reduced overhead costs, facility
consolidations and the elimination of other duplicative costs. Management is
evaluating the possibility of additional acquisitions in the event the pending
transaction with Veritas is not consummated. However, because of the uncertainty
of the nature and size of these opportunities, as well as ATP's financial
leverage, there can be no assurances that the financing necessary to pay for
acquisitions can be obtained.
Although the long-term impact of industry consolidation and the defense
spending budget cannot be predicted with certainty, management of ATP believes
that it is positioned to increase its presence in the United States defense
industry and increase its ongoing diversification efforts into foreign defense
markets and selected commercial markets.
16
<PAGE>
The United States government's fiscal year begins on October 1, and
contracts and options on contracts are generally awarded just prior to its year
end. The lead time to perform the necessary design work, procure material and
begin production is generally several months, and this can create a period of
low production, revenue and profits in the first half of each fiscal year of
ATP. Over the last five years, the percentage of sales and operating earnings
(excluding corporate general and administrative expenses) generated in the
second half of the year have been as follows:
EARNINGS BEFORE
YEAR SALES INTEREST & TAXES
- ---- ----- ----------------
1999.............................. 50% Not applicable (1)
1998 (as restated) (2)............ 57% 62%
1997.............................. 57% 73%
1996.............................. 54% 62%
1995.............................. 56% 134%
(1) Not applicable because the Company had an operating loss for 1999.
(2) See Note 2 to the Consolidated Financial Statements of the Company for
further discussion.
17
<PAGE>
RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL STATEMENTS
During January 2000, the Company learned of possible accounting and
financial reporting irregularities at its subsidiary, Alcore, when certain
financial records were seized in connection with a search warrant issued by the
United States District Court - District of Maryland as part of a governmental
investigation.
After becoming aware of the possible irregularities, the Company engaged
special counsel, and through such counsel, such other advisors as deemed
necessary to assist in its investigation of the possible irregularities. As a
result of its investigation, the Company has determined to restate its 1998
consolidated financial statements (including its quarterly financial statements
for each of the quarters of 1998), as well as for each of the first, second, and
third quarters of 1999. The following discussion of 1998 amounts relates to the
Company's results of operations as restated for the adjustments determined
necessary by the Company's investigation. See Note 2 to the Consolidated
Financial Statements of the Company.
The effects of the adjustments to the 1999 and 1998 quarterly consolidated
financial data (unaudited) are summarized as follows:
1999 - BY QUARTER
<TABLE>
<CAPTION>
EARNINGS (LOSS) PER
REVENUES OPERATING INCOME (LOSS) NET INCOME (LOSS) COMMON SHARE - DILUTED
------------------------ ------------------------ ------------------------ ------------------------
AS AS AS AS
PREVIOUSLY PREVIOUSLY PREVIOUSLY PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First .......... $ 42,338 $ 41,882 $ 2,754 $ 1,201 $ 1,108 $ 186 $ 0.20 $ 0.03
Second ......... 48,770 47,636 4,139 1,638 1,961 513 0.35 0.09
Third .......... 46,195 44,477 3,988 (248) 1,837 (928) 0.33 (0.18)
Fourth * (1).... * 45,167 * (2,860)(1) * (2,931)(1) * (0.56)(1)
---------- ---------- ---------- ----------
Total Year * . * $ 179,162 * $ (269) * $ (3,160) * $ (0.61)
========== ========== ========== ==========
</TABLE>
- -----------
* Restatement for the fourth quarter and total year for 1999 is not
applicable.
1998 - BY QUARTER
<TABLE>
<CAPTION>
EARNINGS PER
REVENUES OPERATING INCOME NET INCOME COMMON SHARE - DILUTED
------------------------ ------------------------ ------------------------ -----------------------
AS AS AS AS
PREVIOUSLY PREVIOUSLY PREVIOUSLY PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First .............. $ 30,813 $ 30,806 $ 986 $ 971 $ 111 $ 102 $ 0.02 $ 0.01
Second ............. 39,632 39,632 2,949 2,832 1,302 1,230 0.23 0.22
Third .............. 47,801 47,296 4,129 2,934 1,949 1,214 0.35 0.22
Fourth ............. 46,828 46,690 4,762 3,344 2,325 1,453 0.42 0.26
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Total Year ....... $ 165,074 $ 164,424 $ 12,826 $ 10,081 $ 5,687 $ 3,999 $ 1.01 $ 0.71
========== ========== ========== ========== ========== ========== ========== =========
</TABLE>
(1) The operating loss in the fourth quarter of 1999 is discussed under the
"YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31",
1998" caption of this section (Item 7) of the Annual Report on Form 10-K.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the components
of the statements of operations expressed as a percentage of revenues.
1999 1998 1997
-------- -------- --------
(As restated)
Revenues .................................. 100.0% 100.0% 100.0%
Cost of revenues .......................... 83.2 78.1 76.5
-------- -------- --------
Gross profit .............................. 16.8 21.9 23.5
General and administrative expenses ....... 17.0 15.8 15.9
-------- -------- --------
Operating income (loss) ................... (0.2) 6.1 7.6
Interest expense .......................... 2.2 2.2 1.9
-------- -------- --------
Income (loss) before income taxes ......... (2.4) 3.9 5.7
Income tax expense (benefit) .............. (0.6) 1.5 2.2
-------- -------- --------
Net income (loss) ......................... (1.8)% 2.4% 3.5%
======== ======== ========
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998
Revenues increased $14.7 million, or 9.0% from $164.4 million in 1998 to
$179.2 million in 1999. The increase in revenues in 1999 was primarily
attributable to the following factors: (i) increased revenues on chemical
defense contracts, including two large contracts which were in the design or
start-up phase during most of 1998 and have been in full production during all
of 1999, (ii) increased deliveries of composite components on several long-term
aerospace / defense programs, including the C-17 and F-18E/F military aircraft
and (iii) increased shipments of the Company's commercial products, including
specialty vehicle electronics and NGV fuel tanks. These increases were partially
offset by a decrease in structural core materials shipments primarily caused by
reduced material requirements of customers in the commercial aerospace market,
and a decrease in shipments on shelter contracts.
Gross profit as a percentage of revenues was 16.8% in 1999, compared to
21.9% for the comparable period in 1998. The decrease is primarily attributable
to the losses incurred by Alcore during 1999, which totaled $6.0 million at the
gross profit level. Alcore's losses were primarily the result of: (i) production
inefficiencies experienced in the moving of certain operations to a new leased
facility, including abnormally high production scrap rates and increased costs
for machinery and equipment re-arrangement and set-up, (ii) lower sales prices
caused by intensified competition in the commercial aerospace industry and (iii)
a write-off of excess and obsolete inventories and capital equipment. Excluding
Alcore, gross profit as a percentage of revenues was 22.0% in 1999,
substantially the same compared to 1998.
General and administrative expenses increased $4.5 million, or 17.3%, from
$25.9 million in 1998 to $30.4 million in 1999. The increase reflects: (i)
higher Alcore expenses, including increased costs relating to the facility move,
(ii) higher corporate expense primarily resulting from nonrecurring costs
incurred in connection with the proposed merger with Veritas, and (iii) a
general increase in business activity. As a percentage of revenues, general and
administrative expenses increased from 15.8% in 1998 to 17.0% in 1999. Excluding
Alcore for both years, general and administrative expenses as a percentage of
revenues was 15.1% in 1999 compared to 15.2% in 1998.
19
<PAGE>
Operating loss was $0.3 million in 1999, compared to operating income of
$10.1 million in 1998. The decrease is primarily attributed to the Alcore
operating loss incurred in 1999, which totaled $11.8 million. Excluding Alcore,
operating income was $11.5 million in 1999. During the fourth quarter of 1999,
the Company recorded charges totaling approximately $3.0 million to write-down
certain equipment and tooling costs at Alcore, reserve for certain inventories
that are believed to be no longer recoverable and to accrue for the costs of a
lease obligation of Alcore.
Interest expense in 1999 increased $386,000, primarily the result of an
increase in average loan balances outstanding and an increase in average
interest rates during 1999 compared to 1998.
Income tax benefit was $1.1 million in 1999 compared to income tax expense of
$2.5 million in 1998. The effective income tax rate was 25.4% in 1999 compared
to 38.5% in 1998. The lower effective rate in 1999 reflects a reserve for the
state income tax effect for all of the net deferred tax assets generated by the
Alcore operating losses in 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997
Revenues increased $45.0 million, or 37.7% from $119.4 million in 1997 to
$164.4 million in 1998. Positive revenue variations in 1998 compared to 1997
include: (i) increased revenues of $24.2 million for Lunn and Alcore operations,
which were included for the full year in 1998 compared to only the post-merger
period (two months) included in the 1997 results reported, (ii) increased
shipments of NGV fuel tanks and related products, (iii) increased sales on new
aerospace / defense programs, including new C-17 and chemical defense contracts,
and (iv) increased shipments on shelter contracts. These increases were
partially offset by reduced ordnance product sales resulting from the
substantial completion of a major ordnance delivery system contract in early
1998.
Gross profit as a percentage of revenues was 21.9% in 1998 compared to 23.5%
in 1997. The decrease in gross profit percentage was primarily attributable to
an unfavorable product sales mix in 1998 compared to 1997 resulting from a full
year of Lunn and Alcore operations in 1998 at lower profit rates, particularly
at Alcore, relative to TPG operations.
General and administrative expenses increased $6.9 million, or 36.4%, from
$19.0 million in 1997 to $25.9 million in 1998. The increase again reflects the
inclusion of Lunn operations for a full year in 1998 compared to two months in
1997. As a percentage of revenues, general and administrative expenses decreased
slightly from 15.9% in 1997 to 15.8% in 1998.
Operating income was $10.1 million, or 6.1% of sales, in 1998, compared to
$9.1 million, or 7.6% of sales, in 1997. The increase in operating income
reflects the increase in revenues and gross profit, partially offset by
increased general and administrative expenses.
Interest expense in 1998 increased $1.3 million, or 57.5%, primarily because
of an increase in average loan balances as a result of (i) debt assumed from
Lunn in the merger and (ii) higher working capital and capital expenditures
driven by increasing revenue volume anticipated in 1999.
Income taxes decreased $0.1 million, reflecting lower pre-tax earnings as the
effective tax rate was 38.5% for both years.
FINANCIAL CONDITION AND LIQUIDITY
Cash flow provided by operations was $4.9 million in 1999 compared to
$1.5 million in 1998. Working capital, excluding short-term debt balances,
decreased $4.2 million in 1999 to $47.1 million.
20
<PAGE>
This decrease was the result of (i) a decrease of $4.2 million in accounts
receivable, resulting primarily from lower sales in the last two months of 1999
compared to 1998 and an increased emphasis on customer collections in 1999, (ii)
an increase of $4.8 million in inventory, reflecting a continued build-up on a
few major aerospace composites programs which are in the start-up or early
production phases, (iii) an increase of $6.2 million in accounts payable and
accrued expenses, partially the result of increased inventory levels and an
increase in accrued employee compensation and benefits at divisions other than
Alcore, (iv) an increase in prepaid income taxes of $2.1 million resulting from
tax overpayments made during 1999 before it was determined that Alcore was
incurring operating losses which would significantly reduce the amount of the
Company's income tax liability for 1999 and (v) a net decrease in other working
capital components of $0.7 million. Net cash used in investing activities
totaled $5.0 million in 1999, and resulted exclusively from capital
expenditures.
The Company's primary loan agreement, as amended on May 16, 2000, includes a
total credit facility of $50.0 million consisting of: (i) $27.0 million of
revolving credit against eligible receivable and inventory balances, (ii) a
$19.4 million term loan and (iii) a $3.6 million capital expenditure facility.
The term loan is payable quarterly based on a seven-year amortization period.
The interest rates on the loans are set quarterly based on the Company's
performance against debt-to-earnings ratios specified in the agreement. Interest
rates can range from LIBOR (the London Interbank Offered Rates) plus 2.75% to
LIBOR plus 1.0% on the revolving loan and from LIBOR plus 3.25% to LIBOR plus
1.5% on the term and equipment loans. Alternatively, the Company may elect
interest rates based on the lending institution's prime rate with the revolving
loan ranging from prime plus 0.5% to prime plus 0.25% and the term and equipment
loans ranging from prime plus 0.75% to prime plus 0.50%. Interest is paid
monthly in arrears on all loans. The credit facility matures on December 31,
2002. As of December 31, 1999, the Company had approximately $3.6 million of
unused borrowing availability on this credit facility. The Company is subject to
several financial and nonfinancial covenants under the $50.0 million credit
facility. At December 31, 1999, the Company was in violation of certain
financial covenants. Such violations were cured as a result of an amendment to
the agreement dated May 16, 2000.
As discussed above, the Company has made capital expenditures totaling $5.0
million during 1999, which have been financed by a combination of cash flows
from operations and increased borrowings under the revolving, term and equipment
loan portions of the Company's credit facility.
At December 31, 1999, the Company's backlog of orders and long-term
contracts was approximately $591 million compared to $585 million and $552
million at December 31, 1998 and 1997, respectively. The backlog includes firm
released orders of approximately $158 million, $191 million and $192 million at
December 31, 1999, 1998 and 1997, respectively. The decrease in firm released
orders at the end of 1999 compared to 1998 and 1997 is primarily the result of a
decrease in firm orders at Alcore and the timing of order releases on contract
options. Approximately 75% of the Company's firm released backlog at December
31, 1999 is expected to be delivered in 2000.
ATP announced on September 3, 1999 that it had entered into a definitive
merger agreement (the "September Merger Agreement") with two affiliates of The
Veritas Capital Fund, L.P. ("Veritas") to sell the Company. Due to certain
developments which occurred at the Company since October 21, 1999, the parties
mutually agreed to terminate the September Merger Agreement without liability to
any of the parties. On January 28, 2000, ATP entered into a new merger agreement
with Veritas pursuant to which, if such January 2000 Merger Agreement was
approved by the Company's shareholders and consummated, the shareholders of the
Company would receive $12.75 per share in cash, without interest. See "Item 4.
Submission of Matters to a Vote of Security Holders."
Management of ATP believes that cash flows from operations and the $50
million credit facility are adequate to sustain ATP's current operating level.
However, should circumstances arise affecting cash
21
<PAGE>
flow or requiring capital expenditures beyond those anticipated by the Company,
there can be no assurance that such funds will be available on commercially
reasonable terms, if at all.
FACTORS AFFECTING FUTURE OPERATING RESULTS
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The
forward-looking statements are those that do not state historical facts and are
inherently subject to risk and uncertainties. The forward-looking statements
contained herein are based on current expectations and entail various risks and
uncertainties that could cause actual results to differ materially from those
projected in such forward-looking statements. Some of such risks and
uncertainties are described below.
DEPENDENCE ON PRINCIPAL INDUSTRIES. The revenues of ATP are concentrated
in the aerospace and defense industries. Sales to non-aerospace and non-defense
industries, although growing, are anticipated to approximate 20% to 25% of total
revenues of ATP for the foreseeable future. ATP's success will be heavily
dependent on its ability to successfully obtain major new defense orders
currently planned to be released by the United States government and government
prime contractors, as well as the continued strength of the aerospace industry,
particularly the commercial aircraft industry. No assurances can be given that
ATP will be able to successfully obtain all or even a major portion of the
targeted defense industry orders anticipated to be placed. The commercial
aerospace industry is a cyclical business, and the demand by commercial airlines
for new aircraft is highly dependent upon a variety of factors, which
historically have been related to the stability and health of the United States
and world economies.
RISKS OF REDUCTIONS OR CHANGES IN MILITARY EXPENDITURES. The primary
customers of ATP are agencies of the DOD. Sales under contracts with the DOD or
under subcontracts that identify the DOD as the ultimate purchaser represented
approximately 62% of ATP's 1999 revenues. The United States defense budget has
declined in real terms since the mid-1980s, resulting in some delays in new
program starts, program stretch-outs and program cancellations. The United
States defense budget has begun to stabilize and even increase in real dollars
over the last several years. A major portion of ATP's DOD business is expected
to be funded by the procurement and research, development, test and evaluation
segments of the defense budget. Procurement and research, development, test and
evaluation funding has been significantly reduced over the last decade but is
expected to remain relatively stable or grow slightly over the next decade. A
significant portion of ATP's DOD business is also expected to be funded by the
operations and maintenance portion of the DOD budget, which has declined less
than the other segments. A further significant decline or reallocation of the
procurement, research, development, test and evaluation or operations and
maintenance segments of the DOD budget could materially and adversely affect
ATP's sales and earnings. The loss or significant curtailment of ATP's material
United States defense contracts would also materially and adversely affect ATP's
future sales and earnings.
COMPETITION. The market for ATP's products is highly competitive. ATP
competes with numerous competitors, a number of which possess substantially
greater financial, marketing, personnel and other resources. Continued
consolidation of major aerospace companies could result in program cancellations
as well as increased demand for price concessions. This, together with increased
competition for available business, could translate into downward pressure on
gross margins with resulting lower overall profit margins. Vendor prices for
production materials such as resins, liquid and film adhesives, reinforcing
fiber materials and other materials and supplies could increase as demand for
aircraft parts and assemblies increase to match higher build rates for
commercial aircraft. Higher material prices and demand for lower
22
<PAGE>
aircraft part and assembly prices could place increasing pressure on ATP's
operating margins and net income. Although management of ATP believes that the
Company is well-positioned to maintain or improve its place among its
competitors, there can be no assurance that ATP will be able to compete
successfully in the future.
FINANCIAL LEVERAGE. ATP has a significant amount of indebtedness, which could
make it difficult to obtain additional financing for working capital, capital
expenditures, acquisitions or other purposes. Moreover, the terms of ATP's
indebtedness impose various restrictions and covenants on ATP which could
potentially limit ATP's ability to respond to market conditions or to take
advantage of business opportunities. ATP's ability to meet its debt service
obligations and to reduce total debt will be dependent upon its future
performance, which, in turn, will be subject to general conditions in the
aerospace and defense industries and to financial, business and other factors
affecting the operations of ATP, many of which will be beyond its control.
YEAR 2000 ISSUES
ATP completed its year 2000 (Y2K) preparation plan which included the
following steps: assessment, modification / implementation and testing. The
Company has not experienced any significant malfunctions or errors in its
internal information technology ("IT") and non-IT systems that are critical to
its operations since January 1, 2000. A few minor application problems were
identified and resolved early in the year 2000. The Company is not aware of any
significant Y2K issues or problems that may have arisen for its significant
customers and suppliers. Based on currently available information, the Company
is not aware of any significant continued exposure to Y2K systems issues.
ATP's Y2K costs have not been budgeted and tracked as independent projects,
but have been incurred in conjunction with normal sustaining activities. ATP
estimates that such costs, including the replacement or upgrading of outdated,
noncompliant hardware and software were less than $250,000.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 1999, the Financial Accounting Standards Board issued
Emerging Issues Task Force ("EITF") Issue No. 99-5, ACCOUNTING FOR
PRE-PRODUCTION COSTS RELATED TO LONG-TERM SUPPLY ARRANGEMENTS. Among other
things, EITF Issue No. 99-5 provides additional guidance on how entities should
account for costs incurred to design and develop molds, dies, and tooling that
will be used to produce products that will be sold under long-term supply
arrangements. The Company does not anticipate any material impact on the results
of operations upon adopting the provisions of EITF Issue No. 99-5, which becomes
effective for design and development costs incurred after December 31, 1999.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which
clarifies certain conditions to be met in order to recognize revenue. The
Company does not anticipate any material impact on the results of operations as
a result of this Staff Accounting Bulletin.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates primarily relating to its
$50 million credit facility. However, the carrying value of borrowings under the
credit facility generally approximate fair value due to the variable rate nature
of such borrowings. The interest rates are set quarterly based on the Company's
performance against debt-to-earnings ratios specified in the agreement. Interest
rates can
23
<PAGE>
range from LIBOR plus 2.75% to LIBOR plus 1.0% on the revolving loan and from
LIBOR plus 3.25% to LIBOR plus 1.5% on the term and equipment loans.
Alternatively, the Company may elect interest rates based on the lending
institution's prime rate with the revolving loan ranging from prime plus 0.5% to
prime plus 0.25% and the term and equipment loans ranging from prime plus 0.75%
to prime plus 0.50%. At December 31, 1999, the Company had $44.3 million
outstanding under the credit facility at a weighted-average interest rate of
8.76%.
The Company has not entered into transactions which subject it to material
foreign currency transaction gains and losses.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Advanced Technical Products, Inc.:
We have audited the accompanying consolidated balance sheets of Advanced
Technical Products, Inc. and subsidiaries (the "Company") as of December 31,
1999 and 1998, and the related consolidated statements of operations,
comprehensive income (loss), and cash flows for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Advanced Technical
Products, Inc. and subsidiaries at December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
Atlanta, Georgia
April 28, 2000, except
as to note 7, which is as of May 16, 2000
25
<PAGE>
ADVANCED TECHNICAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS 1999 1998
--------- ---------
(As restated -
note 2)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ................................................................... $ 655 $ 2,030
Accounts receivable (net of allowance for doubtful accounts of $658 in 1999 and
$722 in 1998) ........................................................................... 21,373 25,563
Inventories and costs relating to long-term contracts and programs in
Process, net of progress payments ....................................................... 44,783 39,945
Prepaid income taxes ........................................................................ 2,054 --
Other prepaid expenses ...................................................................... 468 1,018
Deferred income taxes ....................................................................... 3,900 2,570
--------- ---------
Total current assets .................................................... 73,233 71,126
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land ........................................................................................ 655 655
Buildings and improvements .................................................................. 10,634 7,037
Machinery and equipment ..................................................................... 27,125 25,235
Construction in progress .................................................................... 1,096 3,453
Less-accumulated depreciation ............................................................... (15,330) (11,523)
--------- ---------
Net property, plant and equipment ....................................... 24,180 24,857
--------- ---------
DEFERRED INCOME TAXES ........................................................................... 778 --
OTHER ASSETS .................................................................................... 8,361 8,480
--------- ---------
Total assets ............................................................ $ 106,552 $ 104,463
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................................ $ 15,560 $ 12,968
Accrued expenses ............................................................................ 10,224 6,598
Short-term debt ............................................................................. 28,211 28,767
Current portion of capital lease obligations ................................................ 364 294
--------- ---------
Total current liabilities ............................................... 54,359 48,627
LONG-TERM LIABILITIES:
Long-term debt, net of current portion ...................................................... 20,168 20,703
Capital lease obligations, net of current portion ........................................... 1,516 1,483
Deferred income taxes ....................................................................... -- 194
Other liabilities ........................................................................... 1,693 2,347
--------- ---------
Total liabilities ....................................................... 77,736 73,354
Mandatorily redeemable preferred stock, $1.00 par value; 1,000,000 shares
Authorized, issued and outstanding; redemption amount of $1,000 ............................. 1,000 1,000
SHAREHOLDERS' EQUITY:
Preferred stock, undesignated, 1,000,000 shares authorized, no shares issued and outstanding -- --
Common stock, $.01 par value, 30,000,000 shares authorized, 5,306,438 shares and 5,240,188
shares issued and outstanding as of December 31, 1999 and 1998, respectively ............ 53 52
Additional paid-in capital .................................................................. 16,816 16,522
Retained earnings ........................................................................... 11,055 14,295
Notes receivable from officers .............................................................. (135) (135)
Accumulated other comprehensive income (loss) ............................................... 27 (625)
--------- ---------
Total shareholders' equity .............................................. 27,816 30,109
--------- ---------
Total liabilities and shareholders' equity .............................. $ 106,552 $ 104,463
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
<PAGE>
ADVANCED TECHNICAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(As restated - note 2)
<S> <C> <C> <C>
Revenues .................................................................... $ 179,162 $ 164,424 $ 119,433
Cost of revenues ............................................................ 149,007 128,414 91,312
General and administrative expenses ......................................... 30,424 25,929 19,006
----------- ----------- -----------
Operating income (loss) ..................................... (269) 10,081 9,115
Interest expense ............................................................ 3,965 3,579 2,273
----------- ----------- -----------
Income (loss) before income taxes ........................... (4,234) 6,502 6,842
Income tax expense (benefit) ................................................ (1,074) 2,503 2,634
----------- ----------- -----------
Net income (loss) ........................................... $ (3,160) $ 3,999 $ 4,208
=========== =========== ===========
Earnings (loss) per share:
Basic ....................................................... $ (0.61) $ 0.74 $ 0.99
=========== =========== ===========
Diluted ..................................................... $ (0.61) $ 0.71 $ 0.95
=========== =========== ===========
Weighted average number of common and common equivalent shares outstanding:
Basic ....................................................... 5,273,214 5,270,520 4,157,111
=========== =========== ===========
Diluted ..................................................... 5,273,214 5,526,130 4,362,035
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
<PAGE>
ADVANCED TECHNICAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(As restated -
note 2)
<S> <C> <C> <C>
Net income (loss) ................................. $(3,160) $ 3,999 $ 4,208
Other comprehensive income:
Minimum pension liability adjustment ........... 601 (320) (210)
Foreign currency translation adjustment ........ 51 -- --
------- ------- -------
Comprehensive income (loss) ....................... $(2,508) $ 3,679 $ 3,998
======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
28
<PAGE>
ADVANCED TECHNICAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(As restated
- note 2)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ....................................................................... $ (3,160) $ 3,999 $ 4,208
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization ..................................................... 5,004 3,736 1,512
Loss on disposal and write-off of property and equipment .......................... 1,479 22 33
Deferred income taxes ............................................................. (2,287) (17) (523)
Changes in operating assets and liabilities:
Accounts receivable ........................................................ 4,190 (715) (2,193)
Inventories ................................................................ (4,838) (4,836) (9,350)
Other assets ............................................................... (1,675) (58) 389
Accounts payable ........................................................... 2,591 42 5,736
Accrued expenses ........................................................... 3,586 (683) (305)
-------- -------- --------
Net cash provided by (used in) operating activities ........... 4,890 1,490 (493)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .............................................................. (5,028) (8,744) (1,785)
Cash payments for businesses acquired, net of cash acquired ....................... -- (2,907) (1,187)
-------- -------- --------
Net cash used in investing activities ......................... (5,028) (11,651) (2,972)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of borrowings ............................................................ 3,163 20,116 5,139
Repayments of borrowings .......................................................... (4,254) (8,084) (2,102)
Proceeds from exercise of stock options and warrants .............................. 90 16 --
Common stock issued under employee stock purchase plan ............................ 205 -- --
Cash dividends paid ............................................................... (40) (40) (120)
Payments under capital lease obligations .......................................... (401) (311) (17)
-------- -------- --------
Net cash provided by (used in) financing activities ........... (1,237) 11,697 2,900
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................................ (1,375) 1,536 (565)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ................................................ 2,030 494 1,059
CASH AND CASH EQUIVALENTS, END OF YEAR ...................................................... $ 655 $ 2,030 $ 494
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Assets acquired through capital leases ............................................ $ 504 $ 416 $ 183
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................................................ $ 3,911 $ 3,635 $ 2,109
Cash paid for income taxes ........................................................ $ 3,236 $ 3,776 $ 1,259
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
29
<PAGE>
ADVANCED TECHNICAL PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Advanced Technical Products, Inc. (the "Company" or "ATP") and its
subsidiaries, all of which are 100% owned. The Company is
incorporated in the state of Delaware, with corporate headquarters
located in Roswell, Georgia. Principal manufacturing operations are
located in Marion, Virginia; Lincoln, Nebraska; Deland, Florida;
Belcamp and Edgewood, Maryland; Glen Cove, New York and Anglet,
France. The Company's subsidiaries include: Technical Products
Group, Inc., Alcore, Inc. ("Alcore"), Marion Properties, Inc.,
Lincoln Properties, Inc., Deland Properties, Inc., and Alcore
Brigantine SA. All significant intercompany transactions and
balances have been eliminated.
REVENUE RECOGNITION
Revenues and anticipated profits under long-term fixed price
production contracts are recorded on the percentage of completion
method, principally using units-of-delivery as the measurement basis
for effort accomplished. Delivery of units are generally made upon
acceptance by the customer in accordance with contract terms.
Revenues under certain long-term fixed price contracts which require
a significant amount of development effort in relation to total
contract value are recorded based on the accomplishment of
milestones as specified by contract terms. Revenues under cost
reimbursable type contracts are recorded as costs are incurred.
Amounts representing claims for equitable adjustment are included in
estimates of future contract revenues used for preparing estimates
of contract profitability at completion only when realization is
probable and amounts can be reasonably estimated. The amounts
included in estimates of future contract revenues for outstanding
claims which had not been finalized were approximately $7.3 million
and $4.0 million as of December 31, 1999 and 1998, respectively.
Estimated losses on contracts are recorded in full when identified.
Revenues for the Company's Structural Core Materials segment are
recognized as goods are shipped.
30
<PAGE>
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid financial instruments with
an original maturity of three months or less.
RESEARCH AND DEVELOPMENT COSTS
Company-sponsored research and development costs are reported as
part of general and administrative expenses. Revenues and costs
incurred in connection with customer-sponsored research and
development contracts are accounted for as contract revenues and
costs.
INVENTORIES
Inventories, other than inventoried costs relating to long-term
contracts and programs, are valued at the lower of first-in,
first-out cost or market (net realizable value). Inventory cost
relating to long-term contracts and programs includes material,
labor, manufacturing overhead and tooling costs dedicated to a
contract or program. Costs attributed to units delivered under
certain long-term contracts and programs are based on the estimated
average cost of all units to be produced as determined under the
learning curve concept which anticipates a predictable decrease in
unit costs as production techniques become more efficient through
repetition. In accordance with industry practice, costs in inventory
include amounts relating to contracts with long production cycles,
some of which are not expected to be realized within one year.
Customer progress payments received on long-term contracts are
recorded as an offset to related inventory balances.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. In particular,
accounting for long-term contracts requires management estimates of
future contract revenues and costs used for preparing estimates at
contract completion and determining contract profitability reflected
in the financial statements. Actual results could differ from those
estimates.
31
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's debt is estimated based upon the
cash flows discounted using the interest rates available to the
Company for debt with similar terms and remaining maturities. The
carrying value of the Company's debt approximates fair value due to
the variable rate nature of the borrowings and/or the short maturity
of the borrowings. The carrying value of all other financial
instruments approximates fair value due to the short-term nature of
such instruments.
PROPERTY, PLANT AND EQUIPMENT
Property additions are recorded at cost. Depreciation is charged
against operations over three to ten years for machinery and
equipment and seven to forty years for buildings and improvements.
Improvements to leased property are amortized over the life of the
lease or the estimated life of the improvement, whichever is
shorter. Straight-line and accelerated methods of depreciation are
used for financial reporting and accelerated methods are used for
tax purposes where permitted. Depreciation expense for the years
ended December 31, 1999, 1998 and 1997 is $4,730,000, $3,383,000 and
$1,415,000, respectively.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net earnings
(loss) available for common shares by the weighted-average number of
shares of common stock outstanding during the year. Diluted earnings
per share is computed by dividing net earnings available for common
shares by the sum of (1) the weighted-average number of shares of
common stock outstanding during the period, (2) the dilutive effect
of the assumed exercise of stock options using the treasury stock
method and (3) the dilutive effect of other potentially dilutive
securities.
STOCK OPTIONS
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which
permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of the grant.
Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of Accounting Principles Board ("APB") Opinion No. 25 and
provide pro forma net income and pro forma income per share
disclosures for stock option grants made in 1995 and future years as
if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosures of SFAS
No. 123.
32
<PAGE>
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the expected
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
GOODWILL
Goodwill, which represents the excess of purchase price over the
fair value of net assets acquired, is amortized on the straight-line
basis over the estimated useful life, but not in excess of 40 years.
The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over
its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of
goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of
the recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved. During 1999, 1998 and 1997,
no such goodwill impairment has been identified by the Company.
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 reviews for the impairment of long-lived assets whenever
events or changes in circumstances indicate the carrying amount of
an asset may not be recoverable. The carrying value of a long-lived
asset is considered impaired when the anticipated undiscounted cash
flow from the asset is separately identifiable and is less than its
carrying value. In that event, a loss is recognized based on the
amount by which the carrying value exceeds the fair value of the
long-lived asset. Fair value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the
risk involved. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair values are reduced
for the cost to dispose. During 1999, 1998 and 1997, no such
impairment losses have been identified by the Company.
33
<PAGE>
FOREIGN CURRENCY TRANSLATION
The local currency has been used as the functional currency in the
country in which the Company conducts business outside of the United
States. The assets and liabilities denominated in foreign currency
are translated into U.S. dollars at the current rate of exchange at
the balance sheet date and revenues and expenses are translated at
the average monthly exchange rates. The translation gains and losses
are included as a separate component of shareholders' equity.
Transaction gains and losses included in results of operations are
not material.
COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, the Company adopted SFAS No. 130,
REPORTING COMPREHENSIVE INCOME, which requires the reporting of
other comprehensive income in addition to net income from
operations. Other comprehensive income (loss) for the Company
consists of changes to its additional minimum pension liability and
foreign currency translation adjustments. The Company has presented
separate Consolidated Statements of Comprehensive Income (Loss) to
conform to the requirements of SFAS No. 130.
NEW ACCOUNTING STANDARDS
In September 1999, the Financial Accounting Standards Board issued
Emerging Issues Task Force ("EITF") Issue No. 99-5, ACCOUNTING FOR
PRE-PRODUCTION COSTS RELATED TO LONG-TERM SUPPLY ARRANGEMENTS. Among
other things, EITF Issue No. 99-5 provides additional guidance on
how entities should account for costs incurred to design and develop
molds, dies, and tooling that will be used to produce products that
will be sold under long-term supply arrangements. The Company does
not anticipate any material impact on the results of operations upon
adopting the provisions of EITF Issue No. 99-5, which becomes
effective for design and development costs incurred after December
31, 1999.
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS, which clarifies certain conditions to be met in order to
recognize revenue. The Company does not anticipate any material
impact on the results of operations as a result of this Staff
Accounting Bulletin.
34
<PAGE>
2. RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL STATEMENTS
During January 2000, the Company learned of possible accounting and
financial reporting irregularities at its subsidiary, Alcore, when certain
financial records were seized in connection with a search warrant issued
by the United States District Court - District of Maryland as part of a
governmental investigation. Additionally, the Company has been notified of
an investigation by the United States Securities and Exchange Commission
regarding these matters (see note 17).
After becoming aware of the possible irregularities, the Company engaged
special counsel and forensic accountants to assist in its investigation of
the possible irregularities. As a result, the Company has determined to
restate its 1998 consolidated financial statements (including its
quarterly financial statements for each of the quarters of 1998), as well
as for each of the first, second, and third quarters of 1999.
The effects of the adjustments to the 1998 consolidated financial
statements are as follows:
1) A reduction of revenues of $650,000,
2) An increase in cost of revenues of $1,736,000,
3) An increase in general and administrative expenses of $359,000, and
4) A reduction in income tax expense of $1,057,000 to reflect the
effect of the above adjustments.
The aggregate effect of such adjustments was to reduce income (loss)
before income taxes by $2,745,000, net income by $1,688,000, and basic and
diluted earnings per share by $0.32 and $0.30, respectively.
3. ACQUISITIONS
The Company was formed on October 31, 1997 when TPG Holdings, Inc. ("TPG")
merged with Lunn Industries, Inc. ("Lunn"), forming Advanced Technical
Products, Inc. Former TPG and Lunn common shareholders received 8.3028 and
0.1 shares of ATP stock, respectively, in exchange for each share of the
former companies' stock.
The merger was accounted for as a purchase of Lunn assets by TPG. The
recorded purchase price of $17,582,000 consisted of (1) $ 14,358,000, the
market value of Lunn's outstanding stock at the time the intent to merge
was announced, (2) $1,200,000, the estimated value of Lunn's stock options
and warrants outstanding as of the merger valuation date and (3)
$2,024,000 of direct merger costs incurred. As a result of the
transaction, the Company recorded $5,124,000 of goodwill, which was
reduced in 1998 to $3,788,000 due to the elimination of the valuation
allowance for deferred tax assets which had been recorded at the date of
the acquisition. Goodwill is being amortized using the straight-line
method over 40 years.
35
<PAGE>
The operating results of Lunn have been included in the Company's
consolidated financial statements since the date of the acquisition. The
following table presents unaudited pro forma consolidated operating
results for the Company for the year ended December 31, 1997 as if the
Lunn acquisition had occurred as of January 1, 1997 (in thousands, except
per share amounts):
Net revenues $138,958
Net income 5,090
Earnings per share - basic 0.96
Earnings per share - diluted 0.91
The unaudited pro forma consolidated operating results of the Company are
not necessarily indicative of the operating results that would have been
achieved had the merger been consummated at the beginning of the period
presented, and should not be construed as representative of future
operating results.
On May 29, 1998, the Company acquired all of the capital stock of
Brigantine SA, a manufacturer of honeycomb products and engineered panels
located in France. The acquired company was renamed Alcore Brigantine SA
and operates as a subsidiary of Alcore. The acquisition was accounted for
as a purchase and the total purchase price of $3,329,000 consisted of (1)
$2,502,000 cash paid to the seller, (2) $500,000 in deferred payments
evidenced by a note payable and (3) $327,000 of direct transaction costs.
As a result of the transaction, the Company recorded $2,307,000 of
goodwill, which is being amortized using the straight-line method over 40
years. The Company's consolidated financial statements include the
operating results for Alcore Brigantine SA since the date of the
acquisition. The pro forma results of operations for 1998 and 1997,
assuming the acquisition had been made at the beginning of each year,
would not be materially different from reported results.
The assets and liabilities of the acquired companies have been recorded in
the Company's consolidated financial statements at their estimated fair
values at the acquisition dates as follows (in thousands):
ALCORE
BRIGANTINE SA LUNN
------------- --------
Cash .................................. $ 317 $ --
Accounts receivable ................... 1,431 4,076
Inventories ........................... 476 4,879
Prepaid and other current assets ...... 10 681
Property, plant and equipment ......... 1,542 12,683
Other assets .......................... 195 644
Current liabilities ................... (923) (7,007)
Capital lease obligations ............. (1,196) --
Long-term debt ........................ (830) (3,498)
------------- --------
Total ........................... $ 1,022 $ 12,458
============= ========
36
<PAGE>
4. SEGMENT REPORTING AND CUSTOMER CONCENTRATION
Effective January 1, 1998, the Company adopted SFAS No. 131, DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which establishes
revised standards for the manner in which public business enterprises
report information about operating segments.
The Company's operations include three reportable business segments:
Aerospace and Defense, Commercial Composites and Structural Core
Materials. All other operating segments have not met the quantitative
thresholds for determining reportable segments. A description and
financial data for the segments are summarized below:
AEROSPACE AND DEFENSE
The Aerospace and Defense markets served by the Company primarily consist
of the United States government (Department of Defense), which the Company
sells to on a prime and subcontract basis, and the commercial aerospace
market. The Company designs, develops and manufactures a wide range of
advanced composite products, advanced electronic and electro-optical
components and other integrated defense systems for this market segment.
Products include radomes and composite structures for high-performance
military and commercial aviation, lightweight relocatable shelters, rocket
motor cases, pressure vessels, fuel tanks for military aircraft, advanced
electronic and electro-optical components, chemical warfare detection
systems, metal bonded panels and other composite assemblies using fibers
and reinforced plastics. This reportable segment consists of four
operating segments which have been aggregated for segment reporting
purposes.
COMMERCIAL COMPOSITES
The Commercial Composites segment is involved in the design and
manufacture of composite parts and components for the automotive, oil and
gas and other commercial industries, including fuel tanks for natural gas
vehicles, accumulator bottles, flexible drill pipe and other products.
STRUCTURAL CORE MATERIALS
The Structural Core Materials segment consists of Alcore and Alcore
Brigantine SA. The segment produces aluminum and composite honeycomb core
and related products for the aerospace and defense industry and several
commercial markets.
OTHER
The remainder of the Company's business consists of miscellaneous
operations which have not met the quantitative thresholds for separate
segment disclosure. Other consists primarily of a segment that
manufactures electrical power switching products for specialty vehicles
including recreational vehicles, motor homes, conversion vans,
over-the-road trucks and leisure boats.
37
<PAGE>
Selected financial data by business segment as of and for the years ended
December 31, 1999, 1998 and 1997 follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 (a) 1997 (a)
--------- -------------- ---------
(As restated -
NET REVENUES note 2)
<S> <C> <C> <C>
Aerospace and Defense:
-from external customers ................................. $ 133,214 $ 118,897 $ 97,690
Commercial Composites:
-from external customers ................................. 16,663 15,856 12,061
Structural Core Materials (a):
-from external customers ................................. 19,385 21,807 2,561
-intersegment revenues................................... 827 645 --
Other operating segments:
-from external customers ................................. 9,900 7,864 7,121
Elimination of intersegment revenues ................................... (827) (645) --
--------- -------------- ---------
Total .................................................... $ 179,162 $ 164,424 $ 119,433
========= ============== =========
OPERATING INCOME (LOSS)
Aerospace and Defense .................................................. $ 11,420 $ 12,155 $ 10,200
Commercial Composites .................................................. 2,730 798 177
Structural Core Materials (a) .......................................... (11,943) (209) 146
Other operating segments ............................................... 941 423 119
Corporate .............................................................. (3,417) (3,086) (1,527)
--------- -------------- ---------
Total .................................................... $ (269) $ 10,081 $ 9,115
========= ============== =========
IDENTIFIABLE ASSETS
Aerospace and Defense .................................................. $ 60,708 $ 57,545 $ 48,175
Commercial Composites .................................................. 7,089 6,877 8,861
Structural Core Materials (a) .......................................... 27,446 31,462 22,553
Other operating segments ............................................... 3,020 2,945 2,924
Corporate .............................................................. 8,289 5,634 3,171
--------- -------------- ---------
Total .................................................... $ 106,552 $ 104,463 $ 85,684
========= ============== =========
CAPITAL EXPENDITURES
Aerospace and Defense .................................................. $ 2,556 $ 4,222 $ 1,025
Commercial Composites .................................................. 155 1,336 207
Structural Core Materials (a) .......................................... 2,010 3,111 481
Other operating segments ............................................... 207 44 66
Corporate .............................................................. 100 31 6
--------- -------------- ---------
Total .................................................... $ 5,028 $ 8,744 $ 1,785
========= ============== =========
DEPRECIATION AND AMORTIZATION
Aerospace and Defense .................................................. $ 2,466 $ 1,703 $ 840
Commercial Composites .................................................. 289 177 267
Structural Core Materials (a) .......................................... 2,016 1,631 251
Other operating segments ............................................... 144 157 135
Corporate .............................................................. 89 68 19
--------- -------------- ---------
Total .................................................... $ 5,004 $ 3,736 $ 1,512
========= ============== =========
</TABLE>
- -------------
(a) 1997 financial data for the structural core materials segment includes
Alcore operations for the two months following the merger creating
Advanced Technical Products, Inc. on October 31, 1997. 1998 data for the
structural core materials segment includes Alcore Brigantine SA operations
for the seven months following the acquisition of the business on May 28,
1998.
38
<PAGE>
The following table presents the geographic location of the customer for
revenues and physical geographic location for long-lived assets as of and
for the years ended December 31, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
EXTERNAL REVENUES LONG-LIVED ASSETS
-------------------------------------- --------------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
United States ..................... $158,563 $142,009 $110,898 $ 28,127 $ 29,422 $ 25,194
Foreign countries ................. 20,599 22,415 8,535 4,414 3,915 ---
-------- -------- -------- -------- -------- --------
Total .......................... $179,162 $164,424 $119,433 $ 32,541 $ 33,337 $ 25,194
======== ======== ======== ======== ======== ========
</TABLE>
MAJOR CUSTOMER INFORMATION
Revenues from the U.S. government on a prime or sub-contract basis during
1999, 1998 and 1997 were approximately 62%, 61%, and 71% of total
revenues, respectively. Approximately 17% and 14% of total revenues for
1999 and 1998, respectively, were to The Boeing Company, and approximately
17% of 1997 revenues were to Lockheed Martin Corporation. No other
customers comprised 10% or more of total revenues for the periods
reported. Over 85% of major customer revenues reported were included as
part of the Aerospace and Defense business segment. More than 92% of total
revenues were on a fixed-price basis for all periods reported.
As a government contractor, the Company is exposed to certain inherent
industry risks and uncertainties including technological obsolescence,
changes in government policies, dependence on the federal defense budget
and annual congressional appropriation and allotment of funds. Although
the Company's major programs have been well supported during recent years,
future spending reductions and funding limitations could negatively impact
future operations.
5. INVENTORIES
Inventories at December 31, 1999 and 1998 consisted of the following (in
thousands):
1999 1998
-------- --------
Finished goods ....... $ 1,433 $ 956
Work in process ...... 29,555 25,659
Raw materials ........ 18,711 24,624
Progress payments .... (4,916) (11,294)
-------- --------
$ 44,783 $ 39,945
======== ========
39
<PAGE>
Work in process includes costs on two major long-term aerospace programs
which are in the early stages of performance and have experienced actual
costs to date in excess of the estimated average cost of all units to be
produced as determined under the learning curve concept. Such costs
included in work in process were approximately $12.1 million and $6.3
million at December 31, 1999 and 1998, respectively. The Company has
assumed additional orders beyond those currently included in firm released
backlog in its estimates of average unit cost of all units to be produced.
Recovery of the deferred production costs is dependent on the number of
units ultimately sold, actual selling prices and associated future
production costs. Sales significantly under estimates or costs
significantly over estimates could result in the realization of
substantial program losses in future years. Included in the $12.1 million
of work in process related to these contracts is $ 10.4 million which
would not be absorbed in cost of sales based on existing firm orders at
December 31, 1999.
6. LEASES
The Company has various lease agreements for offices, factories and
certain equipment. The longest lease obligation extends to 2013. Most
leases contain renewal options and some contain purchase options. No
leases contain restrictions on the Company's activities concerning
dividends, further leasing or additional debt.
The Company is obligated under various capital leases for certain
buildings, machinery and equipment that expire at various dates through
2013. The gross amount of buildings, machinery and equipment and related
accumulated amortization recorded under capital leases as of December 31,
1999 and 1998 were as follows (in thousands):
1999 1998
------- -------
Buildings ..................... $ 1,075 $ 1,167
Machinery and equipment ....... 1,621 1,147
Less accumulated amortization . (491) (242)
------- -------
Net capital lease assets $ 2,205 $ 2,072
======= =======
40
<PAGE>
Future minimum rental payments at December 31, 1999 under agreements
classified as operating leases with noncancelable terms in excess of one
year, and the present value of future minimum capital lease payments are
as follows (in thousands):
CAPITAL OPERATING
LEASES LEASES
------- ---------
Year ending December 31:
2000 ...................................... $ 474 $ 1,631
2001 ...................................... 393 1,506
2002 ...................................... 306 1,398
2003 ...................................... 223 1,216
2004 ...................................... 145 1,080
Beyond 2004 ............................... 786 3,771
------- ---------
Total minimum lease payments .............. 2,327 $ 10,602
=========
Less amounts representing interest
(at rates ranging from 4.6% to 18.2%) ... (447)
-------
Net principal portion ..................... 1,880
Less portion due within one year .......... (364)
-------
Long-term portion ......................... $ 1,516
=======
During the first quarter of 1998, the Company entered into a ten year
lease agreement for a facility located in Edgewood, Maryland, into which
the existing Jessup, Maryland operation is being moved. The schedule of
operating lease obligations includes the new lease commitment, but
excludes the Company's obligation of $1,883,000 for the remaining six
years and three months on the lease for the Jessup facility. The Company
has subleased part of the Jessup facility and anticipates subleasing the
entire facility once it has completely vacated the premises. Management
has estimated the amount of remaining lease obligation costs in excess of
anticipated future sublease income to be $425,000 at December 31, 1999,
and has recorded such amount as general and administrative expenses in
1999.
Rent expense for the years ended December 31, 1999, 1998 and 1997
consisted of the following (in thousands):
1999 1998 1997
------- ------- -------
Basic expense ........... $ 2,500 $ 2,066 $ 1,194
Sublease income ......... (291) (253) (250)
------- ------- -------
Rent expense, net ....... $ 2,209 $ 1,813 $ 944
======= ======= =======
7. DEBT
Short-term debt of the Company at December 31 consisted of the following
(in thousands):
1999 1998
------- -------
Revolving loans ........................... $21,653 $24,845
Current maturities of long-term debt ...... 6,558 3,922
------- -------
Total ..................................... $28,211 $28,767
======= =======
41
<PAGE>
Long-term debt of the Company at December 31 consisted of the following
(in thousands):
1999 1998
------- -------
Term loans ............................... $19,408 $16,714
Equipment loans .......................... 3,288 2,819
Deferred obligation ...................... 334 500
Bonds payable ............................ 2,200 2,400
Other long-term debt ..................... 1,496 2,192
------- -------
Total long-term debt ............... 26,726 24,625
Less current portion ..................... 6,558 3,922
------- -------
Long-term debt, net of current portion $20,168 $20,703
======= =======
Scheduled maturities of long-term debt are as follows (in thousands):
2000 ........................... $ 6,558
2001 ........................... 3,820
2002 ........................... 15,697
2003 ........................... 205
2004 ........................... 135
Thereafter ..................... 311
-------
Total .................... $26,726
=======
REVOLVING, TERM AND EQUIPMENT LOANS
In March 1998, the Company refinanced its revolving and term loans,
consolidating them with one lending institution. The financing agreement
was amended on September 22, 1999, when the term loan balance was
increased to $19.4 million from the paid-down balance of $16.7 million
existing just prior to the increase. The Company's credit facility, as
amended, with this lending institution totals $50.0 million consisting of:
(1) $27.0 million of revolving credit against eligible receivable and
inventory balances, (2) a $19.4 million term loan and (3) a $3.6 million
capital expenditure facility. As of December 31, 1999, the Company had
approximately $3.6 million of unused borrowing availability on this credit
facility.
The Company borrowed $1,200,000 and $3,000,000 during 1999 and 1998,
respectively, on its capital expenditure facility. Equipment loan
principal payments are made monthly based on a five-year amortization
period.
42
<PAGE>
The revolving, term and equipment loans are secured by collateral
consisting of substantially all of the Company's assets including
inventory, equipment, receivables, general intangibles, investment
property and real property. The interest rates on the loans are set
quarterly based on the Company's performance against debt-to-earnings
ratios specified in the agreement. Interest rates can range from LIBOR
(the London Interbank Offered Rates) plus 2.75% to LIBOR plus 1.0% on the
revolving loan and from LIBOR plus 3.25% to LIBOR plus 1.5% on the term
and equipment loans. Alternatively, the Company may elect interest rates
based on the lending institution's prime rate with the revolving loan
ranging from prime plus 0.5% to prime plus 0.25% and the term and
equipment loans ranging from prime plus 0.75% to prime plus 0.50%. The
weighted average interest rates in effect at December 31, 1999 and 1998
for the revolving, term and equipment loans were as follows:
1999 1998
------- -------
Revolving loans .......... 8.5% 7.42%
Term loans ............... 9.0% 7.76%
Equipment loans .......... 9.0% 7.94%
Interest is paid monthly in arrears on all loans. The term loan is payable
quarterly based on a seven-year amortization period. The credit facility,
as amended on May 16, 2000 extends to December 31, 2002.
As of December 31, 1999, the Company had approximately $1.3 million of
outstanding stand-by letters of credit issued as a guaranty for advance
payments received or contract performance bonds.
The Company is subject to several financial and nonfinancial covenants
under the $50.0 million credit facility. At December 31, 1999, the Company
was in violation of certain financial covenants. Such violations were
cured as a result of an amendment to the agreement dated May 16, 2000.
DEFERRED OBLIGATION
The deferred obligation was incurred in connection with the Alcore
Brigantine SA acquisition (See Note 3) on May 29, 1998. The remaining
obligation at December 31, 1999, which bears no interest, is payable in
full on May 29, 2000.
43
<PAGE>
BONDS PAYABLE AND OTHER DEBT
Bonds payable result from a financing agreement with the State of Maryland
dated May 14, 1997 to provide $2.6 million in 15 year tax-exempt
industrial development bonds bearing interest at a variable rate adjusted
weekly to finance the purchase of the Belcamp, Maryland honeycomb
manufacturing facility and an adjacent 3.2 acre parcel of land. The
Company has entered into an interest rate hedge agreement with a financial
institution to fix the interest rate on the tax exempt bonds at 5.07%
through the year 2012. The bonds payable require annual principal payments
of $200,000 and are secured by a letter of credit agreement between the
Company and a bank. On May 12, 2000, the agreement was amended for a
period extending to May 15, 2001. Conditions of the amended agreement
include a requirement that the Company deliver collateral to the bank in
the form of qualified investment securities as defined with a value of
$100,000 as of the date of execution of the amendment. Additional
collateral in $150,000 increments is required to be delivered on or before
each of July 1, August 1, September 1, and October 1, 2000. The Company is
subject to several financial and nonfinancial covenants under this
financing agreement. At December 31, 1999, the Company was in violation of
certain financial covenants. Such violations were cured as a result of the
amendment to the agreement dated May 12, 2000. It is anticipated that the
lender will waive future violations, which are expected by the Company
during 2000. However, since such future waivers are not assured, the
Company has classified the total amount of the bonds as current at
December 31, 1999.
On July 7, 1997, in conjunction with the tax exempt bond financing, the
Company entered into a ten-year $810,000 Maryland Industrial and
Commercial Redevelopment Fund loan agreement with interest set at a fixed
rate of 5.1% annually, plus a five-year $60,000 loan from Harford County,
Maryland with interest set at a fixed rate of 5.5%. The unpaid balance of
these loans are reported as other long-term debt and totaled $694,000 and
$773,000 at December 31, 1999 and 1998, respectively.
The remainder of other long-term debt consists of several loans of Alcore
Brigantine SA. The weighted average interest rates on such loans at
December 31, 1999 was approximately 5.3%, and the remaining duration
ranged from one to six years.
8. RETIREMENT AND EMPLOYEE BENEFIT COSTS
DEFINED CONTRIBUTION PLANS
The Company has retirement and savings plans for substantially all of the
Company's employees which allow participants to make contributions up to
15% of their base pay via payroll deductions pursuant to Section 401(k) of
the Internal Revenue Code. Under the plan, the Company may make
discretionary matching contributions. The Company's match for the 1999
plan year was 50% of each participant's pretax contributions, limited to
4% of their salary. The cost of the employer match for 1999, 1998 and 1997
was $679,000, $630,000 and $159,000, respectively.
Union employees at the Glen Cove, New York facility are covered by a
defined contribution retirement plan, the cost of which was $32,000,
$33,000 and $5,000 for 1999, 1998 and 1997 (post-merger period only),
respectively.
44
<PAGE>
DEFINED BENEFITS PLANS
The majority of hourly union employees of the Company, other than those at
the Glen Cove, New York facility, are covered by defined benefit pension
plans with benefits generally based on negotiated rates and years of
service. The Company's funding policy is to contribute annually the
minimum required amount determined by its actuaries.
The change in benefit obligation, change in plan assets and funded status
of the defined benefit plans for 1999 and 1998 is summarized as follows
(in thousands):
1999 1998
------- -------
CHANGE IN BENEFIT OBLIGATION:
Balance at beginning of year ................... $ 2,803 $ 2,001
Service cost ................................... 359 233
Interest cost .................................. 218 180
Plan amendments ................................ 7 --
Actuarial (gain) loss .......................... (406) 460
Benefits paid .................................. (149) (71)
------- -------
Balance at end of year ......................... $ 2,832 $ 2,803
======= =======
CHANGE IN PLAN ASSETS:
Balance at beginning of year ............ $ 1,186 $ 587
Actual return on plan assets ................... 324 129
Employer contributions ......................... 726 541
Benefits paid .................................. (149) (71)
------- -------
Balance at end of year ................... $ 2,087 $ 1,186
======= =======
FUNDED STATUS:
Funded status at end of year ................... $ (745) $(1,617)
Unrecognized net actuarial (gain) loss ......... (26) 626
Unrecognized prior service cost ................ 881 956
------- -------
Prepaid (accrued) benefit cost ................. $ 110 $ (35)
======= =======
The amounts recognized in the Consolidated Balance Sheets at December 31,
1999 and 1998 consist of (in thousands):
1999 1998
------- -------
Prepaid benefit cost ..................... $ 151 $ 11
Accrued benefit cost ............... (41) (44)
Additional minimum liability ....... (854) (1,583)
Intangible asset ................... 816 956
Accumulated other comprehensive income 38 625
------- -------
Prepaid (accrued) benefit cost $ 110 $ (35)
======= =======
45
<PAGE>
The net periodic benefit cost of the defined benefit plans for the years
ended December 31, 1999, 1998 and 1997 by components was as follows (in
thousands):
1999 1998 1997
----- ----- -----
Service cost ............................... $ 359 $ 233 $ 276
Interest cost .............................. 218 180 74
Expected return on plan assets ............. (111) (65) (24)
Amortization of prior service cost ......... 82 82 3
Amortization of actuarial loss ............. 34 24 15
----- ----- -----
Net periodic benefit cost ................ $ 582 $ 454 $ 344
===== ===== =====
Assumptions used to measure the projected benefit obligation and the
expected long-term rate of return on plan assets as of December 31 were as
follows:
1999 1998 1997
------- ------- -------
Discount rate .............................. 8.00% 6.75% 7.25%
Expected return on plan assets ............. 8.00% 8.00% 8.00%
The Company does not have any significant postemployment or postretirement
medical or life insurance plans.
46
<PAGE>
9. SHAREHOLDERS' EQUITY
The activity in the equity accounts for the period January 1, 1997 through
December 31, 1999 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
NOTES ACCUMULATED
COMMON STOCK ADDITIONAL RECEIVABLE OTHER COM-
------------------ PAID-IN RETAINED FROM PREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS OFFICERS INCOME (LOSS) TOTAL
-------- -------- ---------- -------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 ................... 475 $ 5 $ 995 $ 6,248 $ (135) $ (95) $ 7,018
Merger transactions:
Retirement of TPG stock .................. (475) (5) -- -- -- -- (5)
Conversion of TPG stock to ATP stock ..... 3,944 39 -- -- -- -- 39
Conversion of Lunn stock to ATP stock .... 1,276 13 -- -- -- -- 13
Purchase accounting adjustment for
acquisition of Lunn .................. -- -- 15,511 -- -- -- 15,511
Net income ................................. -- -- -- 4,208 -- -- 4,208
Preferred dividends declared ............... -- -- -- (80) -- -- (80)
Additional minimum pension liability ....... -- -- -- -- -- (210) (210)
-------- -------- ---------- -------- ---------- ------------- --------
Balance, December 31, 1997 ................. 5,220 52 16,506 10,376 (135) (305) 26,494
Exercise of stock options and warrants ..... 20 -- 16 -- -- -- 16
Net income (as restated) ................... -- -- -- 3,999 -- -- 3,999
Preferred dividends declared ............... -- -- -- (80) -- -- (80)
Additional minimum pension liability ....... -- -- -- -- -- (320) (320)
-------- -------- ---------- -------- ---------- ------------- --------
Balance, December 31, 1998 (as restated) ... 5,240 52 16,522 14,295 (135) (625) 30,109
Exercise of stock options .................. 46 1 89 -- -- -- 90
Shares issued under employee stock
purchase plan ............................ 20 -- 205 -- -- -- 205
Net loss ................................... -- -- -- (3,160) -- -- (3,160)
Preferred dividends declared ............... -- -- -- (80) -- -- (80)
Additional minimum pension liability ....... -- -- -- -- -- 601 601
Foreign currency translation gain .......... -- -- -- -- -- 51 51
-------- -------- ---------- -------- ---------- ------------- --------
Balance, December 31, 1999 ................. 5,306 $ 53 $ 16,816 $ 11,055 $ (135) $ 27 $ 27,816
======== ======== ========== ======== ========== ============= ========
</TABLE>
In conjunction with the merger on October 31, 1997, the Company assumed
the outstanding obligations of the Lunn and TPG stock option plans. The
Company also adopted the 1997 Advanced Technical Products, Inc. Stock
Option Plan (the "1997 Plan") on the merger date. Under the 1997 Plan, the
Company may grant nonstatutory and incentive stock options to employees of
the Company for the purchase of the Company's common stock at an exercise
price equal to at least 100% of the fair market value as of the date of
grant (110% of such fair market value if the optionee owns more that 10%
of the combined voting power of all classes of stock of the Company). The
Company has authorized 300,000 shares of common stock for the 1997 Plan.
Options granted through December 31, 1999 have 10-year terms and vest at
the rate of 20% on each of the five anniversary dates following the year
of the grant. At December 31, 1999, approximately 127,000 options were
available for grant under the 1997 Plan.
47
<PAGE>
On November 6, 1997, the Company adopted the Advanced Technical Products,
Inc. Non-Employee Director Stock Option Plan, the terms of which are the
same as the 1997 Plan, except that options are to be granted only to
non-employee members of the Company's board of directors. Stock options
for 100,000 shares of common stock are authorized under this plan. Options
under the plan are automatically granted and initial grants to purchase
7,500 shares were given to directors serving on November 6, 1997. In
addition, newly elected directors will be granted 7,500 shares on the date
of their initial election to the board. The initial options vest at a rate
of 33 1/3 % on each day preceding the annual meeting of the stockholders
of the Company for the three years subsequent to the option grant.
Continuing non-employee directors also automatically receive grants of
options to purchase 1,000 shares immediately following each annual meeting
of stockholders. These options vest 100% on the day immediately preceding
the annual stockholders meeting following the grant date and have 10-year
terms. At December 31, 1999, approximately 45,000 options were available
for grant under this Plan.
A summary of stock option transactions for 1999, 1998 and 1997 follows
(pre-merger amounts have been restated to reflect amounts on a post-merger
basis; shares are in thousands):
WEIGHTED
STOCK AVERAGE
OPTIONS EXERCISE
OUTSTANDING PRICE
----------- -----------
At December 31, 1996 .............................. 208 $ 0.41
Options granted ................................... 216 15.00
Options assumed in merger ......................... 114 7.36
Options canceled .................................. (12) 0.41
----------- -----------
At December 31, 1997 .............................. 526 7.91
Options granted ................................... 10 13.61
Options exercised ................................. (18) 0.88
Options canceled .................................. (4) 9.84
----------- -----------
At December 31, 1998 ............................ 514 8.26
Options granted ................................... 6 13.50
Options exercised ................................. (46) 1.96
Options canceled .................................. (11) 15.00
----------- -----------
At December 31, 1999 .............................. 463 $ 8.79
=========== ===========
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The following table summarizes information about stock options outstanding
at December 31, 1999 (pre-merger amounts have been restated to reflect
amounts on a post-merger basis; shares are in thousands):
EXERCISABLE
---------------------
NUMBER OF WEIGHTED- WEIGHTED- WEIGHTED-
RANGE OF SHARES AVERAGE AVERAGE AVERAGE
EXERCISE SUBJECT TO REMAINING EXERCISE NUMBER OF EXERCISE
PRICES OPTION LIFE PRICE SHARES PRICE
- -------------------- ---------- --------- --------- --------- ---------
$ 0.41- $ 4.99 149 6.5 years $ 0.41 73 $ 0.41
$ 5.00 - $ 10.00 91 4.0 years 7.56 91 7.56
$ 10.01 - $ 15.00 223 7.9 years 14.89 102 14.92
The Company accounts for these plans under APB Opinion No. 25, under which
no compensation cost has been recognized. Had compensation cost for these
plans been determined based on the fair value at grant date under the
fair-value-based method in SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, the Company's net income (loss) would have been reduced to
the pro forma amounts indicated below:
1999 1998 1997
--------- --------- ---------
Net income (loss):
As reported ........................ $ (3,160) $ 3,999 $ 4,208
Pro forma .......................... (3,449) 3,740 4,166
Net income (loss) per share:
As reported:
Basic ......................... $ (0.61) $ 0.74 $ 0.99
Diluted ....................... (0.61) 0.71 0.95
Pro forma:
Basic ......................... $ (0.67) $ 0.69 $ 0.98
Diluted ....................... (0.67) 0.66 0.94
The weighted average fair value of options granted in 1999, 1998 and 1997
was $7.60 per share, $7.63 per share, and $8.40 per share, respectively,
as estimated using the Black Scholes option-pricing model with the
following assumptions (for all years reported):
Risk free interest rate 5.95%
Expected dividend yield 0%
Expected stock volatility 45%
Expected option life 7 years
STOCK WARRANTS
The Company assumed obligations of outstanding Lunn common stock warrants
as of the merger on October 31, 1997. A summary of stock warrant
transactions for 1999, 1998
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<PAGE>
and 1997 follows (pre-merger amounts have been restated to reflect amounts
on a post-merger basis; shares are in thousands):
WEIGHTED
STOCK AVERAGE
WARRANTS EXERCISE
OUTSTANDING PRICE
----------- -----------
At December 31, 1996 .............................. -- $ --
Warrants assumed in merger ........................ 66 6.85
----------- -----------
At December 31, 1997 .............................. 66 6.85
Warrants exercised ................................ (2) 5.00
----------- -----------
At December 31, 1998 .............................. 64 6.91
Warrants expired .................................. (4) 15.00
----------- -----------
At December 31, 1999 .............................. 60 $ 6.37
=========== ===========
Certain warrant agreements contain anti-dilutive provisions providing for
certain adjustments in the exercise price and the number of shares to be
received upon exercise in the event of subsequent sales of stock by the
Company below the initial warrant exercise price.
EMPLOYEE STOCK PURCHASE PLAN
On October 29, 1998, the Company adopted the 1998 Advanced Technical
Products, Inc. Employee Stock Purchase Plan to encourage substantially all
employees of the Company to maintain in its employ and to have an
opportunity to acquire a proprietary interest in the Company. Under the
plan, employees may elect payroll withholdings to acquire shares of the
Company's common stock at a per share price reflecting fair market value
at the beginning or end of each calendar quarter, whichever is lower. The
Company has authorized 1,000,000 shares of common stock under the plan.
The plan was approved by the stockholders of the Company during 1999.
During 1999, approximately 20,000 shares were issued under the plan at a
weighted average price of $9.96. No shares were issued under the plan
prior to 1999.
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STOCKHOLDER RIGHTS PLAN
On March 3, 2000, the Company adopted a stockholder rights plan to assist
ATP's stockholders in realizing fair value and equal treatment in the
event of any attempted unsolicited takeover of the Company and to protect
the Company and its stockholders against coercive takeover tactics. Under
the plan, a dividend of one preferred stock purchase right was declared
for each share of common stock outstanding at the close of business on the
record date, March 10, 2000. No separate certificates evidencing the
rights will be issued unless and until they become exercisable. The rights
generally will not become exercisable until a person or group acquires 15
percent or more of ATP common stock in a transaction that is not approved
in advance by the board of directors. In that event, each right will
entitle the holder, other than the unapproved acquirer and its affiliates,
to acquire, by payment of the then-applicable exercise price, initially
$38, subject to adjustment, shares of ATP common stock with a market value
equal to two times the exercise price. In addition, if the rights were
triggered by such a non-approved attempted acquisition and ATP were
thereafter to be acquired in a merger in which all stockholders were not
treated alike, stockholders with unexercised rights, other than the
unapproved acquirer and its affiliates, would be entitled to purchase
common stock of the acquirer with a value of twice the exercise price of
the rights.
10. MANDATORILY REDEEMABLE PREFERRED STOCK
The Company has 1,000,000 shares of 8% cumulative and mandatorily
redeemable preferred stock outstanding at December 31, 1999 and 1998. In
case of liquidation, the holders of preferred stock will be paid out of
the assets of the Company in cash equal to $1.00 per share, plus any
accumulated and unpaid dividends, before the common stockholders.
The Company may, at its option, redeem any or all of the outstanding
shares of the preferred stock for cash equal to $1.00 per share, plus any
accumulated and unpaid dividends. The preferred shares are subject to
mandatory redemption at the above-stated value on the earlier of April 28,
2001 or the date on which occurs a change in the ownership of 50% or more
of the assets or the common stock of the Company.
11. RELATED-PARTY TRANSACTIONS
At December 31, 1999 and 1998, certain officers of the Company have
outstanding promissory notes in the aggregate amount of $134,865, which
were issued to the Company as consideration for the paid-in capital in
excess of par value for the shares of stock they own. Common shares of the
Company owned by each employee have been pledged as collateral to secure
the payment of the promissory notes. The notes carry an interest rate of
the lesser of 8% and the highest rate permitted by applicable law.
Principal and accrued interest payments are due in full upon maker's sale
of any pledged stock or on April 28, 2001, if earlier. The notes may be
repaid at any time at the option of the maker without penalty.
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<PAGE>
A director of the Company is also a managing director of Allen & Company,
Inc. ("Allen"), which rendered financial consulting services to the
Company in 1999, including the preparation of a fairness opinion in
connection with a proposed merger of ATP (see Note 17). The Company paid
Allen $150,000 in 1999 and has recorded a liability of $100,000 due to
Allen for financial consulting fees earned, but not paid as of December
31, 1999.
12. TECHNOLOGICAL EXPENDITURES
Technological expenditures, excluding reimbursed projects, for the years
ended December 31, 1999, 1998 and 1997 consisted of the following (in
thousands):
1999 1998 1997
------ ------ ------
Research and development ............. $ 808 $ 864 $1,063
Engineering and other ................ 370 138 654
------ ------ ------
Total .................... $1,178 $1,002 $1,717
====== ====== ======
The Company was also reimbursed $13.8 million, $11.3 million and $3.9
million under federally funded research and development contracts during
the years ended December 31, 1999, 1998 and 1997, respectively.
13. INCOME TAXES
The combined provision for U.S. federal and state income taxes for the years
ended December 31, 1999, 1998 and 1997 consisted of the following (in
thousands):
1999 1998 1997
------- ------- -------
Current ................................. $ 1,213 $ 2,520 $ 3,157
Deferred ................................ (2,287) (17) (523)
------- ------- -------
Total income tax expense (benefit) ...... $(1,074) $ 2,503 $ 2,634
======= ======= =======
The federal statutory tax rate for the years ended December 31, 1999, 1998
and 1997 is reconciled to the effective tax rate as follows:
1999 1998 1997
------ ------ ------
Federal statutory rate .............. 34.0% 34.0% 34.0%
Valuation allowance increase ........ (10.3) -- --
State and local taxes, net
of federal effect ................. 3.4 3.7 4.0
Other, net .......................... (1.7) 0.8 0.5
------ ------ ------
Effective tax rate .................. 25.4% 38.5% 38.5%
====== ====== ======
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<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999
and 1998 are as follows (in thousands):
1999 1998
------- -------
DEFERRED TAX ASSETS-
Excess of tax over book capitalized inventory costs . $ 347 $ 309
Reserves not deductible until paid .................. 3,321 1,985
Allowance for doubtful accounts ..................... 208 224
Other ............................................... 15 --
Net operating loss carryforwards .................... 2,603 1,013
------- -------
Total deferred tax assets ............ 6,494 3,531
DEFERRED TAX LIABILITIES-
Depreciation ........................................ 1,155 1,155
------- -------
NET DEFERRED TAX ASSET BEFORE VALUATION ALLOWANCE ...... 5,339 2,376
VALUATION ALLOWANCE .................................... (661) --
------- -------
NET DEFERRED TAX ASSET ................................. $ 4,678 $ 2,376
======= =======
The Company has net operating loss carryforwards of $5,711,000 which were
generated from Lunn operations prior to the merger. Such carryforwards may
be applied against future taxable income and expire at varying dates
between 2002 and 2011. As a result of the merger and the subsequent
ownership change of Lunn, the timing of the realization of the Company's
net operating loss carryforwards is subject to Section 382 of the Internal
Revenue Code ("Section 382"). Section 382 generally provides that, if a
corporation undergoes an ownership change, the amount of taxable income
that the corporation may offset with net operating loss carryforwards is
subject to an annual limitation. The Company's estimated annual limitation
under Section 382 is $1,020,000.
In addition, Alcore has generated an estimated net operating loss
carryforward of approximately $12.0 million for state income tax purposes.
Such carryforwards may be applied against future taxable income at the
state income tax level and expire in 2018. The valuation allowance of
$661,000 at December 31, 1999 represents a reserve for the state income
tax effect for all of the net deferred tax assets generated from the
Alcore losses. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal
of deferred tax assets and liabilities, projected future taxable income
and tax planning strategies in making this assessment. As of December 31,
1999, it is management's assessment that it is more likely than not that
the Company will realize the benefits of all the deductible differences
recorded at that date, with the exception of the potential tax benefits at
the state income tax level of the Alcore net operating loss carryforward.
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<PAGE>
14. EARNINGS (LOSS) PER SHARE
A reconciliation of the numerators and denominators used in calculating
basic and diluted earnings (loss) per share ("EPS") for the years ended
December 31, 1999, 1998 and 1997 follows (in thousands, except share
information):
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
NUMERATORS USED FOR BASIC AND DILUTED EPS
EPS:
Net income (loss) ....................... $ (3,160) $ 3,999 $ 4,208
Less: preferred stock dividends declared (80) (80) (80)
----------- ----------- -----------
Income (loss) available for common shares $ (3,240) $ 3,919 $ 4,128
=========== =========== ===========
DENOMINATORS USED FOR BASIC AND DILUTED EPS
BASIC EPS:
Weighted average number of common shares
outstanding ......................... 5,273,214 5,270,520 4,157,111
DILUTED EPS:
Add: assumed stock conversions, net of
assumed treasury stock purchases:
-stock options ...................... -- 220,589 198,379
-stock warrants ..................... -- 35,021 6,545
----------- ----------- -----------
Weighted average number of common
and common equivalent shares ........ 5,273,214 5,526,130 4,362,035
=========== =========== ===========
</TABLE>
No assumed stock conversions were added to the denominator used in the
diluted EPS calculation for 1999 because to do so would be antidilutive.
The total number of securities that could potentially dilute basic EPS in
the future was approximately 523,000.
15. ACCRUED EXPENSES
Accrued expenses at December 31, 1999 and 1998 consisted of the following
(in thousands):
1999 1998
------- -------
Payroll and other compensation ............ $ 5,800 $ 4,678
Medical expenses .......................... 1,002 587
Loss on operating lease obligation (note 6) 425 --
Interest expense .......................... 350 297
Other ..................................... 2,647 1,036
------- -------
Total ................ $10,224 $ 6,598
======= =======
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<PAGE>
16. OTHER NONCURRENT ASSETS
Other noncurrent assets as of December 31, 1999 and 1998 are summarized as
follows (in thousands):
1999 1998
------ ------
Goodwill, net of accumulated amortization of
$355 in 1999 and $230 in 1998 ................ $6,055 $6,180
Intangible asset - defined benefit pension plans . 816 956
Assets of non-qualified deferred compensation plan 839 765
Other .......................................... 651 579
------ ------
Total ............................ $8,361 $8,480
====== ======
17. CONTINGENCIES
On October 7, 1999, the New York Office of the Attorney General, on behalf
of the New York State Department of Environmental Conservation ("NYSDEC"),
sent a letter to the Company, claiming that Lunn is a potentially
responsible party ("PRPs") with respect to contamination at the Babylon
Landfill in Babylon, New York. NYSDEC alleges that Lunn sent waste to the
Babylon Landfill and that Lunn is jointly and severally liable under the
Comprehensive Environmental Response, Compensation and Liability Act for
NYSDEC's response costs in addition to interest, enforcement and future
costs. According to NYSDEC, there are currently 15 PRPs identified for the
Babylon Landfill. Lunn is seeking access to NYSDEC's files to determine
the extent of its liability, if any. The Company has not recorded any
liability for the contingency as of December 31, 1999.
On January 28, 2000, ATP and affiliates of Veritas Capital Fund, L.P.
("Veritas") entered into an Agreement and Plan of Merger pursuant to which
Veritas would acquire 100% of the outstanding stock of the Company (the
"Merger"). The agreement provides that the amount paid for each share of
the Company's stock shall be $12.75 in cash without interest and gives
Veritas the right to terminate the Merger at any time during a ten day
period (the "Optional Termination Period") after delivery of the audited
financial statements of ATP for the year ended December 31, 1999 (the
"Audited Financials"). If Veritas terminates the Merger during the
Optional Termination Period or because of ATP's failure to deliver the
Audited Financials by April 15, 2000, the Company must reimburse Veritas
for its expenses incurred in connection with the Merger up to a maximum
amount of $750,000. The Company has not recorded any liability for this
contingency as of December 31, 1999.
The Company has been notified of an investigation by the United States
Securities and Exchange Commission as a result of possible accounting and
financial reporting irregularities at Alcore. The Company and management
are cooperating fully, and because this investigation and the governmental
investigation referred to in note 2 are in the early stages, their outcome
is uncertain at this time.
55
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
56
<PAGE>
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Information Concerning Directors and Executive Officers
The Restated Certificate of Incorporation of the Company authorizes the
Company's Board to fix the number of directors from time to time. The number of
directors is currently established at eight. The Restated Certificate of
Incorporation of the Company also provides for three classes of directors,
designated Class I, Class II and Class III, each currently having three-year
terms of office. Each class of directors is to consist of, as nearly as
possible, one-third of the total number of directors constituting the entire
Company's Board. Except for directors elected to fill vacancies on the Company's
Board (whether created by death, resignation, removal or expansion of the
Company's Board), the directors of each class will be elected for a term of
three years and until their successors have been elected and qualified.
NAME AGE POSITION
---- --- --------
Garrett L. Dominy 54 President, Chief Executive Officer and
Chief Financial Officer, Director
James C. Carter 64 Chairman of the Board, Director
Sam P. Douglass 67 Director
John M. Simon 57 Director
Gary L. Forbes 56 Director
Alan W. Baldwin 63 Director
Robert C. Sigrist 67 Director
Lawrence E. Wesneski 52 Director
Class I Directors - Terms Expiring 2001
ALAN W. BALDWIN. Mr. Baldwin is a member of the Audit Committee. Mr. Baldwin has
been President of Wren Associates, a business consulting firm, since August
1999. From March 1994 through October 31, 1997, Mr. Baldwin served as the
Chairman of the Board and Chief Executive Officer of Lunn. Mr. Baldwin was Vice
President of Lunn from December 1993 to March 1994 and was an independent
consultant from 1991 to March 1994. Mr. Baldwin served as a director of Lunn
since 1993.
ROBERT C. SIGRIST. Mr. Sigrist is a member of the Nominating Committee. Mr.
Sigrist served as a director of TPG from August 1995 until October 1997. Prior
to that time, Mr. Sigrist served as the President of the Brunswick Technical
Group of Brunswick Corporation for seven years.
LAWRENCE E. WESNESKI. Mr. Wesneski is a member of the Audit Committee and
Nominating Committee. Mr. Wesneski has been President and Chief Executive
Officer of Hoak Breedlove Wesneski & Co. since August 1996. Mr. Wesneski has
been engaged in the investment banking industry for approximately 21 years.
Prior to the formation of Hoak Breedlove Wesneski & Co., Mr. Wesneski was
president and managing director of Breedlove Wesneski & Co. for ten years. Mr.
Wesneski was formerly head of the Southwest Corporate Finance Department of Bear
Stearns & Co., Inc., a Managing Director of Corporate Finance at Eppler, Guerin
& Turner, Inc., and a member of the Corporate Finance Department at Dean Witter
Reynolds, Inc. Mr. Wesneski served as a director of TPG from its inception in
1995 until the Lunn/TPG Merger.
Class II Directors - Terms Expiring 2002
GARRETT L. DOMINY. Mr. Dominy is the President, Chief Executive Officer and
Chief Financial Officer of the Company. Through January 2000, Mr. Dominy served
as the Executive Vice President,
57
<PAGE>
Chief Financial Officer, Assistant Secretary and Treasurer of the Company. Mr.
Dominy served as the Chief Financial Officer, Executive Vice President,
Secretary and Treasurer of TPG from June 1995 until the Lunn/TPG Merger. Prior
to that time, Mr. Dominy was an audit partner of Arthur Andersen Worldwide. Mr.
Dominy is a Certified Public Accountant.
SAM P. DOUGLASS. Mr. Douglass is a member of the Compensation Committee. Mr.
Douglass served as a director of TPG from its inception in 1995 until the
Lunn/TPG Merger. Mr. Douglass has been Chairman of the Board and Chief Executive
Officer of Equus Capital Corporation, the managing general partner of Equus
Equity Appreciation Fund L.P., since its formation in September 1983. Mr.
Douglass has also been Chairman of the Board and Chief Executive Officer of
Equus II Incorporated, an investment company that trades as a closed-end fund on
the American Stock Exchange, and Equus Capital Management Corporation, since
their formation in 1983. Since 1978, Mr. Douglass has served as Chairman and
Chief Executive Officer of Equus Corporation International, an NYSE corporation
engaged in a variety of investment activities.
Class III Directors - Terms Expiring 2000
JAMES S. CARTER. Mr. Carter is the Chairman of the Board. Mr. Carter served as
President and Chief Executive Officer of the Company through January 2000. Mr.
Carter served as the President and Chief Executive Officer and as a director of
TPG from its inception in 1995 until the Lunn/TPG Merger. Mr. Carter served as
an industry consultant from 1993 to 1995 and Vice President and General Manager
of the Composite Structures Division of Alcoa Composites, Inc. from 1989 to
1993. Prior to joining Alcoa Composites, Inc., Mr. Carter was director of
Composites with Northrop Corporation for the B-2 Aircraft Group from 1980 to
1989. Mr. Carter began his career in the aerospace industry with the Brunswick
Technical Group of Brunswick Corporation in 1956.
GARY L. FORBES. Mr. Forbes is a member of the Audit Committee and the
Compensation Committee. Mr. Forbes served as a director of TPG from its
inception in 1995 until the Lunn/TPG Merger. Mr. Forbes has been a Vice
President of Equus Capital Corporation, the managing general partner of Equus
Equity Appreciation Fund L.P. since November 1991. He has been a Vice President
of Equus II Incorporated and Equus Capital Management Corporation since December
1991. Mr. Forbes is a director of Consolidated Graphics, Inc. (a NYSE commercial
printing company), Drypers Corporation (a NASDAQ National Market manufacturer of
disposable diapers), and NCI Building Systems, Inc. (a NYSE manufacturer of
pre-engineered metal buildings).
JOHN M. SIMON. Mr. Simon is a member of the Compensation Committee. Mr. Simon
has been Managing Director of Allen & Company Incorporated for more than five
years. Mr. Simon is a director of Immune Response Corporation and Neurogen
Corporation, both of which are NASDAQ National Market companies. Mr. Simon was
originally elected a director of Lunn in 1993.
Meetings of the Company's Board
The Company's Board met seven times in 1999, and the average attendance at the
aggregate number of Company's Board and committee meetings during such time was
93%. No Director attended fewer than 75% of the aggregate number of meetings of
the Company's Board and the committees on which he or she served held during the
period for which he or she was a Director.
Committees of the Company's Board
The Audit Committee, which is composed entirely of Directors who are not
officers or employees of the Company, reviews the Company's accounting
functions, operations and management and the adequacy
58
<PAGE>
and effectiveness of the internal controls and internal auditing methods and
procedures of the Company. The Audit Committee recommends to the Company's Board
the appointment of the independent public accountants for the Company. In
connection with its duties, the Audit Committee periodically meets privately
with the independent public accountants. The Audit Committee met one time in
1999.
The Compensation Committee, which is composed entirely of Directors who are not
officers or employees of the Company, reviews and acts with respect to pension,
compensation and other employee benefit plans, approves the salary and
compensation of officers of the Company other than the five most highly
compensated officers and makes recommendations to the Company's Board concerning
the salary and compensation of the Chairman of the Board, President and Chief
Executive Officer and any other officer who is or would be among the five
highest paid officers of the Company. The Compensation Committee met one time in
1999. The Nominating Committee advises and makes recommendations to the
Company's Board on all matters concerning the Company's Board procedures and
directorship practices.
The Nominating Committee reviews and makes recommendations to the full Company's
Board concerning the qualifications and selection of candidates as nominees for
election as Directors. In recommending candidates, this committee seeks
individuals who possess broad training and experience in business, finance, law,
government, technology, education or administration and considers factors such
as personal attributes, geographic location and special expertise complementary
to the background and experience of the Company's Board as a whole. The
Nominating Committee met one time in 1999. The committee memberships of each
Director are set forth in his or her biographical information above.
Executive Officers
The following information indicates the position, age and business experience of
the executive officers of the Company. There are no family relationships between
any of the executive officers of the Company.
NAME AGE POSITION
---- --- --------
H. Dwight Byrd 62 Vice President, President of Marion Composites
Rick Rashilla 40 President of Lincoln Composites
Brian Hodges 39 Vice President and President of Intellitec
Michael Kohler 35 Vice President and President of Lunn Industries
H. DWIGHT BYRD. Mr. Byrd has been a Vice President of the Company and President
of the Marion Composites Division since the Lunn/TPG Merger. From April 1995
until the Lunn/TPG Merger, Mr. Byrd served as a Vice President of TPG and
President of the Marion Composites Division. During the period from April 1992
to April 1995, Mr. Byrd served as General Manager of Brunswick Corporation's
Marion, Virginia division. During 1991 to April 1992, Mr. Byrd served as
Director of Manufacturing for Brunswick's Mercury Marine Division in Stillwater,
Oklahoma.
RICK RASHILLA. Mr. Rashilla has been President of Lincoln Composites since
January 1999. Prior to January 1999, Mr. Rashilla served as Lincoln Composites'
Vice President and General Manager. Mr. Rashilla served as Executive Director of
Business Development along with other senior management positions for
Brunswick's Technical Group between 1983 and 1995. These prior assignments
included senior positions in the Company's diversification projects into Natural
Gas Vehicle Fuel Tanks and Oil
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<PAGE>
and Gas related products. From 1989 to 1993, Mr. Rashilla was assigned to
Brunswick's Marion, Virginia operation.
BRIAN HODGES. Mr. Hodges has been Vice President of the Company and President of
Intellitec since May 1998. Prior to May 1998, Mr. Hodges served as Intellitec's
Vice President and General Manager for Defense Products and Vice President of
Operations. Mr. Hodges served as Director of Operations, along with other senior
management positions for Brunswick's Technical Group between 1987 and 1995.
Previous to that, Mr. Hodges held supervisory and engineering positions at both
Honeywell, Inc. and Texas Instruments, Inc.
MICHAEL KOHLER. Mr. Kohler has been Vice President of the Company and President
of Lunn Industries since the Lunn/TPG Merger. From 1994 to 1997, Mr. Kohler
served as Director of Engineering for Lunn and, for over three years prior to
1994, served as a quality assurance manager and quality engineer for Lunn.
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities, to file initial reports
of ownership and reports of changes in ownership with the Securities and
Exchange Commission (the "SEC") and the NASDAQ Stock Market. Such persons are
required by the SEC to furnish the Company with copies of all Section 16(a)
forms they file. Based solely on its review of the copies of such forms received
by it with respect to fiscal 1999, or written representations from certain
reporting persons, the Company believes that all filing requirements applicable
to its directors, officers and persons who own more than 10% of a registered
class of the Company's equity securities have been complied with, except as
follows: Mr. Hodges became an executive officer of the Company on January 1,
1999, but did not report his holdings on a Form 5 until February 15, 1999. Mr.
Wesneski reported a transaction on a Form 5 filed on February 17, 1999 that
should have been filed on February 15, 1999.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table presents information concerning the compensation of the
Chief Executive Officer and each of the other most highly compensated executive
officers during the 1999 fiscal year (collectively, the "Named Executive
Officers") for services rendered in all capacities to the Company for the fiscal
year ended December 31,1999, as well as the previous two fiscal years:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- --------------------------------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYMENTS COMPENSATION
NAME YEAR ($) ($) ($) ($) ($) ($) ($)(1)
---- ---- -------- -------- ------------ ---------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Garrett L. Dominy, 1999 $274,615 $ 0 $ 0 0 $ 6,491
President, Chief Executive Officer 1998 $240,577 $ 35,000 $ 0 0 $ 6,828
and Chief Financial Officer 1997 $193,259 $ 0 $ 0 37,000 $ 2,302
James S. Carter, 1999 $349,539 $ 0 $ 0 0 $ 8,843
Chairman 1998 $305,192 $ 50,000 $ 0 0 $ 9,914
1997 $246,400 $ 0 $ 0 41,500 $ 19,466
H. Dwight Byrd, 1999 $190,962 $ 0 $ 10,551 0 $ 6,204
Vice President 1998 $175,264 $ 0 $ 1,853 0 $ 6,426
1997 $163,427 $ 0 $ 1,926 10,000 $ 2,851
Edward Kiley, (2) 1999 $157,500 $ 0 $ 14,537 0 $ 4,276
Vice President 1998 $150,000 $ 0 $ 12,125 0 $ 3,663
1997 $127,412 $ 0 $ 6,000 22,500 $ 2,405
Brian W. Hodges, 1999 $137,335 $ 0 $ 3,909 0 $ 2,780
Vice President 1998 $116,076 $ 0 $ 1,846 0 $ 2,351
1997 $101,510 $ 0 $ 0 10,000 $ 902
</TABLE>
- -----------
(1) "All Other Compensation" for 1999 for the Named Executive Officers is
comprised of the following: (a) Company contributions to retirement
savings plans for Messrs. Dominy ($5,000), Carter ($5,000), Byrd ($4,030),
Kiley ($3,321) and Hodges ($2,660), and (b) the taxable amount of life
insurance premiums paid by the Company for Messrs. Dominy ($1,491), Carter
($3,843), Byrd ($2,174), Kiley ($955) and Hodges ($120).
(2) As of the date of the filing of this Annual Report on Form 10-K, Mr. Kiley
is no longer employed by the Company.
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<PAGE>
Option Grants During 1999 Fiscal Year
The Company did not grant any employee stock options to the Named Executive
Officers during 1999, nor did the Company grant any stock appreciation rights
during 1999.
Option Exercises During 1999 Fiscal Year and Fiscal Year End Option Values
The following table sets forth the aggregate dollar value of shares acquired
upon exercise of stock options during 1999, and in-the-money, unexercised
options held at the end of 1999 by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
SHARES VALUE FISCAL YEAR-END AT FISCAL YEAR END($)
ACQUIRED ON REALIZED ---------------------------- ----------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Garrett L. Dominy ...................... 0 0 14,800 22,200 $ 0 $ 0
James S. Carter ........................ 0 0 16,600 24,900 $ 0 $ 0
H. Dwight Byrd ......................... 0 0 4,000 6,000 $ 0 $ 0
Edward Kiley ........................... 2,500 $ 21,875 21,000 1,500 $ 116,750 $ 0
Brian W. Hodges ........................ 0 0 12,967 11,978 $ 121,301 $ 80,867
</TABLE>
Compensation Of Directors
Directors who are not employees of the Company receive $20,000 annually.
Additionally, non-employee directors who have not previously served on the
Company's Board receive a grant under the Advanced Technical Products, Inc.
Non-Employee Director Stock Option Plan (the "Non-Employee Director Plan") of
options to purchase 7,500 shares of the Company Common Stock upon commencement
of their term, and continuing non-employee directors receive a grant under the
Non-Employee Director Plan of options to purchase 1,000 shares of the Company
Common Stock immediately following each annual meeting of the stockholders.
Employment Agreements
The Company and each of James S. Carter and Garrett L. Dominy have amended the
employment agreements between the Company and each executive. Pursuant to the
amended employment agreements, Mr. Carter will serve as Chairman of the Board
and director of the Company, and Mr. Dominy will serve as President, Chief
Executive Officer and Chief Financial Officer of the Company. Mr. Carter will
serve as Chairman of the Board and a director of the Company until June 30, 2000
and will receive a biweekly salary based on $350,000 per year. After June 30,
2000, Mr. Carter's employment with the Company will cease, and Mr. Carter shall
receive a severance amount equal to his salary, based on $350,000 per year
payable biweekly for the period commencing July 1, 2000 and ending on December
31, 2001. Mr. Dominy's employment agreement provides for a base salary of
$325,000 per year as of February 1, 2000 subject to an annual increase based, at
a minimum, on the consumer price index for the previous year; provided that from
February 1, 2000 through the earlier of (i) the date on which the Company
secures substantial additional financing or (ii) the date on which the Company
is sold or otherwise acquired,
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<PAGE>
including, without limitation the consummation of the merger with affiliates of
the Veritas Capital Fund, LP (a "Payment Event") Mr. Dominy shall be paid out
only that pro rata amount of his annual salary based on $275,000 per year and
the remaining pro rata amount based on $50,000 per year shall be accrued by the
Company and paid to Mr. Dominy after consummation of a Payment Event. Mr. Dominy
is also entitled to receive, subject to the discretion of the Company's Board,
an annual bonus of up to 75% of his then annual base salary. Mr. Dominy's
employment agreement is terminable by the Company with or without cause;
provided that if the Company terminates the employment of Mr. Dominy without
cause, Mr. Dominy will be entitled to continue to receive his base salary and
incentive bonus for 18 months; provided, however, if the sale of the Company
other than to the affiliates of Veritas Capital Fund, LP is consummated or
agreed pursuant to a definitive agreement prior to July 30, 2000, the 18 month
period will be extended to 36 months. Mr. Dominy's employment agreement also
provides that if there is a "change in control" of the Company or a constructive
termination of Mr. Dominy without cause, then Mr. Dominy is entitled to a
lump-sum payment of a specified amount within 60 days of the effective date of
termination. Following any termination of Mr. Dominy's employment for cause or
upon Mr. Dominy's breach of the terms of his employment agreement, it is
expected that Mr. Dominy will be subject to non-disclosure and non-competition
covenants for up to two years.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Company's Board is responsible for determining
executive compensation. The Compensation Committee is currently comprised of
three non-employee directors, Mr. Douglass, Mr. Forbes and Mr. Simon.
Report of the Compensation Committee
The Compensation Committee of the Company's Board (the "Committee"), which
consists of three independent outside directors, reviews and approves the
Company's total compensation philosophy and programs covering executive officers
and key management employees. The Committee reviews the performance levels of
executive officers and determines the annual base salaries and incentive awards
to be paid.
The Company's executive compensation program is designed to help the Company
attract, motivate and retain the executive resources that the Company needs in
order to maximize its return to stockholders. Specifically, the goals of the
Company's
1. align executive compensation with the interests of the stockholders;
2. provide compensation packages that are consistent with competitive
market norms for companies similar in size, activity and complexity
to the Company;
3. link pay to Company, operating group and individual performance; and
4. achieve a balance between incentives for short-term and long-term
performance.
The principal elements of compensation provided to executive and other officers
of the Company historically have consisted of a base salary, annual incentives
and stock option grants. The Committee estimates an executive's level of total
compensation based on information drawn from a variety of sources, including
proxy statements, special surveys and compensation consultants. Total
compensation is targeted to be competitive at the median level of a peer group
of comparable companies.
63
<PAGE>
Base Salary
Salaries for executive officers are determined by the Committee annually, based
on review of each executive's level of responsibility, experience, expertise and
sustained corporate, business unit and individual performance. The Committee
exercises its judgment based upon the above criteria and does not apply a
specific formula or assign a weight to each factor considered.
Annual Incentive Compensation
Annual incentive awards are designed to focus management's attention on the
performance of the Company, particularly in the short-term. At the beginning of
each year, the Company's Board establishes performance goals of the Company for
that year, which may include target increases in sales, net income and earnings
per share, as well as more subjective goals. Incentive awards are based upon the
achievement of one or more of these goals.
Stock Option Program
Each executive officer is eligible to receive a grant of stock options with an
exercise price equal to the fair market value of the stock on the grant date.
Stock options are designed to focus executives on the long-term performance of
the Company by enabling executives to share in any increases in value of the
Company's stock. Accordingly, the Committee believes that the grant of stock
options is a significant method of aligning management's long-term interests
with those of the stockholders of the Company.
Chief Executive Officer Compensation
Mr. Dominy, the President, Chief Executive Officer and Chief Financial Officer
of the Company, is entitled to receive a minimum annual salary of $325,000
pursuant to his employment agreement with the Company. Subject to this minimum,
Mr. Dominy's base salary rate may be adjusted at the discretion of the Company's
Board based upon such factors as the Company's Board deems appropriate. Mr.
Dominy's base salary for fiscal 1999 was $275,000. The Committee believes that
Mr. Dominy's total compensation is near the median for the chief executive
officers of the Company's peer group.
This report is submitted by the members of the Compensation Committee.
SAM P. DOUGLASS
GARY L. FORBES
JOHN M. SIMON
64
<PAGE>
Stock Performance Chart
Set forth below is a table comparing the cumulative total returns (assuming an
investment of $100 on December 31, 1994 and reinvestment of dividends) of the
Company, the Standard and Poor's 500 Composite Stock Index (the "S&P 500 Index")
and the Aerospace/Defense 500 Index. The value of the investment in the Company
for the period reflected is based on the market price of the stock of Lunn
restated for the 10-to-1 reverse stock split effected by the Lunn/TPG Merger.
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
The Company .................... 100.00 149.9 149.9 212.0 146.0 223.0
S&P 500 Index .................. 100.00 137.5 168.9 225.2 289.4 350.3
Aerospace/Defense 500 Index .... 100.00 165.3 220.9 227.3 174.3 169.9
</TABLE>
65
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND OF MANAGEMENT
The following table sets forth, as of May 19, 2000, the number of shares of the
Company Common Stock and the 8% Cumulative Redeemable Preferred Stock, par value
$1.00 per share, of the Company (the "the Company Preferred Stock") beneficially
owned by (1) each person or group known by the Company to own beneficially more
than 5% of the outstanding shares of the Company Common Stock, (2) each director
and each nominee for director, (3) the Company's Chief Executive Officer and
each of the Company's four other most highly compensated executive officers, and
(4) all directors and executive officers as a group. Except as otherwise
indicated, each of the persons or groups named below has sole voting power and
investment power with respect to the Company Common Stock and the Company
Preferred Stock.
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
--------------------- ---------------------
NAME OF BENEFICIAL OWNER OR GROUP SHARES PERCENT SHARES PERCENT
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Equus Corporation International (1)(2) ..... 267,602 5.09% 913,043 91.30%
Equus Capital Management Corporation (1)(2) 267,602 5.09% 913,043 91.30%
Equus Equity Appreciation Fund, L.P. (2) ... -- -- 913,043 91.30%
Alan W. Baldwin (3) ........................ 56,000 1.05% -- --
H. Dwight Byrd (4) ......................... 203,438 3.82% -- --
James S. Carter (5) ........................ 312,387 5.87% -- --
Garrett L. Dominy (6) ...................... 173,006 3.25% -- --
Sam P. Douglass (1)(2)(7)(8) ............... 398,200 7.48% 913,043 91.30%
Gary L. Forbes (8) ......................... 67,219 1.26% -- --
Robert C. Sigrist (8) ...................... 62,657 1.18% 21,739 2.17%
John M. Simon (9) .......................... 38,550 * -- --
Lawrence E. Wesneski (8)(10) ............... 147,977 2.78% 15,946 1.59%
Brian W. Hodges (11) ....................... 16,185 * -- --
Nicholas - Applegate Capital Management (12) 582,200 10.93% -- --
All directors and executive officers
as a group (12 persons) (13) ............ 1,493,268 28.04% 37,685 3.77%
</TABLE>
* Less than one percent.
- ------
(1) Equus Capital Management Corporation ("ECMC") owns beneficially and of
record 11,750 shares of the Company Common Stock. ECMC may also be deemed
to beneficially own 255,852 shares of the Company Common Stock that are
owned beneficially and of record by Equus Capital Corporation ("ECC"), a
wholly-owned subsidiary of ECMC. ECMC disclaims beneficial ownership of
these shares. Equus Corporation International ("ECI") may be deemed to own
the 267,602 shares that are beneficially owned by ECMC as a result of
ECI's ownership of 80% of the common stock of ECMC. ECI disclaims
beneficial ownership of those shares.
(2) Equus Equity Appreciation Fund, L.P. ("EEAF") owns beneficially and of
record 913,043 shares of the Company Preferred Stock. ECMC and ECI may be
deemed to beneficially own the 913,043 shares of the Company Preferred
Stock owned by EEAF as a result of the relationship described in (1)
above. Each of ECMC and ECI disclaim beneficial ownership of these shares.
In addition, Mr. Douglass may be deemed to beneficially own the 913,043
shares of the Company Preferred Stock that ECI may be deemed to own as a
result of the relationship described in (7) below. Mr. Douglass disclaims
beneficial ownership of these shares.
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<PAGE>
(3) Includes 50,000 shares of the Company Common Stock that may be acquired
within 60 days of May 19, 2000 upon exercise of options granted by the
Company and 6,000 shares of the Company Common Stock that may be acquired
within 60 days of May 19, 2000 upon exercise of options granted pursuant
to the Non-Employee Director Plan.
(4) Includes 197,191 shares of the Company Common Stock held by the Harvey
Dwight Byrd, Sr. Revocable Trust DTD, which Mr. Byrd may be deemed to own
as a settlor and trustee of such trust. Mr. Byrd disclaims beneficial
ownership of these shares. In addition, includes 438 shares purchased
through the Purchase Plan and 4,000 shares of the Company Common Stock
that may be acquired within 60 days of May 19, 2000 upon exercise of
options granted pursuant to the 1997 Advanced Technical Products, Inc.
Stock Option Plan (the "Employee Plan").
(5) Includes 16,600 shares of the Company Common Stock that may be acquired
within 60 days of May 19, 2000 upon exercise of options granted pursuant
to the Employee Plan.
(6) Includes 14,800 shares of the Company Common Stock that may be acquired
within 60 days of May 19, 2000 upon exercise of options granted pursuant
to the Employee Plan and 453 shares purchased through the Purchase Plan.
(7) Includes 267,602 shares of the Company Common Stock that each of the
Douglass Trust IV, FBO Preston Douglass, Jr. and the Douglass Trust IV,
FBO Brooke Douglass (collectively, the "Douglass Trusts") that may be
deemed to beneficially own as a result of their ownership of all of the
outstanding common stock of ECI. Mr. Douglass is the trustee of the
Douglass Trusts. Mr. Douglass, for himself and as trustee of the Douglass
Trusts, disclaims beneficial ownership of such shares. In addition,
includes 54,112 shares of the Company Common Stock that are owned of
record by the Douglass Trust IV, FBO Preston Douglass, Jr. and 54,112
shares of the Company Common Stock that are owned of record by the
Douglass Trust IV, FBO Brooke Douglass. Mr. Douglass disclaims beneficial
ownership of these shares. In addition, includes 8,187 shares of the
Company Common Stock that are owned of record by the Tiel Trust, FBO Sam
P. Douglass and 8,187 shares of the Company Common Stock that are owned of
record by the Tiel Trust, FBO Paula T. Douglass. Mr. Douglass disclaims
beneficial ownership of these shares.
(8) Includes 6,000 shares of the Company Common Stock that may be acquired
within 60 days of May 19, 2000 upon exercise of options granted under the
Non-Employee Director Plan.
(9) Includes 32,050 shares of the Company Common Stock that are owned of
record by Allen & Company, Inc. Mr. Simon disclaims beneficial ownership
of these shares. In addition, includes 1,500 shares of the Company Common
Stock that may be acquired within 60 days of May 18, 2000 upon exercise of
options granted by ATP and 5,000 shares that may be acquired within 60
days of May 18, 2000 upon exercise of options granted under the
Non-Employee Director Plan.
(10) Includes 43,382 shares of the Company Common Stock held directly by Mr.
Wesneski through a SEPIRA and 98,595 shares held by Breedlove & Wesneski,
L.P., of which Mr. Wesneski is a general partner.
(11) Includes 15,956 shares of the Company Common Stock that may be acquired
within 60 days of May 19, 2000 upon exercise of options granted pursuant
to the Employee Plan and 229 shares purchased through the Purchase Plan.
(12) Based upon a Schedule 13G dated February 10, 2000.
(13) Includes 17,439 shares of the Company Common Stock which may be acquired
within 60 days of May 19, 2000 pursuant to the exercise of options.
67
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 28, 1995, TPG loaned James S. Carter, then its President and Chief
Executive Officer, $74,925 to help fund Mr. Carter's acquisition of 35,625
shares of the common stock of TPG, which were then converted into 295,787 shares
of the common stock of the Company. Mr. Carter executed a promissory note in
favor of TPG, bearing interest at 8% per annum, the principal and interest of
which mature on April 28, 2001. The promissory note from Mr. Carter is secured
by a stock pledge agreement pursuant to which Mr. Carter pledged his shares to
TPG. As of December 31, 1999, an aggregate of $107,371 of principal and accrued
and unpaid interest were due and owing under such note.
On June 1, 1995, TPG loaned Garrett L. Dominy, then its Executive Vice President
and Chief Financial Officer, $39,960 to help fund Mr. Dominy's acquisition of
19,000 shares of the common stock of TPG, which were then converted into 157,753
shares of the common stock of the Company. Mr. Dominy executed a promissory note
in favor of TPG, bearing interest at 8% per annum, the principal and interest of
which mature on April 28, 2001. The promissory note from Mr. Dominy is secured
by a stock pledge agreement pursuant to which Mr. Dominy pledged his shares to
TPG. As of December 31, 1999, an aggregate of $56,902 of principal and accrued
and unpaid interest were due and owing under such note.
The Company has engaged Allen, an investment bank of which John Simon is a
Managing Director, to act as its financial advisor in connection with the
potential Veritas Merger. Pursuant to the terms of such engagement, Allen is to
receive a fee of $1,250,000 and the reimbursement of its fees and expenses.
68
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
Independent auditor's report
Consolidated balance sheets at December 31, 1999 and 1998
Consolidated statements of operations for the years ended December 31,
1999, 1998 and 1997
Consolidated statements of comprehensive income (loss) for the years ended
December 31, 1999, 1998 and 1997
Consolidated statements of cash flows for the years ended December 31,
1999, 1998 and 1997
Notes to consolidated financial statements
2. Financial Statement Schedules:
None
69
<PAGE>
3. Exhibits:
EXHIBIT
NO. DESCRIPTION
- ------- ----------------------------------------------------------------------
2.1 Agreement and Plan of Merger dated June 6, 1997 by and between Lunn
Industries, Inc. and TPG Holdings, Inc., as amended by Amendment to
Agreement and Plan of Merger dated August 22, 1997 by and between Lunn
Industries, Inc. and TPG Holdings, Inc. (exhibits and schedules
omitted) (incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated November 14, 1997).
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3 to the Company's Quarterly
Report on Form 10-QSB for the period ended September 30, 1997).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the
Company's Quarterly Report on Form 10-QSB for the period ended
September 30, 1996).
10.1 Lease covering the Jessup, Maryland Plant (incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended December
31, 1992).
10.2 Lease for the Company's facilities located in Glen Cove, New York dated
January 1, 1995 between Grill Leasing Corp. and Lunn Industries, Inc.
(incorporated by reference to Exhibit 10.12 to the Company's Quarterly
Report on Form 10-QSB for the period ended March 31, 1995).
10.3 Amendment to the Company's 1994 Stock Incentive Plan adopted at the
1996 Annual Shareholders Meeting on September 26, 1996 (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1996).
10.4 Engagement letter dated February 21, 1996 between the Company and J.E.
Sheehan & Co., Inc. for the placement of 3.5 million shares of the
Company's common stock in a private placement (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-QSB for period ended March 31, 1996).
10.5 Credit Agreement dated November 22, 1996 between Lunn Industries, Inc.
and Alcore, Inc. and First Union National Bank of Maryland
(incorporated by reference to Exhibit 10.26 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996).
10.6 Promissory Note dated November 15, 1996 payable to the order of First
Union National Bank of Maryland (incorporated by reference to Exhibit
10.27 to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996).
10.7 Security Agreement dated November 22, 1996 between Lunn Industries,
Inc. and Alcore, Inc. and First Union National Bank of Maryland
(incorporated by reference to Exhibit 10.28 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996).
10.8 Loan Agreement dated as of May 1, 1997 between Maryland Industrial
Development Authority and Alcore, Inc. (incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K dated June 2,
1997).
10.9 Trust Indenture dated as of May 1, 1997 by and among Maryland
Industrial Development Financing Authority, First Union National Bank
of Virginia and Branch Banking and Trust Company (incorporated by
reference to Exhibit 10.3 to the
70
<PAGE>
Company's Current Report on Form 8-K dated June 2, 1997).
10.10 Promissory Note dated May 15, 1997 payable to Maryland Industrial
Development Financing Authority for the sum of $2.6 million
(incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated June 2, 1997).
10.11 Guaranty Agreement dated May 1, 1997 made by Lunn Industries, Inc. in
favor of First Union National Bank of North Carolina (incorporated by
reference to Exhibit 10.4 to the Company's Current Report on Form 8-K
dated June 2, 1997).
10.12 Letter of Credit and Reimbursement Agreement by and between Alcore,
Inc. and First Union National Bank of North Carolina dated May 1, 1997
(incorporated by reference to Exhibit 10.5 to the Company's Current
Report on Form 8-K dated June 2, 1997).
10.13 Security Agreement dated as of May 1, 1997 by and among Alcore, Inc.,
Lunn Industries, Inc., First Union Bank of North Carolina, The Maryland
Industrial Development Financing Authority and First Union National
Bank of Maryland (incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K dated June 2, 1997).
10.14 Loan and Security Agreement dated December 27, 1996, by and among Fleet
Capital Corporation and Technical Products Group, Inc., Marion
Properties, Inc., Deland Properties, Inc. and Lincoln Properties, Inc.
(incorporated by reference to Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.15 First Amendment to Loan and Security Agreement dated June 10, 1997, by
and among Fleet Capital Corporation and Technical Products Group, Inc.,
Marion Properties, Inc., Deland Properties, Inc. and Lincoln
Properties, Inc. (incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997).
10.16 Second Amendment to Loan and Security Agreement dated October 31, 1997,
by and among Fleet Capital Corporation and Technical Products Group,
Inc., Marion Properties, Inc., Deland Properties, Inc. and Lincoln
Properties, Inc. (incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997).
10.17 Secured Promissory Note payable to Fleet Capital Corporation executed
by Technical Products Group, Inc., Marion Properties, Inc., Deland
Properties, Inc. and Lincoln Properties, Inc. (incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.18 Equipment Promissory Note payable to Fleet Capital Corporation executed
by Technical Products Group, Inc., Marion Properties, Inc., Deland
Properties, Inc. and Lincoln Properties, Inc. (incorporated by
reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.19 Form of Commercial Net Building and Ground Lease of Lincoln Air Park
West by and between Brunswick Corporation and Airport Authority of the
City of Lincoln, Nebraska, together with form of Lease Extension
Agreement, regarding various facilities of the Lincoln Composites
Division located in Lincoln, Nebraska
71
<PAGE>
(incorporated by reference to Exhibit 10.19 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.20 Lease dated October 15, 1997 by and between LPR Partnership and
Technical Products Group, Inc., through the Lincoln Composites
Division, regarding premises located in Lincoln, Nebraska (incorporated
by reference to Exhibit 10.20 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.21* Amended and Restated Employment Agreement dated November 1, 1997 by and
between the Company and James S. Carter (incorporated by reference to
Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.22* Amended and Restated Employment Agreement dated November 1, 1997 by and
between the Company and Garrett L. Dominy (incorporated by reference to
Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.23* 1997 Advanced Technical Products, Inc. Stock Option Plan (incorporated
by reference to Exhibit 10.23 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.24* Form of Incentive Stock Option Agreement for options granted under
Advanced Technical Products, Inc. Stock Option Plan (incorporated by
reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.25* Advanced Technical Products, Inc. Non-Employee Directors Stock Option
Plan (incorporated by reference to Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.26* Form of Nonqualified Stock Option Agreement for options granted under
Advanced Technical Products, Inc. Non-Employee Directors Stock Option
Plan (incorporated by reference to Exhibit 10.26 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.27* Technical Products Group, Inc. Deferred Compensation Plan (incorporated
by reference to Exhibit 10.27 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.28* Rabbi Trust Agreement executed in connection with Technical Products
Group, Inc. Deferred Compensation Plan (incorporated by reference to
Exhibit 10.28 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.29 Lease Agreement dated January 21, 1998 by and between FRP Lakeside
L.P., as landlord, and Alcore, Inc., as tenant (incorporated by
reference to Exhibit 10.29 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended April 3, 1998).
10.30 Lease Agreement dated April 14, 1998 by and between Mansell Overlook
200, LLC, and Advanced Technical Products, Inc. (incorporated by
reference to Exhibit 10.29 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended April 3, 1998).
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<PAGE>
10.31 Amended and Restated Loan and Security Agreement dated March 31, 1998
between Advanced Technical Products, Inc., Alcore,Inc., Technical
Products Group, Inc., Marion Properties, Inc., Deland Properties, Inc.
and Lincoln Properties, Inc., collectively, as borrower, and Fleet
Capital Corporation, as lender (incorporated by reference to Exhibit
10.31 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended July 3, 1998).
10.32 First Amendment to Amended and Restated Loan and SecurityAgreement
dated June 26, 1998 by and between Advanced Technical Products, Inc.,
Alcore, Inc., Technical Products Group, Inc., Marion Properties, Inc.,
Deland Properties, Inc. and Lincoln Properties, Inc., collectively, as
borrower, and Fleet Capital Corporation, as lender (incorporated by
reference to Exhibit 10.32 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended July 3, 1998).
10.33 Second Amended and Restated Equipment Promissory Note dated June 26,
1998, executed by Advanced Technical Products, Inc., Alcore, Inc.,
Technical Products Group, Inc., Marion Properties, Inc., Deland
Properties, Inc. and Properties, Inc. (incorporated by reference to
Exhibit 10.33 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended July 3, 1998).
10.34 Lease Agreement dated May 11, 1998 by and between George W. Hendricks
and Barbara J. Hendricks and the Lincoln Composites Division of
Advanced Technical Products, Inc. (incorporated by reference to Exhibit
10.34 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended October 2, 1998).
10.35 Advanced Technical Products, Inc. 1998 Employee Stock Purchase Plan
dated October 29, 1998 (incorporated by reference to the Company's
Proxy Statement on Form 14A dated October 1, 1999)
10.36 Agreement and Plan of Merger dated September 3, 1999 by and among
Advanced Technical Products, Inc., ATP Acquisition Corp. and ATP
Holding Corp. (incorporated by reference to the Company's Proxy
Statement on Form 14A dated October 1, 1999)
10.37 Advanced Technical Products, Inc. 401 (k) Plan Adoption Agreement dated
September 16, 1999 (filed herewith)
10.38 Third Amendment to Amended and Restated Loan and Security Agreement
dated September 22, 1999 by and among Advanced Technical Products,
Inc., Alcore, Inc., Technical Products Group, Inc., Marion Properties,
Inc., Deland Properties, Inc. and Lincoln Properties, Inc.,
collectively, as borrower, and Fleet Capital Corporation, as lender (to
be filed by amendment)
10.39 January 2000 Agreement and Plan of Merger dated January 28, 2000 by and
among Advanced Technical Products, Inc., ATP Acquisition Corp. and ATP
Holding Corp. (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated January 28, 2000)
10.40 Termination Agreement and Plan dated January 28, 2000 by and among
Advanced Technical Products, Inc., ATP Acquisition Corp. and ATP
Holding Corp. (incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K dated January 28, 2000)
10.41 Fourth Amendment to Amended and Restated Loan and Security Agreement
dated February 18, 2000 by and among Advanced Technical Products, Inc.,
Alcore, Inc., Technical Products Group, Inc., Marion Properties, Inc.,
Deland Properties, Inc. and Lincoln Properties, Inc., collectively, as
borrower, and Fleet Capital Corporation, as lender (to be filed by
amendment)
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10.42 Rights Agreement dated March 3, 2000 between the Company and American
Stock Transfer & Trust Company, as Rights Agent (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K
dated March 9, 2000)
10.43* Amendment to Amended and Restated Employment Agreement dated March
30, 2000 by and between the Company and Garrett L. Dominy (filed
herewith)
10.44* Amendment to Amended and Restated Employment Agreement dated March
30, 2000 by and between the Company and James S. Carter (filed
herewith)
10.45 Amendment to Letter of Credit and Reimbursement Agreement by and
between Alcore, Inc. and First Union National Bank dated May 12, 2000
(to be filed by amendment)
10.46 Pledge and Security Agreement made by Alcore, Inc., to and for the
benefit of First Union National Bank dated May 12, 2000 (to be filed by
amendment)
10.47 Fifth Amendment to Amended and Restated Loan and Security Agreement
dated May 16, 2000 by and among Advanced Technical Products, Inc.,
Alcore, Inc., Technical Products Group, Inc., Marion Properties, Inc.,
Deland Properties, Inc. and Lincoln Properties, Inc., collectively, as
borrower, and Fleet Capital Corporation, as lender (to be filed by
amendment)
21.1* List of subsidiaries of Advanced Technical Products, Inc.
23.1* Consent of KPMG LLP.
27.0* Financial Data Schedule.
- --------------
* Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
A current report on Form 8-K dated September 15, 1999 reporting under Item
5 - Other Events was filed announcing the Company's entering into an
Agreement and Plan of Merger with two affiliates of Veritas Capital Fund,
LP: ATP Acquisition Corp. and ATP Holding Corp.
A current report on Form 8-K dated November 2, 1999 reporting under Item 5
- Other Events was filed announcing the Company's shareholders' approval
of the Agreement and Plan of Merger with two affiliates of Veritas Capital
Fund, LP: ATP Acquisition Corp. and ATP Holding Corp.
A current report on Form 8-K dated February 16, 2000 reporting under Item
5 - Other Events was filed announcing (i) the termination of the Agreement
and Plan of Merger, dated September 3, 1999 among the Company and two
affiliates of Veritas Capital Fund, LP: ATP Acquisition Corp.
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and ATP Holding Corp., and (ii) the Company's entering into the January
2000 Agreement and Plan of Merger with two affiliates of Veritas Capital
Fund, LP: ATP Acquisition Corp. and ATP Holding Corp.
A current report on Form 8-K dated March 9, 2000 reporting under Item 5 -
Other Events was filed announcing the Company's Board of Directors'
adoption of a stockholders' rights plan.
A current report on Form 8-K dated May 18, 2000 reporting under Item 5 -
Other Events was filed announcing (i) the Company's adjustments to its
financial statements for 1998 and the first three quarters of 1999 and
(ii) the Company's delivering audited financial statements to Veritas
pursuant to the January 2000 Merger Agreement.
SIGNATURES
Pursuant to the requirements of the 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, in the City of
Atlanta, State of Georgia, on May 22, 2000
ADVANCED TECHNICAL PRODUCTS, INC.
/S/ GARRETT L. DOMINY
Garrett L. Dominy
(A) CHIEF EXECUTIVE OFFICER AND PRESIDENT
(B) CHIEF FINANCIAL 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 and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ GARRETT L. DOMINY CHIEF EXECUTIVE OFFICER, PRESIDENT, May 22, 2000
Garrett L. Dominy CHIEF FINANCIAL OFFICER AND
TREASURER (PRINCIPAL EXECUTIVE
OFFICER, PRINCIPAL FINANCIAL
OFFICER AND PRINCIPAL ACCOUNTING
OFFICER) AND DIRECTOR
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<PAGE>
/S/ JAMES S. CARTER CHAIRMAN OF THE BOARD, AND DIRECTOR May 22, 2000
James S. Carter
/S/ ALAN W. BALDWIN DIRECTOR May 22, 2000
Alan W. Baldwin
/S/ ROBERT C. SIGRIST DIRECTOR May 22, 2000
Robert C. Sigrist
/S/ LAWRENCE E. WESNESKI DIRECTOR May 22, 2000
Lawrence E. Wesneski
/S/ SAM P. DOUGLASS DIRECTOR May 22, 2000
Sam P. Douglass
/S/ GARY L. FORBES DIRECTOR May 22, 2000
Gary L. Forbes
/S/ JOHN M. SIMON DIRECTOR May 22, 2000
John M. Simon
76
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- ----------------------------------------------------------------------
2.1 Agreement and Plan of Merger dated June 6, 1997 by and between Lunn
Industries, Inc. and TPG Holdings, Inc., as amended by Amendment to
Agreement and Plan of Merger dated August 22, 1997 by and between Lunn
Industries, Inc. and TPG Holdings, Inc. (exhibits and schedules
omitted) (incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated November 14, 1997).
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3 to the Company's Quarterly
Report on Form 10-QSB for the period ended September 30, 1997).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the
Company's Quarterly Report on Form 10-QSB for the period ended
September 30, 1996).
10.1 Lease covering the Jessup, Maryland Plant (incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended December
31, 1992).
10.2 Lease for the Company's facilities located in Glen Cove, New York dated
January 1, 1995 between Grill Leasing Corp. and Lunn Industries, Inc.
(incorporated by reference to Exhibit 10.12 to the Company's Quarterly
Report on Form 10-QSB for the period ended March 31, 1995).
10.3 Amendment to the Company's 1994 Stock Incentive Plan adopted at the
1996 Annual Shareholders Meeting on September 26, 1996 (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1996).
10.4 Engagement letter dated February 21, 1996 between the Company and J.E.
Sheehan & Co., Inc. for the placement of 3.5 million shares of the
Company's common stock in a private placement (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-QSB for period ended March 31, 1996).
10.5 Credit Agreement dated November 22, 1996 between Lunn Industries, Inc.
and Alcore, Inc. and First Union National Bank of Maryland
(incorporated by reference to Exhibit 10.26 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996).
10.6 Promissory Note dated November 15, 1996 payable to the order of First
Union National Bank of Maryland (incorporated by reference to Exhibit
10.27 to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996).
10.7 Security Agreement dated November 22, 1996 between Lunn Industries,
Inc. and Alcore, Inc. and First Union National Bank of Maryland
(incorporated by reference to Exhibit 10.28 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996).
10.8 Loan Agreement dated as of May 1, 1997 between Maryland Industrial
Development Authority and Alcore, Inc. (incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K dated June 2,
1997).
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10.9 Trust Indenture dated as of May 1, 1997 by and among Maryland
Industrial Development Financing Authority, First Union National Bank
of Virginia and Branch Banking and Trust Company (incorporated by
reference to Exhibit 10.3 to the Company's Current Report on Form 8-K
dated June 2, 1997).
10.10 Promissory Note dated May 15, 1997 payable to Maryland Industrial
Development Financing Authority for the sum of $2.6 million
(incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated June 2, 1997).
10.11 Guaranty Agreement dated May 1, 1997 made by Lunn Industries, Inc. in
favor of First Union National Bank of North Carolina (incorporated by
reference to Exhibit 10.4 to the Company's Current Report on Form 8-K
dated June 2, 1997).
10.12 Letter of Credit and Reimbursement Agreement by and between Alcore,
Inc. and First Union National Bank of North Carolina dated May 1, 1997
(incorporated by reference to Exhibit 10.5 to the Company's Current
Report on Form 8-K dated June 2, 1997).
10.13 Security Agreement dated as of May 1, 1997 by and among Alcore, Inc.,
Lunn Industries, Inc., First Union Bank of North Carolina, The Maryland
Industrial Development Financing Authority and First Union National
Bank of Maryland (incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K dated June 2, 1997).
10.14 Loan and Security Agreement dated December 27, 1996, by and among Fleet
Capital Corporation and Technical Products Group, Inc., Marion
Properties, Inc., Deland Properties, Inc. and Lincoln Properties, Inc.
(incorporated by reference to Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.15 First Amendment to Loan and Security Agreement dated June 10, 1997, by
and among Fleet Capital Corporation and Technical Products Group, Inc.,
Marion Properties, Inc., Deland Properties, Inc. and Lincoln
Properties, Inc. (incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997).
10.16 Second Amendment to Loan and Security Agreement dated October 31, 1997,
by and among Fleet Capital Corporation and Technical Products Group,
Inc., Marion Properties, Inc., Deland Properties, Inc. and Lincoln
Properties, Inc. (incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997).
10.17 Secured Promissory Note payable to Fleet Capital Corporation executed
by Technical Products Group, Inc., Marion Properties, Inc., Deland
Properties, Inc. and Lincoln Properties, Inc. (incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.18 Equipment Promissory Note payable to Fleet Capital Corporation executed
by Technical Products Group, Inc., Marion Properties, Inc., Deland
Properties, Inc. and Lincoln Properties, Inc. (incorporated by
reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.19 Form of Commercial Net Building and Ground Lease of Lincoln Air Park
West by and between Brunswick Corporation and Airport Authority of the
City of Lincoln,
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Nebraska, together with form of Lease Extension Agreement, regarding
various facilities of the Lincoln Composites Division located in
Lincoln, Nebraska (incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997).
10.20 Lease dated October 15, 1997 by and between LPR Partnership and
Technical Products Group, Inc., through the Lincoln Composites
Division, regarding premises located in Lincoln, Nebraska (incorporated
by reference to Exhibit 10.20 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.21* Amended and Restated Employment Agreement dated November 1, 1997 by and
between the Company and James S. Carter (incorporated by reference to
Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.22* Amended and Restated Employment Agreement dated November 1, 1997 by and
between the Company and Garrett L. Dominy (incorporated by reference to
Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.23* 1997 Advanced Technical Products, Inc. Stock Option Plan (incorporated
by reference to Exhibit 10.23 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.24* Form of Incentive Stock Option Agreement for options granted under
Advanced Technical Products, Inc. Stock Option Plan (incorporated by
reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.25* Advanced Technical Products, Inc. Non-Employee Directors Stock Option
Plan (incorporated by reference to Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.26* Form of Nonqualified Stock Option Agreement for options granted under
Advanced Technical Products, Inc. Non-Employee Directors Stock Option
Plan (incorporated by reference to Exhibit 10.26 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.27* Technical Products Group, Inc. Deferred Compensation Plan (incorporated
by reference to Exhibit 10.27 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.28* Rabbi Trust Agreement executed in connection with Technical Products
Group, Inc. Deferred Compensation Plan (incorporated by reference to
Exhibit 10.28 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.29 Lease Agreement dated January 21, 1998 by and between FRP Lakeside
L.P., as landlord, and Alcore, Inc., as tenant (incorporated by
reference to Exhibit 10.29 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended April 3, 1998).
10.30 Lease Agreement dated April 14, 1998 by and between Mansell Overlook
200, LLC, and Advanced Technical Products, Inc. (incorporated by
reference to Exhibit 10.29 to
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the Company's Quarterly Report on Form 10-Q for the quarterly period
ended April 3, 1998).
10.31 Amended and Restated Loan and Security Agreement dated March 31, 1998
between Advanced Technical Products, Inc., Alcore,Inc., Technical
Products Group, Inc., Marion Properties, Inc., Deland Properties, Inc.
and Lincoln Properties, Inc., collectively, as borrower, and Fleet
Capital Corporation, as lender (incorporated by reference to Exhibit
10.31 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended July 3, 1998).
10.32 First Amendment to Amended and Restated Loan and SecurityAgreement
dated June 26, 1998 by and between Advanced Technical Products, Inc.,
Alcore, Inc., Technical Products Group, Inc., Marion Properties, Inc.,
Deland Properties, Inc. and Lincoln Properties, Inc., collectively, as
borrower, and Fleet Capital Corporation, as lender (incorporated by
reference to Exhibit 10.32 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended July 3, 1998).
10.33 Second Amended and Restated Equipment Promissory Note dated June 26,
1998, executed by Advanced Technical Products, Inc., Alcore, Inc.,
Technical Products Group, Inc., Marion Properties, Inc., Deland
Properties, Inc. and Properties, Inc. (incorporated by reference to
Exhibit 10.33 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended July 3, 1998).
10.34 Lease Agreement dated May 11, 1998 by and between George W. Hendricks
and Barbara J. Hendricks and the Lincoln Composites Division of
Advanced Technical Products, Inc. (incorporated by reference to Exhibit
10.34 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended October 2, 1998).
10.35 Advanced Technical Products, Inc. 1998 Employee Stock Purchase Plan
dated October 29, 1998 (incorporated by reference to the Company's
Proxy Statement on Form 14A dated October 1, 1999)
10.36 Agreement and Plan of Merger dated September 3, 1999 by and among
Advanced Technical Products, Inc., ATP Acquisition Corp. and ATP
Holding Corp. (incorporated by reference to the Company's Proxy
Statement on Form 14A dated October 1, 1999)
10.37 Advanced Technical Products, Inc. 401 (k) Plan Adoption Agreement dated
September 16, 1999 (filed herewith)
10.38 Third Amendment to Amended and Restated Loan and Security Agreement
dated September 22, 1999 by and among Advanced Technical Products,
Inc., Alcore, Inc., Technical Products Group, Inc., Marion Properties,
Inc., Deland Properties, Inc. and Lincoln Properties, Inc.,
collectively, as borrower, and Fleet Capital Corporation, as lender (to
be filed by amendment)
10.39 January 2000 Agreement and Plan of Merger dated January 28, 2000 by and
among Advanced Technical Products, Inc., ATP Acquisition Corp. and ATP
Holding Corp. (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated January 28, 2000)
10.40 Termination Agreement and Plan dated January 28, 2000 by and among
Advanced Technical Products, Inc., ATP Acquisition Corp. and ATP
Holding Corp. (incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K dated January 28, 2000)
10.41 Fourth Amendment to Amended and Restated Loan and Security Agreement
dated February 18, 2000 by and among Advanced Technical Products, Inc.,
Alcore, Inc., Technical Products Group, Inc., Marion Properties, Inc.,
Deland Properties, Inc. and Lincoln Properties, Inc., collectively, as
borrower, and Fleet Capital Corporation, as lender (to be filed by
amendment)
<PAGE>
10.42 Rights Agreement dated March 3, 2000 between the Company and American
Stock Transfer & Trust Company, as Rights Agent (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K
dated March 9, 2000)
10.43* Amendment to Amended and Restated Employment Agreement dated March
30, 2000 by and between the Company and Garrett L. Dominy (filed
herewith)
10.44* Amendment to Amended and Restated Employment Agreement dated March
30, 2000 by and between the Company and James S. Carter (filed
herewith)
10.45 Amendment to Letter of Credit and Reimbursement Agreement by and
between Alcore, Inc. and First Union National Bank dated May 12, 2000
(to be filed by amendment)
10.46 Pledge and Security Agreement made by Alcore, Inc., to and for the
benefit of First Union National Bank dated May 12, 2000 (to be filed by
amendment)
10.47 Fifth Amendment to Amended and Restated Loan and Security Agreement
dated May 16, 2000 by and among Advanced Technical Products, Inc.,
Alcore, Inc., Technical Products Group, Inc., Marion Properties, Inc.,
Deland Properties, Inc. and Lincoln Properties, Inc., collectively, as
borrower, and Fleet Capital Corporation, as lender (to be filed by
amendment)
21.1* List of subsidiaries of Advanced Technical Products, Inc.
23.1* Consent of KPMG LLP.
27.0* Financial Data Schedule.
- --------------
* Indicates management contract or compensatory plan or arrangement.
- --------------------------------------------------------------------------------
ADVANCED TECHNICAL PRODUCTS, INC.
401(K) PLAN
- --------------------------------------------------------------------------------
<PAGE>
ADOPTION AGREEMENT # 011
NONSTANDARDIZED CODE SS.401(K) PROFIT SHARING PLAN
The undersigned, ADVANCED TECHNICAL PRODUCTS, INC. ("Employer"), by
executing this Adoption Agreement, elects to become a participating Employer in
the TEXAS COMMERCE BANK NATIONAL ASSOCIATION Defined Contribution Master Plan
(basic plan document # 03 ) by adopting the accompanying Plan and Trust in full
as if the Employer were a signatory to that Agreement. The Employer makes the
following elections granted under the provisions of the Master Plan.
ARTICLE I
DEFINITIONS
1.02 TRUSTEE. The Trustee executing this Adoption Agreement is: (CHOOSE
(A) OR (B))
[ ] (a) A discretionary Trustee. See Section 10.03[A] of the Plan.
[X] (b) A nondiscretionary Trustee. See Section 10.03[B] of the Plan.
[NOTE: THE EMPLOYER MAY NOT ELECT OPTION (B) IF A CUSTODIAN EXECUTES THE
ADOPTION AGREEMENT.]
1.03 PLAN. The name of the Plan as adopted by the Employer is ADVANCED
TECHNICAL PRODUCTS, INC. 401(K) PLAN.
1.07 EMPLOYEE. The following Employees are not eligible to participate in
the Plan: (CHOOSE (A) OR AT LEAST ONE OF (B) THROUGH (G))
[ ] (a) No exclusions.
[X] (b) Collective bargaining employees (as defined in Section 1.07 of the
Plan). [NOTE: IF THE EMPLOYER EXCLUDES UNION EMPLOYEES FROM THE PLAN, THE
EMPLOYER MUST BE ABLE TO PROVIDE EVIDENCE THAT RETIREMENT BENEFITS WERE
THE SUBJECT OF GOOD FAITH BARGAINING.]
[ ] (c) Nonresident aliens who do not receive any earned income (as defined
in Code ss.911(d)(2)) from the Employer which constitutes United States
source income (as defined in Code ss.861(a)(3)).
[ ] (d) Commission Salesmen.
[ ] (e) Any Employee compensated on a salaried basis.
[ ] (f) Any Employee compensated on an hourly basis.
[ ] (g) (SPECIFY) __________.
LEASED EMPLOYEES. Any Leased Employee treated as an Employee under Section 1.31
of the Plan, is: (CHOOSE (H) OR (I))
[X] (h) Not eligible to participate in the Plan.
[ ] (i) Eligible to participate in the Plan, unless excluded by reason of
an exclusion classification elected under this Adoption Agreement Section
1.07.
1
<PAGE>
RELATED EMPLOYERS. If any member of the Employer's related group (as defined in
Section 1.30 of the Plan) executes a Participation Agreement to this Adoption
Agreement, such member's Employees are eligible to participate in this Plan,
unless excluded by reason of an exclusion classification elected under this
Adoption Agreement Section 1.07. In addition: (CHOOSE (J) OR (K))
[X] (j) No other related group member's Employees are eligible to participate
in the Plan.
[ ] (k) The following nonparticipating related group member's Employees are
eligible to participate in the Plan unless excluded by reason of an
exclusion classification elected under this Adoption Agreement Section
1.07:____.
1.12 COMPENSATION.
TREATMENT OF ELECTIVE CONTRIBUTIONS. (CHOOSE (A) OR (B))
[X] (a) "Compensation" includes elective contributions made by the Employer
on the Employee's behalf.
[ ] (b) "Compensation" does not include elective contributions.
MODIFICATIONS TO COMPENSATION DEFINITION. (CHOOSE (C) OR AT LEAST ONE OF (D)
THROUGH (J))
[ ] (c) No modifications other than as elected under Options (a) or (b).
[ ] (d) The Plan excludes Compensation in excess of $______.
[X] (e) In lieu of the definition in Section 1.12 of the Plan, Compensation
means any earnings reportable as W-2 wages for Federal income tax
withholding purposes, subject to any other election under this Adoption
Agreement Section 1.12.
[ ] (f) The Plan excludes bonuses.
[ ] (g) The Plan excludes overtime.
[ ] (h) The Plan excludes Commissions.
[ ] (i) Compensation will not include Compensation from a related employer
(as defined in Section 1.30 of the Plan) that has not executed a
Participation Agreement in this Plan unless, pursuant to Adoption
Agreement Section 1.07, the Employees of that related employer are
eligible to participate in this Plan.
[ ] (j) (SPECIFY) _____.
If, for any Plan Year, the Plan uses permitted disparity in the contribution or
allocation formula elected under Article III, any election of Options (f), (g),
(h) or (j) is ineffective for such Plan Year with respect to any Nonhighly
Compensated Employee.
SPECIAL DEFINITION FOR MATCHING CONTRIBUTIONS. "Compensation" for purposes of
any matching contribution formula under Article III means: (CHOOSE (K) OR (L)
ONLY IF APPLICABLE)
[X] (k) Compensation as defined in this Adoption Agreement Section 1.12.
[ ] (l) (SPECIFY)_____.
2
<PAGE>
SPECIAL DEFINITION FOR SALARY REDUCTION CONTRIBUTIONS. An Employee's salary
reduction agreement applies to his Compensation determined prior to the
reduction authorized by that salary reduction agreement, with the following
exceptions: (CHOOSE (M) OR AT LEAST ONE OF (N) OR (O), IF APPLICABLE)
[X] (m) No exceptions.
[ ] (n) If the Employee makes elective contributions to another plan
maintained by the Employer, the Advisory Committee will determine the
amount of the Employee's salary reduction contribution for the
withholding period: (CHOOSE (1) OR (2))
[ ] (1) After the reduction for such period of elective contributions to
the other plan(s).
[ ] (2) Prior to the reduction for such period of elective contributions
to the other plan(s).
[ ] (o) (SPECIFY)_____.
1.17 PLAN YEAR/LIMITATION YEAR.
PLAN YEAR. Plan Year means: (CHOOSE (A) OR (B))
[X] (a) The 12 consecutive month period ending every DECEMBER 31.
[ ] (b) (SPECIFY)_____.
LIMITATION YEAR. The Limitation Year is: (CHOOSE (C) OR (D))
[X] (c) The Plan Year.
[ ] (d) The 12 consecutive month period ending every ____.
1.18 EFFECTIVE DATE.
NEW PLAN. The "Effective Date" of the Plan is ______.
RESTATED PLAN. The restated Effective Date is JANUARY 1, 1999.
This Plan is a substitution and amendment of an existing retirement plan(s)
originally established JANUARY 1, 1988 . [NOTE: SEE THE EFFECTIVE DATE
ADDENDUM.]
3
<PAGE>
1.27 HOUR OF SERVICE. The crediting method for Hours of Service is:
(CHOOSE (A) OR (B))
[X] (a) The actual method.
[ ] (b) The ___ equivalency method, except:
[ ] (1) No exceptions.
[ ] (2) The actual method applies for purposes of: (CHOOSE AT LEAST ONE)
[ ] (a) Participation under Article II.
[ ] (b) Vesting under Article V.
[ ] (c) Accrual of benefits under Section 3.06.
[NOTE: ON THE BLANK LINE, INSERT "DAILY," "WEEKLY," "SEMI-MONTHLY PAYROLL
PERIODS" OR "MONTHLY."]
1.29 SERVICE FOR PREDECESSOR EMPLOYER. In addition to the predecessor
service the Plan must credit by reason of Section 1.29 of the Plan, the Plan
credits Service with the following predecessor employer(s): N/A . Service with
the designated predecessor employer(s) applies: (CHOOSE AT LEAST ONE OF (A) OR
(B); (C) IS AVAILABLE ONLY IN ADDITION TO (A) OR (B))
[ ] (a) For purposes of participation under Article II.
[ ] (b) For purposes of vesting under Article V.
[ ] (c) Except the following Service:_____.
[NOTE: IF THE PLAN DOES NOT CREDIT ANY PREDECESSOR SERVICE UNDER THIS PROVISION,
INSERT "N/A" IN THE FIRST BLANK LINE. THE EMPLOYER MAY ATTACH A SCHEDULE TO THIS
ADOPTION AGREEMENT, IN THE SAME FORMAT AS THIS SECTION 1.29, DESIGNATING
ADDITIONAL PREDECESSOR EMPLOYERS AND THE APPLICABLE SERVICE CREDITING
ELECTIONS.]
1.31 LEASED EMPLOYEES. If a Leased Employee is a Participant in the Plan
and also participates in a plan maintained by the leasing organization: (CHOOSE
(A) OR (B))
[N/A] (a) The Advisory Committee will determine the Leased Employee's
allocation of Employer contributions under Article III without taking
into account the Leased Employee's allocation, if any, under the leasing
organization's plan.
[N/A] (b) The Advisory Committee will reduce the Leased Employee's allocation
of Employer nonelective contributions (other than designated qualified
nonelective contributions) under this Plan by the Leased Employee's
allocation under the leasing organization's plan, but only to the extent
that allocation is attributable to the Leased Employee's service provided
to the Employer. The leasing organization's plan:
[ ] (1) Must be a money purchase plan which would satisfy the definition
under Section 1.31 of a safe harbor plan, irrespective of whether the
safe harbor exception applies.
[ ] (2) Must satisfy the features and, if a defined benefit plan, the
method of reduction described in an addendum to this Adoption
Agreement, numbered 1.31.
4
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ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY.
ELIGIBILITY CONDITIONS. To become a Participant in the Plan, an Employee must
satisfy the following eligibility conditions: (CHOOSE (A) OR (B) OR BOTH; (C) IS
OPTIONAL AS AN ADDITIONAL ELECTION)
[X] (a) Attainment of age 21 (SPECIFY AGE, NOT EXCEEDING 21).
[ ] (b) Service requirement. (CHOOSE ONE OF (1) THROUGH (3))
[ ] (1) One Year of Service.
[ ] (2) ___ months (not exceeding 12) following the Employee's Employment
Commencement Date.
[ ] (3) One Hour of Service.
[ ] (c) Special requirements for non-401(k) portion of plan. (MAKE ELECTIONS
UNDER (1) AND UNDER (2))
(1) The requirements of this Option (c) apply to participation in:
(CHOOSE AT LEAST ONE OF (A) THROUGH (C))
[ ] (a) The allocation of Employer nonelective contributions and
Participant forfeitures.
[ ] (b) The allocation of Employer matching contributions (including
forfeitures allocated as matching contributions).
[ ] (c) The allocation of Employer qualified nonelective
contributions.
(2) For participation in the allocations described in (1), the
eligibility conditions are: (CHOOSE AT LEAST ONE OF (A) THROUGH (D))
[ ] (a) __ (one or two) Year(s) of Service, without an intervening
Break in Service (as described in Section 2.03(A) of the Plan) if
the requirement is two Years of Service.
[ ] (b) ___ months (not exceeding 24) following the Employee's
Employment Commencement Date.
[ ] (c) One Hour of Service.
[ ] (d) Attainment of age __ (SPECIFY AGE, NOT EXCEEDING 21).
PLAN ENTRY DATE. "Plan Entry Date" means the Effective Date and: (CHOOSE (D),
(E) OR (F))
[ ] (d) Semi-annual Entry Dates. The first day of the Plan Year and the
first day of the seventh month of the Plan Year.
[ ] (e) The first day of the Plan Year.
[X] (f) (SPECIFY ENTRY DATES) JANUARY 1, APRIL 1, JULY 1 AND OCTOBER 1 .
5
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TIME OF PARTICIPATION. An Employee will become a Participant (and, if
applicable, will participate in the allocations described in Option (c)(1)),
unless excluded under Adoption Agreement Section 1.07, on the Plan Entry Date
(if employed on that date): (CHOOSE (G), (H) OR (I))
[X] (g) immediately following
[ ] (h) immediately preceding
[ ] (i) nearest
the date the Employee completes the eligibility conditions described in Options
(a) and (b) (or in Option (c)(2) if applicable) of this Adoption Agreement
Section 2.01. [NOTE: THE EMPLOYER MUST COORDINATE THE SELECTION OF (G), (H) OR
(I) WITH THE "PLAN ENTRY DATE" SELECTION IN (D), (E) OR (F). UNLESS OTHERWISE
EXCLUDED UNDER SECTION 1.07, THE EMPLOYEE MUST BECOME A PARTICIPANT BY THE
EARLIER OF: (1) THE FIRST DAY OF THE PLAN YEAR BEGINNING AFTER THE DATE THE
EMPLOYEE COMPLETES THE AGE AND SERVICE REQUIREMENTS OF CODE SS.410(A); OR (2) 6
MONTHS AFTER THE DATE THE EMPLOYEE COMPLETES THOSE REQUIREMENTS.]
DUAL ELIGIBILITY. The eligibility conditions of this Section 2.01 apply to:
(CHOOSE (J) OR (K))
[X] (j) All Employees of the Employer, except: (CHOOSE (1) OR (2))
[X] (1) No exceptions.
[ ] (2) Employees who are Participants in the Plan as of the Effective
Date.
[ ] (k) Solely to an Employee employed by the Employer after ____. If
the Employee was employed by the Employer on or before the specified
date, the Employee will become a Participant: (CHOOSE (1), (2) OR (3))
[ ] (1) On the latest of the Effective Date, his Employment
Commencement Date or the date he attains age __ (not to exceed 21).
[ ] (2) Under the eligibility conditions in effect under the Plan
prior to the restated Effective Date. If the restated Plan required
more than one Year of Service to participate, the eligibility
condition under this Option (2) for participation in the Code
ss.401(k) arrangement under this Plan is one Year of Service for
Plan Years beginning after December 31, 1988. [FOR RESTATED PLANS
ONLY]
[ ] (3) (SPECIFY) ____.
2.02 YEAR OF SERVICE - PARTICIPATION.
HOURS OF SERVICE. An Employee must complete: (CHOOSE (A) OR (B))
[N/A] (a) 1,000 Hours of Service
[N/A ] (b) ___ Hours of Service
during an eligibility computation period to receive credit for a Year of
Service. [NOTE: THE HOURS OF SERVICE REQUIREMENT MAY NOT EXCEED 1,000.]
6
<PAGE>
ELIGIBILITY COMPUTATION PERIOD. After the initial eligibility computation period
described in Section 2.02 of the Plan, the Plan measures the eligibility
computation period as: (CHOOSE (C) OR (D))
[N/A] (c) The 12 consecutive month period beginning with each anniversary of an
Employee's Employment Commencement Date.
[N/A] (d) The Plan Year, beginning with the Plan Year which includes the first
anniversary of the Employee's Employment Commencement Date.
2.03 BREAK IN SERVICE - PARTICIPATION. The Break in Service rule
described in Section 2.03(B) of the Plan: (CHOOSE (A) OR (B))
[X] (a) Does not apply to the Employer's Plan.
[ ] (b) Applies to the Employer's Plan.
2.06 ELECTION NOT TO PARTICIPATE. The Plan: (CHOOSE (A) OR (B))
[X] (a) Does not permit an eligible Employee or a Participant to elect not to
participate.
[ ] (b) Does permit an eligible Employee or a Participant to elect not to
participate in accordance with Section 2.06 and with the following rules:
(COMPLETE (1), (2), (3) AND (4))
(1) An election is effective for a Plan Year if filed no later than
______.
(2) An election not to participate must be effective for at least
____ Plan Year(s).
(3) Following a re-election to participate, the Employee or
Participant:
[ ] (a) May not again elect not to participate for any subsequent
Plan Year.
[ ] (b) May again elect not to participate, but not earlier than the
Plan Year following the Plan Year in which the re-election first was
effective.
(4) (SPECIFY) ____ [INSERT "N/A" IF NO OTHER RULES APPLY].
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
3.01 AMOUNT.
PART I. [OPTIONS (A) THROUGH (G)] AMOUNT OF EMPLOYER'S CONTRIBUTION. The
Employer's annual contribution to the Trust will equal the total amount of
deferral contributions, matching contributions, qualified nonelective
contributions and nonelective contributions, as determined under this Section
3.01. (CHOOSE ANY COMBINATION OF (A), (B), (C) AND (D), OR CHOOSE (E))
[X] (a) DEFERRAL CONTRIBUTIONS (CODESS.401(K) ARRANGEMENT). (CHOOSE (1) OR
(2) OR BOTH)
[X] (1) Salary reduction arrangement. The Employer must contribute the
amount by which the Participants have reduced their Compensation for
the Plan Year, pursuant to their salary reduction agreements on file
with the Advisory Committee. A reference in the Plan to salary
reduction contributions is a reference to these amounts.
7
<PAGE>
[ ] (2) Cash or deferred arrangement. The Employer will contribute on
behalf of each Participant the portion of the Participant's
proportionate share of the cash or deferred contribution which he
has not elected to receive in cash. See Section 14.02 of the Plan.
The Employer's cash or deferred contribution is the amount the
Employer may from time to time deem advisable which the Employer
designates as a cash or deferred contribution prior to making that
contribution to the Trust.
[X] (b) MATCHING CONTRIBUTIONS. The Employer will make matching contributions
in accordance with the formula(s) elected in Part II of this Adoption
Agreement Section 3.01.
[X] (c) DESIGNATED QUALIFIED NONELECTIVE CONTRIBUTIONS. The Employer, in its
sole discretion, may contribute an amount which it designates as a
qualified nonelective contribution.
[X] (d) NONELECTIVE CONTRIBUTIONS. (CHOOSE ANY COMBINATION OF (1) THROUGH
(3))
[X] (1) Discretionary contribution. The amount (or additional amount)
the Employer may from time to time deem advisable.
[ ] (2) ___% of the Compensation of all Participants under the Plan,
determined for the Employer's taxable year for which it makes the
contribution. [NOTE: THE PERCENTAGE SELECTED MAY NOT EXCEED 15%.]
[ ] (3) ___% of Net Profits but not more than $____.
[ ] (e) FROZEN PLAN. This Plan is a frozen Plan effective ____. The Employer
will not contribute to the Plan with respect to any period following the
stated date.
NET PROFITS. The Employer: (CHOOSE (F) OR (G))
[X] (f) Need not have Net Profits to make its annual contribution under this
Plan.
[ ] (g) Must have current or accumulated Net Profits exceeding $____ to
make the following contributions: (CHOOSE AT LEAST ONE)
[ ] (1) Cash or deferred contributions described in Option (a)(2).
[ ] (2) Matching contributions described in Option (b), except: __.
[ ] (3) Qualified nonelective contributions described in Option (c).
[ ] (4) Nonelective contributions described in Option (d).
The term "Net Profits" means the Employer's net income or profits for any
taxable year determined by the Employer upon the basis of its books of account
in accordance with generally accepted accounting practices consistently applied
without any deductions for Federal and state taxes upon income or for
contributions made by the Employer under this Plan or under any other employee
benefit plan the Employer maintains. The term "Net Profits" specifically
excludes N/A. [NOTE: ENTER "N/A" IF NO EXCLUSIONS APPLY.]
If the Employer requires Net Profits for matching contributions and the Employer
does not have sufficient Net Profits under Option (g), it will reduce the
matching contribution under a fixed formula on a prorata basis for all
Participants. A Participant's share of the reduced contribution will bear the
same ratio as the matching contribution the Participant would have received if
Net Profits were sufficient bears to the total matching contribution all
Participants would have received if Net Profits were sufficient. If more than
one member of a related group (as
8
<PAGE>
defined in Section 1.30) execute this Adoption Agreement, each participating
member will determine Net Profits separately but will not apply this reduction
unless, after combining the separately determined Net Profits, the aggregate Net
Profits are insufficient to satisfy the matching contribution liability. "Net
Profits" includes both current and accumulated Net Profits.
PART II. [OPTIONS (H) THROUGH (J)] MATCHING CONTRIBUTION FORMULA. [NOTE: IF THE
EMPLOYER ELECTED OPTION (B), COMPLETE OPTIONS (H), (I) AND (J).]
[X] (h) AMOUNT OF MATCHING CONTRIBUTIONS. For each Plan Year, the Employer's
matching contribution is: (CHOOSE ANY COMBINATION OF (1), (2), (3), (4)
AND (5))
[ ] (1) An amount equal to ___% of each Participant's eligible
contributions for the Plan Year.
[ ] (2) An amount equal to ___% of each Participant's first tier of
eligible contributions for the Plan Year, plus the following
matching percentage(s) for the following subsequent tiers of
eligible contributions for the Plan Year:____.
[X] (3) Discretionary formula.
[X] (a) An amount (or additional amount) equal to a matching
percentage the Employer from time to time may deem advisable of
the Participant's eligible contributions for the Plan Year.
[ ] (b) An amount (or additional amount) equal to a matching
percentage the Employer from time to time may deem advisable of
each tier of the Participant's eligible contributions for the
Plan Year.
[ ] (4) An amount equal to the following percentage of each Participant's
eligible contributions for the Plan Year, based on the Participant's
Years of Service:
NUMBER OF YEARS OF SERVICE MATCHING PERCENTAGE
---- ----
---- ----
---- ----
---- ----
The Advisory Committee will apply this formula by determining Years
of Service as follows: ____.
[ ] (5) A Participant's matching contributions may not: (CHOOSE (A)
OR (B))
[ ] (a) Exceed ____.
[ ] (b) Be less than ______.
RELATED EMPLOYERS. If two or more related employers (as defined in
Section 1.30) contribute to this Plan, the related employers may elect
different matching contribution formulas by attaching to the Adoption
Agreement a separately completed copy of this Part II. NOTE: SEPARATE
MATCHING CONTRIBUTION FORMULAS CREATE SEPARATE CURRENT BENEFIT STRUCTURES
THAT MUST SATISFY THE MINIMUM PARTICIPATION TEST OF CODE SS.401(A)(26).]
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<PAGE>
[X] (i) DEFINITION OF ELIGIBLE CONTRIBUTIONS. Subject to the requirements of
Option (j), the term "eligible contributions" means: (CHOOSE ANY
COMBINATION OF (1) THROUGH (3))
[X] (1) Salary reduction contributions.
[ ] (2) Cash or deferred contributions (including any part of the
Participant's proportionate share of the cash or deferred
contribution which the Employer defers without the Participant's
election).
[ ] (3) Participant mandatory contributions, as designated in
Adoption Agreement Section 4.01. See Section 14.04 of the Plan.
[X] (j) AMOUNT OF ELIGIBLE CONTRIBUTIONS TAKEN INTO ACCOUNT. When determining
a Participant's eligible contributions taken into account under the
matching contributions formula(s), the following rules apply: (CHOOSE ANY
COMBINATION OF (1) THROUGH (4))
[ ] (1) The Advisory Committee will take into account all eligible
contributions credited for the Plan Year.
[X] (2) The Advisory Committee will disregard eligible contributions
exceeding 4% OF A PARTICIPANT'S COMPENSATION.
[ ] (3) The Advisory Committee will treat as the first tier of
eligible contributions, an amount not exceeding:____.
The subsequent tiers of eligible contributions are:___.
[ ] (4) (SPECIFY)_____.
PART III. [OPTIONS (K) AND (L)]. SPECIAL RULES FOR CODESS.401(K) ARRANGEMENT.
(CHOOSE (K) OR (L), OR BOTH, AS APPLICABLE)
[X] (k) SALARY REDUCTION AGREEMENTS. The following rules and restrictions
apply to an Employee's salary reduction agreement: (MAKE A SELECTION
UNDER (1), (2), (3) AND (4))
(1) Limitation on amount. The Employee's salary reduction contributions:
(CHOOSE (A) OR AT LEAST ONE OF (B) OR (C))
[ ] (a) No maximum limitation other than as provided in the Plan.
[X] (b) May not exceed 15% of Compensation for the Plan Year,
subject to the annual additions limitation described in Part 2
of Article III and the 402(g) limitation described in Section
14.07 of the Plan.
[ ] (c) Based on percentages of Compensation must equal at least ___.
(2) An Employee may revoke, on a prospective basis, a salary reduction
agreement: (CHOOSE (A), (B), (C) OR (D))
[ ] (a) Once during any Plan Year but not later than ______of the Plan
Year.
[ ] (b) As of any Plan Entry Date.
[X] (c) As of the first day of any month.
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[ ] (d) (SPECIFY, BUT MUST BE AT LEAST ONCE PER PLAN YEAR)_____.
(3) An Employee who revokes his salary reduction agreement may file a new
salary reduction agreement with an effective date: (CHOOSE (A), (B), (C)
OR (D))
[ ] (a) No earlier than the first day of the next Plan Year.
[ ] (b) As of any subsequent Plan Entry Date.
[X] (c) As of the first day of any month subsequent to the month in
which he revoked an Agreement.
[ ] (d) (SPECIFY, BUT MUST BE AT LEAST ONCE PER PLAN YEAR FOLLOWING
THE PLAN YEAR OF REVOCATION)_____.
(4) A Participant may increase or may decrease, on a prospective basis,
his salary reduction percentage or dollar amount: (CHOOSE (A), (B), (C)
OR (D))
[ ] (a) As of the beginning of each payroll period.
[X] (b) As of the first day of each month.
[ ] (c) As of any Plan Entry Date.
[ ] (d) (SPECIFY, BUT MUST PERMIT AN INCREASE OR A DECREASE AT
LEAST ONCE PER PLAN YEAR) ____.
[ ] (l) CASH OR DEFERRED CONTRIBUTIONS. For each Plan Year for which the
Employer makes a designated cash or deferred contribution, a Participant
may elect to receive directly in cash not more than the following portion
(or, if less, the 402(g) limitation described in Section 14.07 of the
Plan) of his proportionate share of that cash or deferred contribution:
(CHOOSE (1) OR (2))
[ ] (1) All or any portion.
[ ] (2) ____%.
3.04 CONTRIBUTION ALLOCATION. The Advisory Committee will allocate
deferral contributions, matching contributions, qualified nonelective
contributions and nonelective contributions in accordance with Section 14.06 and
the elections under this Adoption Agreement Section 3.04.
PART I. [OPTIONS (A) THROUGH (D)]. SPECIAL ACCOUNTING ELECTIONS. (CHOOSE
WHICHEVER ELECTIONS ARE APPLICABLE TO THE EMPLOYER'S PLAN)
[X] (a) MATCHING CONTRIBUTIONS ACCOUNT. The Advisory Committee will allocate
matching contributions to a Participant's: (CHOOSE (1) OR (2); (3) IS
AVAILABLE ONLY IN ADDITION TO (1))
[X] (1) Regular Matching Contributions Account.
[ ] (2) Qualified Matching Contributions Account.
[ ] (3) Except, matching contributions under Option(s) _____ of Adoption
Agreement Section 3.01 are allocable to the Qualified Matching
Contributions Account.
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[X] (b) SPECIAL ALLOCATION DATES FOR SALARY REDUCTION CONTRIBUTIONS. The
Advisory Committee will allocate salary reduction contributions as of the
Accounting Date and as of the following additional allocation dates: AS
SOON AS ADMINISTRATIVELY FEASIBLE FOLLOWING RECEIPT BY TRUSTEE.
[X] (c) SPECIAL ALLOCATION DATES FOR MATCHING CONTRIBUTIONS. The Advisory
Committee will allocate matching contributions as of the Accounting Date
and as of the following additional allocation dates: AS SOON AS
ADMINISTRATIVELY FEASIBLE FOLLOWING RECEIPT BY TRUSTEE.
[X] (d) DESIGNATED QUALIFIED NONELECTIVE CONTRIBUTIONS - DEFINITION OF
PARTICIPANT. For purposes of allocating the designated qualified
nonelective contribution, "Participant" means: (CHOOSE (1) OR (2))
[ ] (1) All Participants.
[X] (2) Participants who are Nonhighly Compensated Employees for the Plan
Year.
[ ] (3) (Specify) _____.
PART II. METHOD OF ALLOCATION - NONELECTIVE CONTRIBUTION. Subject to any
restoration allocation required under Section 5.04, the Advisory Committee will
allocate and credit each annual nonelective contribution (and Participant
forfeitures treated as nonelective contributions) to the Employer Contributions
Account of each Participant who satisfies the conditions of Section 3.06, in
accordance with the allocation method selected under this Section 3.04. If the
Employer elects Option (e)(2), Option (g)(2) or Option (h), for the first 3% of
Compensation allocated to all Participants, "Compensation" does not include any
exclusions elected under Adoption Agreement Section 1.12 (other than the
exclusion of elective contributions), and the Advisory Committee must take into
account the Participant's Compensation for the entire Plan Year. (CHOOSE AN
ALLOCATION METHOD UNDER (E), (F), (G) OR (H); (I) IS MANDATORY IF THE EMPLOYER
ELECTS (F), (G) OR (H); (J) IS OPTIONAL IN ADDITION TO ANY OTHER ELECTION.)
[X] (e) NONINTEGRATED ALLOCATION FORMULA. (CHOOSE (1) OR (2))
[X] (1) The Advisory Committee will allocate the annual nonelective
contributions in the same ratio that each Participant's Compensation for
the Plan Year bears to the total Compensation of all Participants for the
Plan Year.
[ ] (2) The Advisory Committee will allocate the annual nonelective
contributions in the same ratio that each Participant's Compensation for
the Plan Year bears to the total Compensation of all Participants for the
Plan Year. For purposes of this Option (2), "Participant" means, in
addition to a Participant who satisfies the requirements of Section 3.06
for the Plan Year, any other Participant entitled to a top heavy minimum
allocation under Section 3.04(B), but such Participant's allocation will
not exceed 3% of his Compensation for the Plan Year.
[ ] (f) TWO-TIERED INTEGRATED ALLOCATION FORMULA - MAXIMUM DISPARITY.
First, the Advisory Committee will allocate the annual Employer
nonelective contributions in the same ratio that each Participant's
Compensation plus Excess Compensation for the Plan Year bears to the
total Compensation plus Excess Compensation of all Participants for the
Plan Year. The allocation under this paragraph, as a percentage of each
Participant's Compensation plus Excess Compensation, must not exceed the
applicable percentage (5.7%, 5.4% or 4.3%) listed under the Maximum
Disparity Table following Option (i).
The Advisory Committee then will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation for
the Plan Year bears to the total Compensation of all Participants for the
Plan Year.
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[ ] (g) THREE-TIERED INTEGRATED ALLOCATION FORMULA. First, the Advisory
Committee will allocate the annual Employer nonelective contributions in
the same ratio that each Participant's Compensation for the Plan Year
bears to the total Compensation of all Participants for the Plan Year.
The allocation under this paragraph, as a percentage of each
Participant's Compensation may not exceed the applicable percentage
(5.7%, 5.4% or 4.3%) listed under the Maximum Disparity Table following
Option (i). Solely for purposes of the allocation in this first
paragraph, "Participant" means, in addition to a Participant who
satisfies the requirements of Section 3.06 for the Plan Year. (CHOOSE (1)
OR (2))
[ ] (1) No other Participant.
[ ] (2) Any other Participant entitled to a top heavy minimum
allocation under Section 3.04(B), but such Participant's allocation
under this Option (g) will not exceed 3% of his Compensation for the
Plan Year.
As a second tier allocation, the Advisory Committee will allocate the
nonelective contributions in the same ratio that each Participant's
Excess Compensation for the Plan Year bears to the total Excess
Compensation of all Participants for the Plan Year. The allocation under
this paragraph, as a percentage of each Participant's Excess
Compensation, may not exceed the allocation percentage in the first
paragraph.
Finally, the Advisory Committee will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation for
the Plan Year bears to the total Compensation of all Participants for the
Plan Year.
[ ] (h) FOUR-TIERED INTEGRATED ALLOCATION FORMULA. First, the Advisory
Committee will allocate the annual Employer nonelective contributions in
the same ratio that each Participant's Compensation for the Plan Year
bears to the total Compensation of all Participants for the Plan Year,
but not exceeding 3% of each Participant's Compensation. Solely for
purposes of this first tier allocation, a "Participant" means, in
addition to any Participant who satisfies the requirements of Section
3.06 for the Plan Year, any other Participant entitled to a top heavy
minimum allocation under Section 3.04(B) of the Plan.
As a second tier allocation, the Advisory Committee will allocate the
nonelective contributions in the same ratio that each Participant's
Excess Compensation for the Plan Year bears to the total Excess
Compensation of all Participants for the Plan Year, but not exceeding 3%
of each Participant's Excess Compensation.
As a third tier allocation, the Advisory Committee will allocate the
annual Employer contributions in the same ratio that each Participant's
Compensation plus Excess Compensation for the Plan Year bears to the
total Compensation plus Excess Compensation of all Participants for the
Plan Year. The allocation under this paragraph, as a percentage of each
Participant's Compensation plus Excess Compensation, must not exceed the
applicable percentage (2.7%, 2.4% or 1.3%) listed under the Maximum
Disparity Table following Option (i).
The Advisory Committee then will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation for
the Plan Year bears to the total Compensation of all Participants for the
Plan Year.
[ ] (i) EXCESS COMPENSATION. For purposes of Option (f), (g) or (h),
"Excess Compensation" means Compensation in excess of the following
Integration Level: (CHOOSE (1) OR (2))
[ ] (1) ___% (not exceeding 100%) of the taxable wage base, as
determined under Section 230 of the Social Security Act, in effect
on the first day of the Plan Year: (CHOOSE ANY COMBINATION OF (A)
AND (B) OR CHOOSE (C))
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[ ] (a) Rounded to ____ (but not exceeding the taxable wage
base).
[ ] (b) But not greater than $____.
[ ] (c) Without any further adjustment or limitation.
[ ] (2) $___ [NOTE: NOT EXCEEDING THE TAXABLE WAGE BASE FOR THE
PLAN YEAR IN WHICH THIS ADOPTION AGREEMENT FIRST IS EFFECTIVE.]
MAXIMUM DISPARITY TABLE. For purposes of Options (f), (g) and (h), the
applicable percentage is:
<TABLE>
<CAPTION>
INTEGRATION LEVEL (AS APPLICABLE PERCENTAGES FOR APPLICABLE PERCENTAGES
PERCENTAGE OF TAXABLE WAGE BASE) OPTION (F) OR OPTION (G) FOR OPTION (H)
- ---------------------------------------- -------------------------- ----------------------
<S> <C> <C>
100% .................................... 5.7% 2.7%
More than 80% but less than 100% ........ 5.4% 2.4%
More than 20% (but not less than $10,001)
and not more than 80% ................... 4.3% 1.3%
20% (or $10,000, if greater) or less .... 5.7% 2.7%
</TABLE>
[ ] (j) ALLOCATION OFFSET. The Advisory Committee will reduce a
Participant's allocation otherwise made under Part II of this Section
3.04 by the Participant's allocation under the following qualified
plan(s) maintained by the Employer:___.
The Advisory Committee will determine this allocation reduction: (CHOOSE
(1) OR (2))
[ ] (1) By treating the term "nonelective contribution" as including
all amounts paid or accrued by the Employer during the Plan Year to
the qualified plan(s) referenced under this Option (j). If a
Participant under this Plan also participates in that other plan,
the Advisory Committee will treat the amount the Employer
contributes for or during a Plan Year on behalf of a particular
Participant under such other plan as an amount allocated under this
Plan to that Participant's Account for that Plan Year. The Advisory
Committee will make the computation of allocation required under the
immediately preceding sentence before making any allocation of
nonelective contributions under this Section 3.04.
[ ] (2) In accordance with the formula provided in an addendum to this
Adoption Agreement, numbered 3.04(j).
TOP HEAVY MINIMUM ALLOCATION - METHOD OF COMPLIANCE. If a Participant's
allocation under this Section 3.04 is less than the top heavy minimum allocation
to which he is entitled under Section 3.04(B): (CHOOSE (K) OR (L))
[X] (k) The Employer will make any necessary additional contribution to the
Participant's Account, as described in Section 3.04(B)(7)(a) of the Plan.
[ ] (l) The Employer will satisfy the top heavy minimum allocation under
the following plan(s) it maintains: . However, the Employer will make any
necessary additional contribution to satisfy the top heavy minimum
allocation for an Employee covered only under this Plan and not under the
other plan(s) designated in this Option (l). See Section 3.04(B)(7)(b) of
the Plan.
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<PAGE>
If the Employer maintains another plan, the Employer may provide in an addendum
to this Adoption Agreement, numbered Section 3.04, any modifications to the Plan
necessary to satisfy the top heavy requirements under Code ss.416.
RELATED EMPLOYERS. If two or more related employers (as defined in Section 1.30)
contribute to this Plan, the Advisory Committee must allocate all Employer
nonelective contributions (and forfeitures treated as nonelective contributions)
to each Participant in the Plan, in accordance with the elections in this
Adoption Agreement Section 3.04: (CHOOSE (M) OR (N))
[X] (m) Without regard to which contributing related group member employs the
Participant.
[ ] (n) Only to the Participants directly employed by the contributing
Employer. If a Participant receives Compensation from more than one
contributing Employer, the Advisory Committee will determine the
allocations under this Adoption Agreement Section 3.04 by prorating among
the participating Employers the Participant's Compensation and, if
applicable, the Participant's Integration Level under Option (i).
3.05 FORFEITURE ALLOCATION. Subject to any restoration allocation
required under Sections 5.04 or 9.14, the Advisory Committee will allocate a
Participant forfeiture in accordance with Section 3.04: (CHOOSE (A) OR (B); (C)
AND (D) ARE OPTIONAL IN ADDITION TO (A) OR (B))
[N/A] (a) As an Employer nonelective contribution for the Plan Year in which
the forfeiture occurs, as if the Participant forfeiture were an
additional nonelective contribution for that Plan Year.
[N/A] (b) To reduce the Employer matching contributions and nonelective
contributions for the Plan Year: (CHOOSE (1) OR (2))
[ ] (1) in which the forfeiture occurs.
[ ] (2) immediately following the Plan Year in which the forfeiture
occurs.
[N/A] (c) To the extent attributable to matching contributions: (CHOOSE (1),
(2) OR (3))
[ ] (1) In the manner elected under Options (a) or (b).
[ ] (2) First to reduce Employer matching contributions for the
Plan Year: (CHOOSE (A) OR (B))
[ ] (a) in which the forfeiture occurs,
[ ] (b) immediately following the Plan Year in which the
forfeiture occurs, then as elected in Options (a) or (b).
[ ] (3) As a discretionary matching contribution for the Plan
Year in which the forfeiture occurs, in lieu of the manner
elected under Options (a) or (b).
[N/A] (d) First to reduce the Plan's ordinary and necessary administrative
expenses for the Plan Year and then will allocate any remaining
forfeitures in the manner described in Options (a), (b) or (c), whichever
applies. If the Employer elects Option (c), the forfeitures used to
reduce Plan expenses: (CHOOSE (1) OR (2))
[ ] (1) relate proportionately to forfeitures described in Option
(c) and to forfeitures described in Options (a) or (b).
[ ] (2) relate first to forfeitures described in Option ______.
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ALLOCATION OF FORFEITED EXCESS AGGREGATE CONTRIBUTIONS. The Advisory Committee
will allocate any forfeited excess aggregate contributions (as described in
Section 14.09): (CHOOSE (E), (F) OR (G))
[N/A] (e) To reduce Employer matching contributions for the Plan Year: (CHOOSE
(1) OR (2))
[ ] (1) in which the forfeiture occurs.
[ ] (2) immediately following the Plan Year in which the forfeiture
occurs.
[N/A] (f) As Employer discretionary matching contributions for the Plan
Year in which forfeited, except the Advisory Committee will not
allocate these forfeitures to the Highly Compensated Employees who
incurred the forfeitures.
[N/A] (g) In accordance with Options (a) through (d), whichever applies,
except the Advisory Committee will not allocate these forfeitures
under Option (a) or under Option (c)(3) to the Highly Compensated
Employees who incurred the forfeitures.
3.06 ACCRUAL OF BENEFIT.
COMPENSATION TAKEN INTO ACCOUNT. For the Plan Year in which the Employee first
becomes a Participant, the Advisory Committee will determine the allocation of
any cash or deferred contribution, designated qualified nonelective contribution
by taking into account: (CHOOSE (A) OR (B))
[ ] (a) The Employee's Compensation for the entire Plan Year.
[X] (b) The Employee's Compensation for the portion of the Plan Year in which
the Employee actually is a Participant in the Plan.
ACCRUAL REQUIREMENTS. Subject to the suspension of accrual requirements of
Section 3.06(E) of the Plan, to receive an allocation of cash or deferred
contributions, matching contributions, designated qualified nonelective
contributions, nonelective contributions and Participant forfeitures, if any,
for the Plan Year, a Participant must satisfy the conditions described in the
following elections: (CHOOSE (C), OR AT LEAST ONE OF (D) THROUGH (F))
[ ] (c) SAFE HARBOR RULE. If the Participant is employed by the Employer on
the last day of the Plan Year, the Participant must complete at least one
Hour of Service for that Plan Year. If the Participant is not employed by
the Employer on the last day of the Plan Year, the Participant must
complete at least 501 Hours of Service during the Plan Year.
[ ] (d) HOURS OF SERVICE CONDITION. The Participant must complete the
following minimum number of Hours of Service during the Plan Year:
(CHOOSE AT LEAST ONE OF (1) THROUGH (5))
[ ] (1) 1,000 Hours of Service.
[ ] (2) (SPECIFY, BUT THE NUMBER OF HOURS OF SERVICE MAY NOT EXCEED
1,000) ____.
[ ] (3) No Hour of Service requirement if the Participant terminates
employment during the Plan Year on account of: (CHOOSE (A), (B) OR
(C))
[ ] (a) Death.
[ ] (b) Disability.
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[ ] (c) Attainment of Normal Retirement Age in the current Plan
Year or in a prior Plan Year.
[ ] (4) ___ Hours of Service (not exceeding 1,000) if the Participant
terminates employment with the Employer during the Plan Year,
subject to any election in Option (3).
[ ] (5) No Hour of Service requirement for an allocation of the
following contributions:_____.
[X] (e) EMPLOYMENT CONDITION. The Participant must be employed by the
Employer on the last day of the Plan Year, irrespective of whether he
satisfies any Hours of Service condition under Option (d), with the
following exceptions: (CHOOSE (1) OR AT LEAST ONE OF (2) THROUGH (5))
[ ] (1) No exceptions.
[X] (2) Termination of employment because of death.
[ ] (3) Termination of employment because of disability.
[X] (4) Termination of employment following attainment of Normal
Retirement Age.
[ ] (5) No employment condition for the following contributions:_____ .
[X] (f) (SPECIFY OTHER CONDITIONS, IF APPLICABLE): A PARTICIPANT WILL FORFEIT
ANY CONTRIBUTION ATTRIBUTABLE TO AN EXCESS CONTRIBUTION OR TO AN EXCESS
AGGREGATE CONTRIBUTION, UNLESS DISTRIBUTED PURSUANT TO SECTIONS 14.08 OR
14.09.
SUSPENSION ACCRUAL REQUIREMENTS. The suspension of accrual requirements of
Section 3.06(E) of the Plan: (CHOOSE (G), (H) OR (I))
[ ] (g) Applies to the Employer's Plan.
[X] (h) Does not apply to the Employer's Plan.
[ ] (i) Applies in modified form to the Employer's Plan, as described in an
addendum to this Adoption Agreement, numbered Section 3.06(E).
SPECIAL ACCRUAL REQUIREMENTS FOR MATCHING CONTRIBUTIONS. If the Plan allocates
matching contributions on two or more allocation dates for a Plan Year, the
Advisory Committee, unless otherwise specified in Option (l), will apply any
Hours of Service condition by dividing the required Hours of Service on a
prorata basis to the allocation periods included in that Plan Year. Furthermore,
a Participant who satisfies the conditions described in this Adoption Agreement
Section 3.06 will receive an allocation of matching contributions (and
forfeitures treated as matching contributions) only if the Participant satisfies
the following additional condition(s): (CHOOSE (J) OR AT LEAST ONE OF (K) OR
(L))
[X] (j) No additional conditions.
[ ] (k) The Participant is not a Highly Compensated Employee for the Plan
Year. This Option (k) applies to: (CHOOSE (1) OR (2))
[ ] (1) All matching contributions.
[ ] (2) Matching contributions described in Option(s) ______ of Adoption
Agreement Section 3.01.
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[ ] (l) (SPECIFY) ____.
3.15 MORE THAN ONE PLAN LIMITATION. If the provisions of Section 3.15
apply, the Excess Amount attributed to this Plan equals: (CHOOSE (A), (B) OR
(C))
[ ] (a) The product of:
(1) the total Excess Amount allocated as of such date (including any
amount which the Advisory Committee would have allocated but for the
limitations of Code ss.415), times
(2) the ratio of (1) the amount allocated to the Participant as of
such date under this Plan divided by (2) the total amount allocated
as of such date under all qualified defined contribution plans
(determined without regard to the limitations of Code ss.415).
[X] (b) The total Excess Amount.
[ ] (c) None of the Excess Amount.
3.18 DEFINED BENEFIT PLAN LIMITATION.
APPLICATION OF LIMITATION. The limitation under Section 3.18 of the Plan:
(CHOOSE (A) OR (B))
[ ] (a) Does not apply to the Employer's Plan because the Employer does not
maintain and never has maintained a defined benefit plan covering any
Participant in this Plan.
[X] (b) Applies to the Employer's Plan. To the extent necessary to satisfy
the limitation under Section 3.18, the Employer will reduce: (CHOOSE (1)
OR (2))
[ ] (1) The Participant's projected annual benefit under the defined
benefit plan under which the Participant participates.
[X] (2) Its contribution or allocation on behalf of the Participant to
the defined contribution plan under which the Participant
participates and then, if necessary, the Participant's projected
annual benefit under the defined benefit plan under which the
Participant participates.
[NOTE: IF THE EMPLOYER SELECTS (A), THE REMAINING OPTIONS IN THIS SECTION 3.18
DO not APPLY TO THE EMPLOYER'S PLAN.]
COORDINATION WITH TOP HEAVY MINIMUM ALLOCATION. The Advisory Committee will
apply the top heavy minimum allocation provisions of Section 3.04(B) of the Plan
with the following modifications: (CHOOSE (C) OR AT LEAST ONE OF (D) OR (E))
[X] (c) No modifications.
[ ] (d) For Non-Key Employees participating only in this Plan, the top
heavy minimum allocation is the minimum allocation described in Section
3.04(B) determined by substituting % (not less than 4%) for "3%," except:
(CHOOSE (1) OR (2))
[ ] (1) No exceptions.
[ ] (2) Plan Years in which the top heavy ratio exceeds 90%.
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[ ] (e) For Non-Key Employees also participating in the defined benefit
plan, the top heavy minimum is: (CHOOSE (1) OR (2))
[ ] (1) 5% of Compensation (as determined under Section 3.04(B) of
the Plan) irrespective of the contribution rate of any Key
Employee, except: (CHOOSE (I) OR (II))
[ ] (a) No exceptions.
[ ] (b) Substituting "7 1/2%" for "5%" if the top heavy ratio
does not exceed 90%.
[ ] (2) 0%. [NOTE: THE EMPLOYER MAY NOT SELECT THIS OPTION (2) UNLESS
THE DEFINED BENEFIT PLAN SATISFIES THE TOP HEAVY MINIMUM BENEFIT
REQUIREMENTS OF CODESS.416 FOR THESE NON-KEY EMPLOYEES.]
ACTUARIAL ASSUMPTIONS FOR TOP HEAVY CALCULATION. To determine the top heavy
ratio, the Advisory Committee will use the following interest rate and mortality
assumptions to value accrued benefits under a defined benefit plan: UP1984, 7%.
If the elections under this Section 3.18 are not appropriate to satisfy the
limitations of Section 3.18, or the top heavy requirements under Code ss.416,
the Employer must provide the appropriate provisions in an addendum to this
Adoption Agreement.
ARTICLE IV
PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. The Plan: (CHOOSE (A) OR
(B); (C) IS AVAILABLE ONLY WITH (B))
[X] (a) Does not permit Participant nondeductible contributions.
[ ] (b) Permits Participant nondeductible contributions, pursuant to
Section 14.04 of the Plan.
[ ] (c) The following portion of the Participant's nondeductible
contributions for the Plan Year are mandatory contributions under Option
(i)(3) of Adoption Agreement Section 3.01: (CHOOSE (1) OR (2))
[ ] (1) The amount which is not less than:_____.
[ ] (2) The amount which is not greater than:_______.
ALLOCATION DATES. The Advisory Committee will allocate nondeductible
contributions for each Plan Year as of the Accounting Date and the following
additional allocation dates: (CHOOSE (D) OR (E))
[ ] (d) No other allocation dates.
[ ] (e) (SPECIFY) ______.
As of an allocation date, the Advisory Committee will credit all nondeductible
contributions made for the relevant allocation period. Unless otherwise
specified in (e), a nondeductible contribution relates to an allocation period
only if actually made to the Trust no later than 30 days after that allocation
period ends.
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<PAGE>
4.05 PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION. Subject to the
restrictions of Article VI, the following distribution options apply to a
Participant's Mandatory Contributions Account, if any, prior to his Separation
from Service: (CHOOSE (A) OR AT LEAST ONE OF (B) THROUGH (D))
[ ] (a) No distribution options prior to Separation from Service.
[ ] (b) The same distribution options applicable to the Deferral
Contributions Account prior to the Participant's Separation from Service,
as elected in Adoption Agreement Section 6.03.
[ ] (c) Until he retires, the Participant has a continuing election to
receive all or any portion of his Mandatory Contributions Account if:
(CHOOSE (1) OR AT LEAST ONE OF (2) THROUGH (4))
[ ] (1) No conditions.
[ ] (2) The mandatory contributions have accumulated for at least Plan
Years since the Plan Year for which contributed.
[ ] (3) The Participant suspends making nondeductible contributions
for a period of ___ months.
[ ] (4) (SPECIFY) ____.
[ ] (d) (SPECIFY) _______.
ARTICLE V
TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 NORMAL RETIREMENT. Normal Retirement Age under the Plan is: (CHOOSE
(A) OR (B))
[X] (a) 65 [STATE AGE, BUT MAY NOT EXCEED AGE 65].
[ ] (b) The later of the date the Participant attains years of age or the
anniversary of the first day of the Plan Year in which the Participant
commenced participation in the Plan. [THE AGE SELECTED MAY NOT EXCEED AGE
65 AND THE ANNIVERSARY SELECTED MAY NOT EXCEED THE 5TH.]
5.02 PARTICIPANT DEATH OR DISABILITY. The 100% vesting rule under Section
5.02 of the Plan: (CHOOSE (A) OR CHOOSE ONE OR BOTH OF (B) AND (C))
[ ] (a) Does not apply.
[X] (b) Applies to death.
[X] (c) Applies to disability.
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5.03 VESTING SCHEDULE.
DEFERRAL CONTRIBUTIONS ACCOUNT/QUALIFIED MATCHING CONTRIBUTIONS
ACCOUNT/QUALIFIED NONELECTIVE CONTRIBUTIONS ACCOUNT/MANDATORY CONTRIBUTIONS
ACCOUNT. A Participant has a 100% Nonforfeitable interest at all times in his
Deferral Contributions Account, his Qualified Matching Contributions Account,
his Qualified Nonelective Contributions Account and in his Mandatory
Contributions Account.
REGULAR MATCHING CONTRIBUTIONS ACCOUNT/EMPLOYER CONTRIBUTIONS ACCOUNT. With
respect to a Participant's Regular Matching Contributions Account and Employer
Contributions Account, the Employer elects the following vesting schedule:
(CHOOSE (A) OR (B); (C) AND (D) ARE AVAILABLE ONLY AS ADDITIONAL OPTIONS)
[X] (a) Immediate vesting. 100% Nonforfeitable at all times. [NOTE: THE
EMPLOYER MUST ELECT OPTION (A) IF THE ELIGIBILITY CONDITIONS UNDER
ADOPTION AGREEMENT SECTION 2.01(C) REQUIRE 2 YEARS OF SERVICE OR MORE
THAN 12 MONTHS OF EMPLOYMENT.]
[ ] (b) Graduated Vesting Schedules.
TOP HEAVY SCHEDULE NON TOP HEAVY SCHEDULE
(MANDATORY) (OPTIONAL)
YEARS OF NONFORFEITABLE YEARS OF NONFORFEITABLE
SERVICE PERCENTAGE SERVICE PERCENTAGE
Less than 1 __% Less than 1 __%
1 __% 1 __%
2 __% 2 __%
3 __% 3 __%
4 __% 4 __%
5 __% 5 __%
6 or more 100% 6 __%
7 or more 100%
[ ] (c) Special vesting election for Regular Matching Contributions
Account. In lieu of the election under Options (a) or (b), the Employer
elects the following vesting schedule for a Participant's Regular
Matching Contributions Account: (CHOOSE (1) OR (2))
[ ] (1) 100% Nonforfeitable at all times.
[ ] (2) In accordance with the vesting schedule described in the
addendum to this Adoption Agreement, numbered 5.03(c). [NOTE: IF THE
EMPLOYER ELECTS THIS OPTION (C)(2), THE ADDENDUM MUST DESIGNATE THE
APPLICABLE VESTING SCHEDULE(S) USING THE SAME FORMAT AS USED IN
OPTION (B).]
[NOTE: UNDER OPTIONS (B) AND (C)(2), THE EMPLOYER MUST COMPLETE A TOP HEAVY
SCHEDULE WHICH SATISFIES CODESS.416. THE EMPLOYER, AT ITS OPTION, MAY COMPLETE A
NON TOP HEAVY SCHEDULE. THE NON TOP HEAVY SCHEDULE MUST SATISFY
CODESS.411(A)(2). ALSO SEE SECTION 7.05 OF THE PLAN.]
[ ] (d) The Top Heavy Schedule under Option (b) (and, if applicable, under
Option (c)(2)) applies: (CHOOSE (1) OR (2))
[ ] (1) Only in a Plan Year for which the Plan is top heavy.
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<PAGE>
[ ] (2) In the Plan Year for which the Plan first is top heavy and then
in all subsequent Plan Years. [NOTE: THE EMPLOYER MAY NOT ELECT
OPTION (D) UNLESS IT HAS COMPLETED A NON TOP HEAVY SCHEDULE.]
MINIMUM VESTING. (CHOOSE (E) OR (F))
[X] (e) The Plan does not apply a minimum vesting rule.
[ ] (f) A Participant's Nonforfeitable Accrued Benefit will never be less
than the lesser of $___ or his entire Accrued Benefit, even if the
application of a graduated vesting schedule under Options (b) or (c)
would result in a smaller Nonforfeitable Accrued Benefit.
LIFE INSURANCE INVESTMENTS. The Participant's Accrued Benefit attributable to
insurance contracts purchased on his behalf under Article XI is: (CHOOSE (G) OR
(H))
[N/A] (g) Subject to the vesting election under Options (a), (b) or (c).
[N/A] (h) 100% Nonforfeitable at all times, irrespective of the vesting
election under Options (b) or (c)(2).
5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/RESTORATION
OF FORFEITED ACCRUED BENEFIT. The deemed cash-out rule described in Section
5.04(C) of the Plan: (CHOOSE (A) OR (B))
[X] (a) Does not apply.
[ ] (b) Will apply to determine the timing of forfeitures for 0% vested
Participants. A Participant is not a 0% vested Participant if he has a
Deferral Contributions Account.
5.06 YEAR OF SERVICE - VESTING.
VESTING COMPUTATION PERIOD. The Plan measures a Year of Service on the basis of
the following 12 consecutive month periods: (CHOOSE (A) OR (B))
[N/A] (a) Plan Years.
[N/A] (b) Employment Years. An Employment Year is the 12 consecutive month
period measured from the Employee's Employment Commencement Date and each
successive 12 consecutive month period measured from each anniversary of
that Employment Commencement Date.
HOURS OF SERVICE. The minimum number of Hours of Service an Employee must
complete during a vesting computation period to receive credit for a Year of
Service is: (CHOOSE (C) OR (D))
[N/A] (c) 1,000 Hours of Service.
[N/A] (d) _____ Hours of Service. [NOTE: THE HOURS OF SERVICE REQUIREMENT MAY
NOT EXCEED 1,000.]
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5.08 INCLUDED YEARS OF SERVICE - VESTING. The Employer specifically excludes
the following Years of Service: (CHOOSE (A) OR AT LEAST ONE OF (B)
THROUGH (E))
[X] (a) None other than as specified in Section 5.08(a) of the Plan.
[ ] (b) Any Year of Service before the Participant attained the age of __.
[NOTE: THE AGE SELECTED MAY NOT EXCEED AGE 18.]
[ ] (c) Any Year of Service during the period the Employer did not maintain
this Plan or a predecessor plan.
[ ] (d) Any Year of Service before a Break in Service if the number of
consecutive Breaks in Service equals or exceeds the greater of 5 or the
aggregate number of the Years of Service prior to the Break. This
exception applies only if the Participant is 0% vested in his Accrued
Benefit derived from Employer contributions at the time he has a Break in
Service. Furthermore, the aggregate number of Years of Service before a
Break in Service do not include any Years of Service not required to be
taken into account under this exception by reason of any prior Break in
Service.
[ ] (e) Any Year of Service earned prior to the effective date of ERISA if
the Plan would have disregarded that Year of Service on account of an
Employee's Separation from Service under a Plan provision in effect and
adopted before January 1, 1974.
ARTICLE VI
TIME AND METHOD OF PAYMENTS OF BENEFITS
CODE SS.411(D)(6) PROTECTED BENEFITS. The elections under this Article VI may
not eliminate Code ss.411(d)(6) protected benefits. To the extent the elections
would eliminate a Code ss.411(d)(6) protected benefit, see Section 13.02 of the
Plan. Furthermore, if the elections liberalize the optional forms of benefit
under the Plan, the more liberal options apply on the later of the adoption date
or the Effective Date of this Adoption Agreement.
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT.
DISTRIBUTION DATE. A distribution date under the Plan means ANY BUSINESS DAY OF
THE PLAN YEAR . [NOTE: THE EMPLOYER MUST SPECIFY THE APPROPRIATE DATE(S). THE
SPECIFIED DISTRIBUTION DATES PRIMARILY ESTABLISH ANNUITY STARTING DATES AND THE
NOTICE AND CONSENT PERIODS PRESCRIBED BY THE PLAN. THE PLAN ALLOWS THE TRUSTEE
AN ADMINISTRATIVELY PRACTICABLE PERIOD OF TIME TO MAKE THE ACTUAL DISTRIBUTION
RELATING TO A PARTICULAR DISTRIBUTION DATE.]
NONFORFEITABLE ACCRUED BENEFIT NOT EXCEEDING $3,500. Subject to the limitations
of Section 6.01(A)(1), the distribution date for distribution of a
Nonforfeitable Accrued Benefit not exceeding $3,500 is: (CHOOSE (A), (B), (C)
(D) OR (E))
[ ] (a)___ of the ___ Plan Year beginning after the Participant's
Separation from Service.
[X] (b) ANY BUSINESS DAY following the Participant's Separation from Service.
[ ] (c) __ of the Plan Year after the Participant incurs ___ Break(s) in
Service (as defined in Article V).
[ ] (d) __ following the Participant's attainment of Normal Retirement Age,
but not earlier than __ days following his Separation from Service.
[ ] (e) (SPECIFY)_____.
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NONFORFEITABLE ACCRUED BENEFIT EXCEEDS $3,500. See the elections under Section
6.03.
DISABILITY. The distribution date, subject to Section 6.01(A)(3), is: (CHOOSE
(F), (G) OR (H))
[ ] (f) ____ after the Participant terminates employment because of
disability.
[X] (g) The same as if the Participant had terminated employment without
disability.
[ ] (h) (SPECIFY) _____.
HARDSHIP. (CHOOSE (I) OR (J))
[X] (i) The Plan does not permit a hardship distribution to a Participant who
has separated from Service.
[ ] (j) The Plan permits a hardship distribution to a Participant who has
separated from Service in accordance with the hardship distribution
policy stated in: (CHOOSE (1), (2) OR (3))
[ ] (1) Section 6.01(A)(4) of the Plan.
[ ] (2) Section 14.11 of the Plan.
[ ] (3) The addendum to this Adoption Agreement, numbered Section
6.01.
DEFAULT ON A LOAN. If a Participant or Beneficiary defaults on a loan made
pursuant to a loan policy adopted by the Advisory Committee pursuant to Section
9.04, the Plan: (CHOOSE (K), (L) OR (M))
[X] (k) Treats the default as a distributable event. The Trustee, at the time
of the default, will reduce the Participant's 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, 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.
[ ] (l) Does not treat the default as a distributable event. When an
otherwise distributable event first occurs pursuant to Section 6.01 or
Section 6.03 of the Plan, the Trustee will reduce the Participant's
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.
[X] (m) (SPECIFY) IN THE EVENT OF A PARTICIPANT DEFAULT ON A LOAN, TO THE
EXTENT VESTED FUNDS ARE AVAILABLE OR BECOME AVAILABLE IN THE PARTICIPANT
ACCOUNT, A DEFAULTED LOAN MAY BE RECHARACTERIZED BY TRANSFERRING THE LOAN
ASSET TO ANOTHER SOURCE WITHIN THE PARTICIPANT'S ACCOUNT IN EXCHANGE FOR
ASSETS OTHER THAN PARTICIPANT LOANS IN SUCH SOURCES, IN ORDER TO PROVIDE
FOR THE IMMEDIATE DISTRIBUTION OF A DEFAULTED LOAN.
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. The Advisory Committee will
apply Section 6.02 of the Plan with the following modifications: (CHOOSE (A) OR
AT LEAST ONE OF (B), (C), (D) AND (E))
[X] (a) No modifications.
[ ] (b) Except as required under Section 6.01 of the Plan, a lump sum
distribution is not available: ______.
[ ] (c) An installment distribution: (CHOOSE (1) OR AT LEAST ONE OF (2) OR
(3))
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[ ] (1) Is not available under the Plan.
[ ] (2) May not exceed the lesser of ___ years or the maximum period
permitted under Section 6.02.
[ ] (3) (SPECIFY)_____.
[ ] (d) The Plan permits the following annuity options: ____.
Any Participant who elects a life annuity option is subject to the
requirements of Sections 6.04(A), (B), (C) and (D) of the Plan. See Section
6.04(E). [NOTE: THE EMPLOYER MAY SPECIFY ADDITIONAL ANNUITY OPTIONS IN AN
ADDENDUM TO THIS ADOPTION AGREEMENT, NUMBERED 6.02(D).]
[ ] (e) If the Plan invests in qualifying Employer securities, as described
in Section 10.03(F), a Participant eligible to elect distribution under
Section 6.03 may elect to receive that distribution in Employer
securities only in accordance with the provisions of the addendum to this
Adoption Agreement, numbered 6.02(e).
6.03 BENEFIT PAYMENT ELECTIONS.
PARTICIPANT ELECTIONS AFTER SEPARATION FROM SERVICE. A Participant who is
eligible to make distribution elections under Section 6.03 of the Plan may elect
to commence distribution of his Nonforfeitable Accrued Benefit: (CHOOSE AT LEAST
ONE OF (A) THROUGH (C))
[ ] (a) As of any distribution date, but not earlier than of the Plan Year
beginning after the Participant's Separation from Service.
[X] (b) As of the following date(s): (CHOOSE AT LEAST ONE OF OPTIONS (1)
THROUGH (6))
[ ] (1) Any distribution date after the close of the Plan Year in
which the Participant attains Normal Retirement Age.
[X] (2) Any distribution date following his Separation from Service with
the Employer.
[ ] (3) Any distribution date in the _______ Plan Year(s) beginning
after his Separation from Service.
[ ] (4) Any distribution date in the Plan Year after the Participant
incurs Break(s) in Service (as defined in Article V).
[ ] (5) Any distribution date following attainment of age and
completion of at least Years of Service (as defined in Article V).
[ ] (6) (SPECIFY)______ .
[ ] (c) (SPECIFY) _______.
The distribution events described in the election(s) made under Options
(a), (b) or (c) apply equally to all Accounts maintained for the Participant
unless otherwise specified in Option (c).
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PARTICIPANT ELECTIONS PRIOR TO SEPARATION FROM SERVICE - REGULAR MATCHING
CONTRIBUTIONS ACCOUNT AND EMPLOYER CONTRIBUTIONS ACCOUNT. Subject to the
restrictions of Article VI, the following distribution options apply to a
Participant's Regular Matching Contributions Account and Employer Contributions
Account prior to his Separation from Service. (CHOOSE (D) OR AT LEAST ONE OF (E)
THROUGH (H))
[ ] (d) No distribution options prior to Separation from Service.
[X] (e) Attainment of Specified Age. Until he retires, the Participant has a
continuing election to receive all or any portion of his Nonforfeitable
interest in these Accounts after he attains: (CHOOSE (1) OR (2))
[ ] (1) Normal Retirement Age.
[X] (2) 59 1/2 years of age and is at least N/A % vested in these
Accounts. [NOTE: IF THE PERCENTAGE IS LESS THAN 100%, SEE THE
SPECIAL VESTING FORMULA IN SECTION 5.03.]
[ ] (f) After a Participant has participated in the Plan for a period of
not less than ___ years and he is 100% vested in these Accounts, until he
retires, the Participant has a continuing election to receive all or any
portion of the Accounts. [NOTE: THE NUMBER IN THE BLANK SPACE MAY NOT BE
LESS THAN 5.]
[X] (g) Hardship. A Participant may elect a hardship distribution prior to
his Separation from Service in accordance with the hardship distribution
policy: (CHOOSE (1), (2) OR (3); (4) IS AVAILABLE ONLY AS AN ADDITIONAL
OPTION)
[ ] (1) Under Section 6.01(A)(4) of the Plan.
[X] (2) Under Section 14.11 of the Plan.
[ ] (3) Provided in the addendum to this Adoption Agreement, numbered
Section 6.03.
[ ] (4) In no event may a Participant receive a hardship distribution
before he is at least ___% vested in these Accounts. [NOTE: IF THE
PERCENTAGE IN THE BLANK IS LESS THAN 100%, SEE THE SPECIAL VESTING
FORMULA IN SECTION 5.03.]
[ ] (h) (SPECIFY)_____.
[NOTE: THE EMPLOYER MAY USE AN ADDENDUM, NUMBERED 6.03, TO PROVIDE ADDITIONAL
LANGUAGE AUTHORIZED BY OPTIONS (B)(6), (C), (G)(3) OR (H) OF THIS ADOPTION
AGREEMENT SECTION 6.03.]
PARTICIPANT ELECTIONS PRIOR TO SEPARATION FROM SERVICE - DEFERRAL CONTRIBUTIONS
ACCOUNT, QUALIFIED MATCHING CONTRIBUTIONS ACCOUNT AND QUALIFIED NONELECTIVE
CONTRIBUTIONS ACCOUNT. Subject to the restrictions of Article VI, the following
distribution options apply to a Participant's Deferral Contributions Account,
Qualified Matching Contributions Account and Qualified Nonelective Contributions
Account prior to his Separation from Service. (CHOOSE (I) OR AT LEAST ONE OF (J)
THROUGH (L))
[ ] (i) No distribution options prior to Separation from Service.
[X] (j) Until he retires, the Participant has a continuing election to
receive all or any portion of these Accounts after he attains: (CHOOSE
(1) OR (2))
[ ] (1) The later of Normal Retirement Age or age 59 1/2.
[X] (2) Age 59 1/2 (at least 59 1/2).
26
<PAGE>
[X] (k) Hardship. A Participant, prior to this Separation from Service, may
elect a hardship distribution from his Deferral Contributions Account in
accordance with the hardship distribution policy under Section 14.11 of
the Plan.
[ ] (l) (SPECIFY)______. [NOTE: OPTION (L) MAY NOT PERMIT IN SERVICE
DISTRIBUTIONS PRIOR TO AGE 59 1/2 (OTHER THAN HARDSHIP) AND MAY NOT
MODIFY THE HARDSHIP POLICY DESCRIBED IN SECTION 14.11.]
SALE OF TRADE OR BUSINESS/SUBSIDIARY. If the Employer sells substantially all of
the assets (within the meaning of Code ss.409(d)(2)) used in a trade or business
or sells a subsidiary (within the meaning of Code ss.409(d)(3)), a Participant
who continues employment with the acquiring corporation is eligible for
distribution from his Deferral Contributions Account, Qualified Matching
Contributions Account and Qualified Nonelective Contributions Account: (CHOOSE
(M) OR (N))
[ ] (m) Only as described in this Adoption Agreement Section 6.03 for
distributions prior to Separation from Service.
[X] (n) As if he has a Separation from Service. After March 31, 1988, a
distribution authorized solely by reason of this Option (n) must
constitute a lump sum distribution, determined in a manner consistent
with Code ss.401(k)(10) and the applicable Treasury regulations.
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. The
annuity distribution requirements of Section 6.04: (CHOOSE (A) OR (B))
[ ] (a) Apply only to a Participant described in Section 6.04(E) of the
Plan (relating to the profit sharing exception to the joint and survivor
requirements).
[X] (b) Apply to all Participants.
ARTICLE IX
ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS
9.10 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. If a distribution (other
than a distribution from a segregated Account and other than a corrective
distribution described in Sections 14.07, 14.08, 14.09 or 14.10 of the Plan)
occurs more than 90 days after the most recent valuation date, the distribution
will include interest at: (CHOOSE (A), (B) OR (C))
[X] (a) 0 % per annum. [NOTE: THE PERCENTAGE MAY EQUAL 0%.]
[ ] (b) The 90 day Treasury bill rate in effect at the beginning of the
current valuation period.
[ ] (c) (SPECIFY)______.
9.11 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. Pursuant to
Section 14.12, to determine the allocation of net income, gain or loss:
(COMPLETE ONLY THOSE ITEMS, IF ANY, WHICH ARE APPLICABLE TO THE EMPLOYER'S PLAN)
[X] (a) For salary reduction contributions, the Advisory Committee will:
(CHOOSE (1), (2), (3), (4) OR (5))
[ ] (1) Apply Section 9.11 without modification.
[ ] (2) Use the segregated account approach described in Section
14.12.
27
<PAGE>
[ ] (3) Use the weighted average method described in Section 14.12,
based on a ____ weighting period.
[ ] (4) Treat as part of the relevant Account at the beginning of
the valuation period ____% of the salary reduction contributions:
(CHOOSE (A) OR (B))
[ ] (a) made during that valuation period.
[ ] (b) made by the following specified time: ______.
[X] (5) Apply the allocation method described in the addendum to
this Adoption Agreement numbered 9.11(a).
[X] (b) For matching contributions, the Advisory Committee will: (CHOOSE (1),
(2) (3) OR (4))
[ ] (1) Apply Section 9.11 without modification.
[ ] (2) Use the weighted average method described in Section 14.12,
based on a ____ weighting period.
[ ] (3) Treat as part of the relevant Account at the beginning of the
valuation period % of the matching contributions allocated during
the valuation period.
[X] (4) Apply the allocation method described in the addendum to this
Adoption Agreement numbered 9.11(b).
[ ] (c) For Participant nondeductible contributions, the Advisory Committee
will: (CHOOSE (1), (2), (3) OR (4))
[ ] (1) Apply Section 9.11 without modification.
[ ] (2) Use the segregated account approach described in Section
14.12.
[ ] (3) Use the weighted average method described in Section 14.12,
based on a ___ weighting period.
[ ] (4) Treat as part of the relevant Account at the beginning of the
valuation period ___% of the Participant nondeductible
contributions: (CHOOSE (A) OR (B))
[ ] (a) made during that valuation period.
[ ] (b) made by the following specified time:_____.
[ ] (5) Apply the allocation method described in the addendum to this
Adoption Agreement numbered 9.11(c).
ARTICLE X
TRUSTEE AND CUSTODIAN, POWERS AND DUTIES
28
<PAGE>
10.03 INVESTMENT POWERS. Pursuant to Section 10.03[F] of the Plan, the
aggregate investments in qualifying Employer securities and in qualifying
Employer real property: (CHOOSE (A) OR (B))
[ ] (a) May not exceed 10% of Plan assets.
[X] (b) May not exceed 0 % of Plan assets. [NOTE: THE PERCENTAGE MAY NOT
EXCEED 100%.]
10.14 VALUATION OF TRUST. In addition to each Accounting Date, the
Trustee must value the Trust Fund on the following valuation date(s): (CHOOSE
(A) OR (B))
[ ] (a) No other mandatory valuation dates.
[X] (b) (SPECIFY) ANY BUSINESS DAY UPON WHICH ASSETS CAN BE PURCHASED OR
SOLD.
29
<PAGE>
EFFECTIVE DATE ADDENDUM
(RESTATED PLANS ONLY)
The Employer must complete this addendum only if the restated Effective
Date specified in Adoption Agreement Section 1.18 is different than the restated
effective date for at least one of the provisions listed in this addendum. In
lieu of the restated Effective Date in Adoption Agreement Section 1.18, the
following special effective dates apply: (CHOOSE WHICHEVER ELECTIONS APPLY)
[ ] (a) COMPENSATION DEFINITION. The Compensation definition of Section
1.12 (other than the $200,000 limitation) is effective for Plan Years
beginning after _____. [NOTE: MAY NOT BE EFFECTIVE LATER THAN THE FIRST
DAY OF THE FIRST PLAN YEAR BEGINNING AFTER THE EMPLOYER EXECUTES THIS
ADOPTION AGREEMENT TO RESTATE THE PLAN FOR THE TAX REFORM ACT OF 1986, IF
APPLICABLE.]
[ ] (b) ELIGIBILITY CONDITIONS. The eligibility conditions specified in
Adoption Agreement Section 2.01 are effective for Plan Years beginning
after _____.
[ ] (c) SUSPENSION OF YEARS OF SERVICE. The suspension of Years of Service
rule elected under Adoption Agreement Section 2.03 is effective for Plan
Years beginning after ____.
[ ] (d) CONTRIBUTION/ALLOCATION FORMULA. The contribution formula elected
under Adoption Agreement Section 3.01 and the method of allocation
elected under Adoption Agreement Section 3.04 is effective for Plan Years
beginning after ____.
[ ] (e) ACCRUAL REQUIREMENTS. The accrual requirements of Section 3.06 are
effective for Plan Years beginning after ____.
[ ] (f) EMPLOYMENT CONDITION. The employment condition of Section 3.06 is
effective for Plan Years beginning after _____.
[ ] (g) ELIMINATION OF NET PROFITS. The requirement for the Employer not to
have net profits to contribute to this Plan is effective for Plan Years
beginning after _____. [NOTE: THE DATE SPECIFIED MAY NOT BE EARLIER THAN
DECEMBER 31, 1985.]
[ ] (h) VESTING SCHEDULE. The vesting schedule elected under Adoption
Agreement Section 5.03 is effective for Plan Years beginning after ____.
[ ] (i) ALLOCATION OF EARNINGS. The special allocation provisions elected
under Adoption Agreement Section 9.11 are effective for Plan Years
beginning after ____.
[X] (j) (SPECIFY) TRUSTEE: THE APPOINTMENT OF CHASE BANK OF TEXAS, N.A. AS
TRUSTEE UNDER SECTION 1.02 IS EFFECTIVE UPON EXECUTION OF THIS DOCUMENT.
ALLOCATION OF EARNINGS: THE SPECIAL ALLOCATION PROVISIONS ELECTED UNDER
SECTION 9.11 ARE EFFECTIVE THE DATE ASSETS ARE TRANSFERRED TO THE CHASE
RETIREMENT SOLUTIONS SYSTEM.
For Plan Years prior to the special Effective Date, the terms of the Plan
prior to its restatement under this Adoption Agreement will control for purposes
of the designated provisions. A special Effective Date may not result in the
delay of a Plan provision beyond the permissible Effective Date under any
applicable law requirements.
30
<PAGE>
EXECUTION PAGE
The Trustee (and Custodian, if applicable), by executing this Adoption
Agreement, accepts its position and agrees to all of the obligations,
responsibilities and duties imposed upon the Trustee (or Custodian) under the
Master Plan and Trust. The Employer hereby agrees to the provisions of this Plan
and Trust, and in witness of its agreement, the Employer by its duly authorized
officers, has executed this Adoption Agreement, and the Trustee (and Custodian,
if applicable) signified its acceptance, on this _______________ day of
__________________________, 19 ____.
Name and EIN of Employer:
Advanced Technical Products, Inc.
11-1581582
Signed: ___________________________________
Name(s) of Trustee:
Chase Bank of Texas, N.A.
Signed: ___________________________________
PLAN NUMBER. The 3-digit plan number the Employer assigns to this Plan for ERISA
reporting purposes (Form 5500 Series) is: 001.
USE OF ADOPTION AGREEMENT. Failure to complete properly the elections in this
Adoption Agreement may result in disqualification of the Employer's Plan. The
3-digit number assigned to this Adoption Agreement (see page 1) is solely for
the Master Plan Sponsor's recordkeeping purposes and does not necessarily
correspond to the plan number the Employer designated in the prior paragraph.
MASTER PLAN SPONSOR. The Master Plan Sponsor identified on the first page of the
basic plan document will notify all adopting employers of any amendment of this
Master Plan or of any abandonment or discontinuance by the Master Plan Sponsor
of its maintenance of this Master Plan. For inquiries regarding the adoption of
the Master Plan, the Master Plan Sponsor's intended meaning of any plan
provisions or the effect of the opinion letter issued to the Master Plan
Sponsor, please contact the Master Plan Sponsor at the following address and
telephone number: P.O. BOX 660197, DALLAS, TX 75266-0197 (214) 965-4369.
RELIANCE ON OPINION LETTER. The Employer may not rely on the Master Plan
Sponsor's opinion letter covering this Adoption Agreement. For reliance on the
Plan's qualification, the Employer must obtain a determination letter from the
applicable IRS Key District office.
31
<PAGE>
PARTICIPATION AGREEMENT
FOR PARTICIPATION BY RELATED GROUP MEMBERS (PLAN SECTION 1.30)
The undersigned Employer, by executing this Participation Agreement,
elects to become a Participating Employer in the Plan identified in Section 1.03
of the accompanying Adoption Agreement, as if the Participating Employer were a
signatory to that Agreement. The Participating Employer accepts, and agrees to
be bound by, all of the elections granted under the provisions of the Master
Plan as made by ADVANCED TECHNICAL PRODUCTS, INC. , the Signatory Employer to
the Execution Page of the Adoption Agreement.
1. The Effective Date of the undersigned Employer's participation in
the designated Plan is: JANUARY 1, 1999.
2. The undersigned Employer's adoption of this Plan constitutes:
[ ] (a) The adoption of a new plan by the Participating Employer.
[X] (b) The adoption of an amendment and restatement of a plan currently
maintained by the Employer, identified as LUNN INDUSTRIES, INC.
401(K) PLAN , and having an original effective date of JANUARY 1,
1988 .
Dated this __________ day of _____________________ , 19___.
Name of Participating Employer: ALCORE, INC.
Signed: __________________________________________________
Participating Employer's EIN: 52-1762126
ACCEPTANCE BY THE SIGNATORY EMPLOYER TO THE EXECUTION PAGE OF THE ADOPTION
AGREEMENT AND BY THE TRUSTEE.
Name of Signatory Employer: ADVANCED TECHNICAL PRODUCTS , INC.
Accepted: _______________________
Signed:____________________________________________
Name(s) of Trustee: CHASE BANK OF TEXAS, N.A.
Accepted: _______________________
Signed:____________________________________________
[NOTE: EACH PARTICIPATING EMPLOYER MUST EXECUTE A SEPARATE PARTICIPATION
AGREEMENT. SEE THE EXECUTION PAGE OF THE ADOPTION AGREEMENT FOR IMPORTANT MASTER
PLAN INFORMATION.]
32
<PAGE>
PARTICIPATION AGREEMENT
FOR PARTICIPATION BY RELATED GROUP MEMBERS (PLAN SECTION 1.30)
The undersigned Employer, by executing this Participation Agreement,
elects to become a Participating Employer in the Plan identified in Section 1.03
of the accompanying Adoption Agreement, as if the Participating Employer were a
signatory to that Agreement. The Participating Employer accepts, and agrees to
be bound by, all of the elections granted under the provisions of the Master
Plan as made by ADVANCED TECHNICAL PRODUCTS, INC. , the Signatory Employer to
the Execution Page of the Adoption Agreement.
1. The Effective Date of the undersigned Employer's participation in
the designated Plan is: JANUARY 1, 1999.
2. The undersigned Employer's adoption of this Plan constitutes:
[ ] (a) The adoption of a new plan by the Participating Employer.
[X] (b) The adoption of an amendment and restatement of a plan currently
maintained by the Employer, identified as TECHNICAL PRODUCTS GROUP,
INC. RETIREMENT SAVINGS PLAN , and having an original effective date
of JUNE 1, 1995 .
Dated this __________ day of _____________________ , 19___.
Name of Participating Employer: TECHNICAL PRODUCTS GROUP, INC.
Signed: ________________________________________
Participating Employer's EIN: 76-0467373
ACCEPTANCE BY THE SIGNATORY EMPLOYER TO THE EXECUTION PAGE OF THE ADOPTION
AGREEMENT AND BY THE TRUSTEE.
Name of Signatory Employer: ADVANCED TECHNICAL PRODUCTS, INC.
Accepted: _______________________
Signed:_________________________________________
Name(s) of Trustee: CHASE BANK OF TEXAS, N.A.
Accepted: _______________________
Signed:_________________________________________
[NOTE: EACH PARTICIPATING EMPLOYER MUST EXECUTE A SEPARATE PARTICIPATION
AGREEMENT. SEE THE EXECUTION PAGE OF THE ADOPTION AGREEMENT FOR IMPORTANT MASTER
PLAN INFORMATION.]
33
<PAGE>
ADDENDUM TO ADOPTION AGREEMENT
EMPLOYER: Advanced Technical Products, Inc. EIN: 11-1581582
PLAN NAME: Advanced Technical Products, Inc.
401(k) Plan PLAN NUMBER: 001
The following permitted modifications to the Master Plan and Adoption Agreement
Sections are hereby adopted as indicated:
SECTION 5.03(A) SPECIAL VESTING FORMULA. In lieu of the special vesting formula
used in Section 5.03(A), the Advisory Committee will use the following formula:
P(AB + D) - D.
SECTION 8.01 BENEFICIARY DESIGNATION The Advisory Committee will consider a
divorce decree which terminates the Participant's marriage to his spouse as a
revocation of the Participant's designation, if any, of his spouse as his
Beneficiary under the Plan unless the divorce decree or a Qualified Domestic
Relations Order provides otherwise.
SECTION 9.11(A)(5) AND (B)(4) ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR
LOSS. The Advisory Committee will apply the following modifications:
Participants shall not be entitled to share in any earnings allocated
after payment of the entire vested balance except to the extent the funds were
advanced from the Participant's account at the time of payment.
Contributions received in an account subsequent to the distribution of the
total vested balance shall be entitled to earnings until the vested balance is
distributed.
34
EXHIBIT 10.43
AMENDMENT
TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AMENDMENT to AMENDED AND RESTATED EMPLOYMENT AGREEMENT made as of
the 30th day of March, 2000 by and between Advanced Technical Products, Inc., a
Delaware corporation (the "Company"), and Garrett L. Dominy (the "Executive").
WHEREAS, the Executive is currently employed by the Company pursuant
to that certain Amended and Restated Employment Agreement dated as of November
1, 1997 (the "Employment Agreement"); and
WHEREAS, the Company has entered into that certain January 2000
Agreement and Plan of Merger dated January 27, 2000 with ATP Holdings Inc. and
ATP Acquisition Corp. (the "Merger Agreement") pursuant to which a merger of ATP
Acquisition Corp. with and into the Company (the "Merger") is contemplated, and
pursuant to the terms of the Merger Agreement each of the Company and the
Executive have agreed that Section 4.3 of the Employment Agreement will be
amended, effective only when, and if, the Merger is consummated; and
WHEREAS, effective as of the date hereof James S. Carter has
resigned as the Company's President and Chief Executive Officer and the Company
wishes to employ the Executive, and the Executive is willing to serve, as the
Company's President and Chief Executive Officer; and
WHEREAS, the Company and the Executive mutually desire to amend the
terms of the Employment Agreement at this time in order to, among other things,
incorporate the terms of such additional employment.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. AMENDMENT. Pursuant to Section 7.4 of the Employment Agreement, the
Employment Agreement is hereby amended and superceded as follows:
(a) EMPLOYMENT DUTIES. Section 1.1 is hereby amended by deleting the
third sentence in said Section 1.1 in its entirety and replacing such sentence
with the following:
"During the Term, the Executive shall serve in the capacity of
President, Chief Executive Officer and Chief Financial Officer of the
Company, and shall also serve in those offices and directorships of
subsidiary corporations or entities of the Company to which he may from time
to time be appointed or elected; provided, however, that it is the
<PAGE>
understanding of the Company and the Executive that the parties intend to
mutually agree upon, and that the Company's Board will appoint, a person
other than the Executive to serve as the Company's Chief Financial Officer in
the future and at such time the Executive shall resign from the office of
Chief Financial Officer without effect to this Agreement, as amended, and
without giving rise to an event which could be deemed a constructive
termination of the Executive's employment."
(b) ANNUAL SALARY. Section 2.1 is hereby amended by deleting the
first sentence of said Section 2.1 in its entirety and replacing such sentence
with the following:
"The Company shall pay to the Executive an annual salary at a
rate of not less than three hundred twenty five thousand and no/100 dollars
($325,000.00) per year (the "ANNUAL SALARY"), subject to increase at the sole
discretion of the Board, provided, however, that the Annual Salary shall be
increased effective as of each Renewal Date of each year during the Term at a
minimum by a percentage equal to the percentage increase in the Consumer
Price Index (Income) for the previous fiscal year; provided, however that
from February 1, 2000 through the earlier of (i) the date on which the
Company secures substantial additional financing or (ii) the date on which
the Company is sold or otherwise acquired, including, without limitation the
consummation of the Merger (a "Payment Event") the Executive shall be paid
out only that pro rata amount of his Annual Salary based on $275,000 per year
and the remaining pro rata amount based on $50,000 per year shall be accrued
by the Company and paid to the Executive after consummation of a Payment
Event ."
(c) TERMINATION WITHOUT CAUSE. Section 4.3 is hereby amended by
deleting the second sentence of said Section 4.3 in its entirety and replacing
such sentence with the following:
"If the Executive is terminated during the Term without Cause
(including any termination which is deemed to be a constructive termination
without Cause under Section 4.6 hereof), the Company's obligation to the
Executive shall be limited solely to (i) the vesting of all stock options
granted to the Executive by the Company and (ii) the payment, at the times
granted and upon the terms provided for herein, of the Executive's Annual
Salary for a period of 18 months, based on the Annual Salary of the Executive
in effect on the date of termination (or, if the Company has reduced the
Executive's Annual Salary in breach of this Agreement, the Executive's Annual
Salary before such reduction), together with all unpaid Incentive Bonus and
Benefits awarded or accrued up to the date of termination; provided, however
that in the event of a sale of the Company other than the Merger, which sale
is consummated or agreed pursuant to a definitive agreement prior to July 30,
2000 then the 18 month period specified herein shall be 36 months."
As the Executive and the Company agreed in the Merger Agreement, Section 4.3
shall be further amended as provided in Section 5.12 in the Merger Agreement in
the event that the Merger is consummated.
<PAGE>
2. PUBLIC ANNOUNCEMENTS. The Company and the Executive will consult with
each other before issuing, and provide each other the opportunity to review and
comment upon, any press release or other public statements with respect to this
Amendment or the termination of the Executive's employment by the Company and
shall not issue any such press release or make any such public statement prior
to such consultation.
3. ENTIRE AGREEMENT; NO OTHER MODIFICATIONS; SUCCESSORS. The Employment
Agreement, as amended by the Merger Agreement and further amended hereby,
contains the entire agreement between the parties with respect to the subject
matter thereof and hereof and supersedes all prior agreements, written or oral,
with respect thereto. Except as amended hereby, the terms and conditions of the
Employment Agreement, as amended by the Merger Agreement, shall continue in full
force and effect and are hereby in all respects ratified and confirmed. The
obligations of the Company contained herein shall be binding on its successors
and assigns, including without limitation, the surviving entity upon
consummation of the Merger.
4. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of Delaware without reference to the conflicts of law
principles therein.
<PAGE>
IN WITNESS WHEREOF, this Amendment to the Amended and Restated
Employment Agreement has been executed as of the date and year first above
written.
THE COMPANY:
ADVANCED TECHNICAL PRODUCTS, INC.
By: _________________________________
Name:
Title:
THE EXECUTIVE:
_____________________________________
GARRETT L. DOMINY
EXHIBIT 10.44
AMENDMENT
TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AMENDMENT to AMENDED AND RESTATED EMPLOYMENT AGREEMENT made as of
the 30th day of March, 2000 by and between Advanced Technical Products, Inc., a
Delaware corporation (the "Company"), and James S. Carter (the "Executive").
WHEREAS, the Executive is currently employed by the Company pursuant
to that certain Amended and Restated Employment Agreement dated as of November
1, 1997 (the "Employment Agreement"); and
WHEREAS, the Company and the Executive mutually desire to amend the
terms of the Employment Agreement at this time in order to provide for an
efficient and mutually beneficial transition period so that the Executive may
retire from his current role at the Company.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. AMENDMENT. Pursuant to Section 7.4 of the Employment Agreement,
the Employment Agreement is hereby amended and superceded as follows:
(a) EMPLOYMENT DUTIES. Notwithstanding anything to the contrary
contained in Section 1 of the Employment Agreement, the Executive shall, and
hereby does, resign as the President and Chief Executive Officer of the Company,
effective as of the date hereof. The Executive shall continue to serve as a
director of the Company and as its Chairman of the Board from the date hereof
until June 30, 2000 (the "Remaining Term"). During the period from the date
hereof through June 30, 2000, the Executive shall continue to receive his
current salary, based on $350,000 per year, payable on a biweekly basis in
accordance with past practice. It is expressly acknowledged that the Executive
shall not be entitled to any incentive bonus, or portion thereof, for the
Company's 1999 fiscal year or 2000 fiscal year. During the Remaining Term the
Executive shall perform all duties as reasonably required in connection with his
position as Chairman and shall devote a reasonable amount of time, and use his
best efforts, to assist the Company, its officers and directors, as requested by
the Company, in connection with the Company's business and operations toward the
objective of transferring the Executive's prior and then current duties and
responsibilities within the Company, its subsidiaries and divisions to other
representatives of the Company and toward the overall efficient and effective
transition of the Company's management team. These duties shall include, without
limitation, assistance as required by the Company in connection with the
maintenance of customer, vendor and personnel relationships and assistance
regarding the pending investigations of the Company's Alcore, Inc. subsidiary.
<PAGE>
(b) SEVERANCE. The Executive's employment by the Company shall cease
on June 30, 2000 (the "Termination Date"). The Executive shall, and hereby does,
resign as a director and the Company's Chairman effective on and as of the
Termination Date and all stock options theretofore issued by the Company to the
Executive shall vest in full on such date. Notwithstanding anything to the
contrary contained in Sections 4.3 and 4.4 of the Employment Agreement,, the
Company shall pay to the Executive, in addition to the payment of salary for the
period from the date hereof through June 30, 2000 as provided in Section 1(a)
above, a severance amount equal to his salary, based on $350,000 per year and
payable biweekly in accordance with past practice, for the period commencing on
July 1, 2000 and ending on December 31, 2001. It is expressly acknowledged that
the Executive shall not be entitled to any incentive bonus, or portion thereof,
for the Company's 1999 fiscal year or 2000 fiscal year.
2. PUBLIC ANNOUNCEMENTS. The Company and the Executive will consult with
each other before issuing, and provide each other the opportunity to review and
comment upon, any press release or other public statements with respect to this
Amendment or the termination of the Executive's employment by the Company and
shall not issue any such press release or make any such public statement prior
to such consultation.
3. NONDISPARAGEMENT. Each of the Company and the Executive agree that
neither of them shall disparage, defame, or publicly criticize the other or its
professional staff or their abilities, nor shall either party undertake actions
designed or intended otherwise to impair the other party's reputation or
credentials.
4. ENTIRE AGREEMENT; NO OTHER MODIFICATIONS; SUCCESSORS. The Employment
Agreement, as amended hereby, contains the entire agreement between the parties
with respect to the subject matter thereof and hereof and supersedes all prior
agreements, written or oral, with respect thereto. Except as amended hereby, the
terms and conditions of the Employment Agreement shall continue in full force
and effect and are hereby in all respects ratified and confirmed. The
obligations of the Company contained herein shall be binding on its successors
and assigns, including without limitation, the surviving entity upon
consummation of the merger contemplated pursuant to that certain January 2000
Agreement and Plan of Merger dated January 27, 2000 with ATP Holdings Inc. and
ATP Acquisition Corp. pursuant to which a merger of ATP Acquisition Corp. with
and into the Company.
5. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of Delaware without reference to the conflicts of law
principles therein.
<PAGE>
IN WITNESS WHEREOF, this Amendment to the Amended and Restated
Employment Agreement has been executed as of the date and year first above
written.
THE COMPANY:
ADVANCED TECHNICAL PRODUCTS, INC.
By: _________________________________
Name:
Title:
THE EXECUTIVE:
_____________________________________
JAMES S. CARTER
EXHIBIT 21.1
List of Subsidiaries of Advanced Technical Products, Inc.
STATE OR JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
------------------ ---------------------
Technical Products Group, Inc. Delaware
Alcore, Inc. Delaware
Lincoln Properties, Inc. Delaware
Marion Properties, Inc. Delaware
Deland Properties, Inc. Delaware
Alcore Brigantine France
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Advanced Technical Products, Inc.
We consent to incorporation by reference in the registration statements
(No. 333-19759, 333-52885 and 333-66817) on Form S-8 of Advanced Technical
Products, Inc. of our report dated April 28, 2000, except as to Note 7, which is
as of May 16, 2000, relating to the consolidated balance sheets of Advanced
Technical Products, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, comprehensive income (loss),
and cash flows for each of the years in the three-year period ended December 31,
1999, which report appears in the December 31, 1999 annual report on Form 10-K
of Advanced Technical Products, Inc.
Atlanta, Georgia
May 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM CONDENSED CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 655
<SECURITIES> 0
<RECEIVABLES> 22,031
<ALLOWANCES> 658
<INVENTORY> 44,783
<CURRENT-ASSETS> 73,233
<PP&E> 39,510
<DEPRECIATION> 15,330
<TOTAL-ASSETS> 106,552
<CURRENT-LIABILITIES> 54,359
<BONDS> 2,200
1,000
0
<COMMON> 53
<OTHER-SE> 27,763
<TOTAL-LIABILITY-AND-EQUITY> 106,552
<SALES> 179,162
<TOTAL-REVENUES> 179,162
<CGS> 149,007
<TOTAL-COSTS> 179,431
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,965
<INCOME-PRETAX> (4,234)
<INCOME-TAX> (1,074)
<INCOME-CONTINUING> (3,160)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,160)
<EPS-BASIC> (0.61)
<EPS-DILUTED> (0.61)
</TABLE>
