================================================================================
UNITED STATES
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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________.
COMMISSION FILE NO.: 0-9273
--------------------
MODERN CONTROLS, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0903312
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7500 BOONE AVENUE NORTH,
MINNEAPOLIS, MINNESOTA 55428
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 493-6370
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.10 PAR VALUE
--------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 14, 1997, 4,275,469 shares of Common Stock of the
registrant were deemed outstanding, and the aggregate market value of the Common
Stock of the registrant (based upon the average of the high and low sales prices
of the Common Stock at that date as reported by the Nasdaq National Market),
excluding outstanding shares beneficially owned by directors and executive
officers, was approximately $40,225,000.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV of this Annual Report on Form 10-K incorporate by
reference information (to the extent specific pages are referred to herein) from
the Company's 1996 Annual Report to Shareholders (the "1996 Annual Report").
Part III of this Annual Report on Form 10-K incorporates by reference
information (to the extent specific sections are referred to herein) from the
Company's Proxy Statement for its Annual Meeting of Shareholders to be held May
20, 1997 (the "1997 Proxy Statement").
================================================================================
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Modern Controls, Inc., a Minnesota corporation (the "Company"), was
incorporated in February 1966. Since its incorporation, the Company has been
engaged in the design, manufacture and marketing of precision measurement and
process sensing and control instruments and systems. The Company currently has
three major product groups which service various niche markets: (i) Permeation
Products; (ii) Weighing Products; and (iii) Packaging Products.
The Permeation Products group consists of (i) products that test
packages and packaging materials for permeation of gases and water vapor; and
(ii) instruments that measure the thickness of thin films and coatings in
laboratories and on-line during production. Also included within this product
group are services provided by the Company for testing packages and packaging
materials. The Weighing Products group consists of instruments for
pharmaceutical capsule and tablet weighing and sorting. The Packaging Products
group consists of (i) instruments that detect leaks and test the seal strength
in packages; and (ii) analyzers which measure oxygen and carbon dioxide content
of the headspace in both flexible and rigid packages.
The Company has its principal executive offices at 7500 Boone Avenue
North, Minneapolis, Minnesota 55428 and its telephone number is (612) 493-6370.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in a single industry segment: the design,
manufacture and marketing of precision testing instrumentation and advanced
process sensing and control equipment.
(c) NARRATIVE DESCRIPTION OF BUSINESS
PERMEATION PRODUCTS
The Permeation Products group consists of (i) products that test
packages and packaging materials for permeation of gases and water vapor and
(ii) instruments that measure the thickness of thin films and coatings in
laboratories and on-line during production.
The various permeation measurement instruments included within the
Permeation Products group and manufactured by the Company measure the rate at
which oxygen, carbon dioxide and water vapor permeate packages and packaging
materials. The principal market for the permeation measurement instruments
consists of manufacturers of packaging materials, including manufacturers of
papers, plastics and coatings, and the users of such packaging materials in the
food, beverage, pharmaceutical and chemical industries.
The gauging products, included within the Permeation Products group,
use capacitance technology to measure the thickness of thin films and coatings.
These gauges measure all types of non-metallic materials, with very repeatable
gauge readings at thickness resolutions up to one millionth of an inch. Software
packages allow the display of each material's profile and provide analysis of
the related data. The principal market for the gauging portion of this product
group is made up of manufacturers of plastic films.
The Permeation Products line consists of the following products: (i)
oxygen permeability test systems (seven models); (ii) water vapor permeability
test systems (four models); (iii) carbon dioxide permeability test systems (two
models); (iv) flavor, aroma and odor permeability test systems (two models); (v)
gauges designed for laboratory use (one model); (vi) on-line gauges used for
measuring cast film thicknesses (one model); and (vii) on-line gauging
instruments used to measure blown film thicknesses and control related blown
film production processes (two models).
The gas permeability test systems (i, iii and iv above) measure the
ability of packages, films and bottles or other containers to resist oxygen,
carbon dioxide and/or other gas permeation. The water vapor permeability
instruments (ii above) measure water vapor permeation through films and packages
and inform food processors, container companies and basic film suppliers as to
the ability of certain packaging to retain or block out water. The gauging
products (v, vi and vii above) measure the thickness of films.
The Company also provides certain laboratory testing services
utilizing the Company's products. These services are primarily in the area of
testing film and package permeation. Users of these services are primarily those
companies with insufficient volume to warrant purchasing the Company's products
or others not familiar with such equipment. Other users include companies that
have purchased the Company's products but have a need for additional capacity.
Permeation Products accounted for approximately 73%, 71% and 71% and
of the Company's total sales during the fiscal years ended December 31, 1996,
1995 and 1994, respectively.
WEIGHING PRODUCTS
The weighing instruments manufactured by the Company are: (i) a
high-speed capsule weighing and sorting device (VERICAP(R)); (ii) a high-speed
tablet weighing and sorting device (VERITAB(R)); and (iii) an automatic balance.
These products are marketed primarily to the pharmaceutical industry, both
domestically and in foreign countries.
The VERICAP(R) is designed to detect deviations in the weight of
filled gelatin capsules and to reject capsules outside an acceptable range at
rates of up to 2,000 capsules per minute. The VERICAP(R) 2500 can be integrated
into a production line to weigh capsules as they are produced. This device also
records and analyzes the data relating to accepted capsules during the
processing.
The VERITAB(R)is designed to detect deviations in the weight of
tablets and to reject tablets outside an acceptable range at rates of up to 800
tablets per minute. Data related to accepted tablets is recorded and analyzed.
The Company also manufactures and markets a small, highly accurate
automatic balance for weighing capsules and tablets.
Weighing products accounted for approximately 15%, 17% and 14% of the
Company's total sales during the fiscal years ended December 31, 1996, 1995 and
1994, respectively.
PACKAGING PRODUCTS
The various packaging products manufactured by the Company include
leak detection instruments and head space analyzers. The two leak detection
instruments detect leaks in pouches, blister packs and a wide range of other
packages. The principal market for these products include packagers of food,
pharmaceuticals and sterile medical supplies. The first of the two leak
detection instruments is a non-destructive leak detector that senses small
amounts of carbon dioxide escaping from a package. The carbon dioxide may be
present in the headspace of the package or forced inside the package by carbon
dioxide pressurization. The second instrument detects leaks and checks for seal
integrity by applying and measuring pressure within the packages.
The headspace analyzers sold by the Company analyze the amount of
oxygen or carbon dioxide present in the headspace of flexible and rigid food
packages. Some models also measure the oxygen content in flushing gases used in
modified or controlled atmosphere packaging. The Company sells and manufactures
six different headspace analyzer models, two that measure oxygen, two that
measure carbon dioxide and two that measure both oxygen and carbon dioxide.
Packaging products accounted for less than 15% of the Company's total
sales during the fiscal years ended December 31, 1996, 1995 and 1994,
respectively.
COMPETITION
The Company experiences competition in both foreign and domestic
markets from one or more competitors with respect to all of its products. Some
of the Company's competitors have greater assets and resources than the Company
and some are smaller than the Company. The principal competitive factors are
price, product performance and capability, and distribution. The Company
believes that its products either exceed or are equal in performance and
capability to those of its competitors. Price comparability varies by product.
Several of the Company's larger competitors may have stronger marketing
organizations.
MANUFACTURING AND SUPPLIES
Most of the parts and materials used in the manufacture of the
Company's products are standardized and are purchased from various manufacturers
or distributors and assembled at the Company. Multiple sources of supply are
available for these items, and the Company has experienced no significant
shortages or delays from its suppliers. Components designed by the Company are
produced by others in accordance with the Company's specifications. A limited
number of components for the Company's products are available from single
suppliers. The loss of any single supplier could have a material adverse effect
on the Company until the Company either arranges for another supplier or makes
appropriate design changes.
BACKLOG
The Company had a total backlog of approximately $3,148,000 as of
December 31, 1996 for all of its products as compared to approximately
$3,461,000 and $2,029,000 as of December 31, 1995 and 1994, respectively. The
Company anticipates filling all of the current backlog in 1997.
PATENTS AND LICENSES
Generally, the Company believes that the protection afforded by
patent rights is important to its business and it will continue to seek patent
protection for its technology and products. The Company has required certain
employees and consultants to assign to the Company all inventions which are
conceived and developed during their employment, except to the extent prohibited
by applicable law. The Company owns two U.S. patents and one foreign patent
relating to its VERICAP product, three U.S. patents and three foreign patents
relating to the VERITAB product, one U.S. patent and two foreign patents
relating to headspace analyzers and nine U.S. patents and five foreign patents
relating to its film thickness test systems. In addition, the Company owns
twelve U.S. patents and eight foreign patents relating to its permeability test
systems. These patents will expire during the period from 1999 through 2015.
Even though the Company has obtained the patents mentioned above,
there can be no guarantee that these patents will keep competitors from
producing substantially similar products. Although it can offer no assurance,
the Company believes its products do not infringe on patents owned by any other
persons. Any determination that a material component of the Company's products
infringes upon the rights of others could have a material adverse effect upon
the Company. In the event that the Company's products may be covered in whole or
in part by patents owned by others, the Company may find it desirable to obtain
licenses with respect to such patents. The Company has a license, under a U.S.
patent, to manufacture products relating to a multiple gas permeability test
system. Pursuant to this license, the Company must pay royalties of 4-1/2
percent of the net selling price of any product covered by such patent until
such time as the patent expires. The patent and the license are scheduled to
expire on August 14, 2001.
The Company also owns or has applied for certain trademarks which
protect and identify its products, including the trademark MOCON(R), which the
Company has designated as a house trademark under which all its products are
sold, and the trademarks and servicemarks VERICAP(R), OX-TRAN(R),
PERMATRAN-W(R), PROFILER(R), COULOX(R), HERSCH(R), VERITAB(R), AROMATRAN(R),
SKYE(R), PAC CHECK 200(R) and TRANSORPTION(SM). The Company's trademarks have a
life, subject to periodic maintenance, of 10 to 20 years, which may be extended.
RESEARCH AND DEVELOPMENT
The Company incurred expenses of approximately $1,216,000, $1,060,000
and $898,000 during the fiscal years ended December 31, 1996, 1995 and 1994,
respectively, for research and development of its products. Research and
development costs were 8.2% of sales for the fiscal year ended December 31, 1996
and were 8.3% and 8.5%, respectively, for the preceding two fiscal years. For
the foreseeable future, the Company expects to allocate, on an annual basis,
approximately 8% of sales to research and development.
WORKING CAPITAL PRACTICES
The Company maintains inventory levels in its three product groups
consistent with projected sales. The Company's standard domestic payment terms
are net 30 days. International sales are transacted pursuant to letters of
credit in some cases. The Company generally warrants its products for one year
from the date of shipment. There have been few instances when the Company was
required to accept the return of merchandise which failed to comply with the
Company's warranty.
FOREIGN AND DOMESTIC MARKETING
The Company markets its products in the United States and Canada
through a direct sales force of 15 persons. The Company's foreign markets are
served by a network of 32 independent representatives in Africa, Asia,
Australia, Europe, Mexico, South America and certain Pacific Rim countries. To
the Company's knowledge, no independent sales representative of the Company
sells a material amount of products manufactured by the Company's competitors.
The sales representative for the Company in Europe is licensed to sell headspace
analyzers and leak detectors similar to those sold by the Company. The Company,
however, is not licensed to sell these products in Europe.
The Company's wholly owned subsidiary, MoCon FSC, Inc., a Barbados
corporation ("FSC"), carries out all the foreign distribution of the Company's
products. The Company acts as the selling agent of FSC.
The Company makes all foreign sales in U.S. dollars and consequently
does not hedge against exchange rate fluctuations. Nonetheless, should the value
of the dollar rise relative to other currencies, the Company's sales abroad
would be negatively impacted. Additionally, the Company can give no assurances
that foreign tariff, trade or tax policies or foreign economic conditions will
not negatively effect sales and earnings of the Company in the future.
For information concerning the Company's export sales by geographic
area, see Note 9 of the Notes to Consolidated Financial Statements contained on
page 20 of the Company's 1996 Annual Report. Although no single customer
accounts for 10% or more of the Company's consolidated revenues and the Company
does not believe that the loss of any single customer would have a material
adverse effect on the Company, two of the Company's independent representatives
accounted for approximately 16% and 12%, respectively, of the Company's sales in
fiscal 1996. For additional information concerning sales by such independent
representatives, see Note 9 of the Notes to Consolidated Financial Statements
contained on page 20 of the Company's 1996 Annual Report. The Company's business
is not seasonal in nature.
EMPLOYEES
The Company currently has 80 full-time employees, including 33 in
manufacturing, 12 in research and development and 35 in general administration
and marketing. None of the Company's employees are represented by a labor union,
and the Company considers its employee relations to be satisfactory.
ITEM 2. PROPERTIES
The Company's executive offices and operations are located at 7500
Boone Avenue North, Minneapolis, Minnesota. The portion of the building occupied
by the Company contains approximately 47,000 square feet, of which approximately
35,000 square feet (approximately 74%) is currently being utilized. Management
believes that the Company's manufacturing facilities are generally adequate for
its operations and such facilities are maintained in a good state of repair. The
current lease expires June 30, 2000.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal, governmental, administrative or
other proceedings to which the Company is a party or of which any of its
property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under the caption "Market for Company's Common Stock
and Related Stockholder Matters" on page 20 of the Company's 1996 Annual Report
is incorporated herein by reference. The Company has not sold any securities
during the fiscal year ending December 31, 1996 that were not registered under
the Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA
The financial information under the caption "Selected Financial Data"
on page 1 of the Company's 1996 Annual Report is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and
Analysis of Results of Operations and Financial Condition" on pages 10 to 11 of
the Company's 1996 Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Financial Statements and Independent Auditors' Report
thereon on pages 12 to 20 of the Company's 1996 Annual Report are incorporated
herein by reference, as is the unaudited information set forth under the caption
"Selected Quarterly Financial Data" on page 1 of the Company's 1996 Annual
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) DIRECTORS OF THE COMPANY
The information under the captions "Election of Directors --
Information About Nominees" and "Election of Directors -- Other Information
About Nominees" in the Company's 1997 Proxy Statement is incorporated herein by
reference.
(b) EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, their ages, the year first
elected or appointed as an executive officer and the offices held, as of
February 20, 1997, are as follows:
<TABLE>
<CAPTION>
Executive
Name Age Title (1) Officer Since
---- --- --------- -------------
<S> <C> <C> <C>
William N. Mayer (2) 66 Chairman of the Board and Chief Executive 1976
Officer (3)
Robert L. Demorest (4) 51 President (5) 1985
Ronald A. Meyer 46 Vice President -- Finance & Administration, 1985
Treasurer and Secretary (6)
Daniel W. Mayer (2) 46 Executive Vice President (7) 1988
</TABLE>
- --------------------------
(1) All executive officers have been employed in the capacity set forth
for at least five years unless otherwise indicated.
(2) Daniel W. Mayer is the son of William N. Mayer, Chairman of the Board
and Chief Executive Officer of the Company.
(3) W.N. Mayer has been the Chairman of the Board, Chief Executive
Officer and President of the Company for over five years. Effective
January 30, 1995, Mr. W.N. Mayer resigned as President of the
Company.
(4) Robert L. Demorest is the son of Howard L. Demorest, the retired
Chairman of the Board, Chief Executive Officer and Treasurer of the
Company.
(5) Mr. Demorest was elected President of the Company on January 30,
1995. Prior to that time, Mr. Demorest was the Executive Vice
President -- Sales & Marketing and Secretary.
(6) Mr. Ronald A. Meyer was elected Secretary of the Company on January
30, 1995. Prior to that time, Mr. Meyer served as Assistant
Secretary.
(7) Mr. Daniel W. Mayer was elected Executive Vice President on January
30, 1995. Prior to that time, Mr. Mayer served as the Vice President
-- Product Development.
ITEM 11. EXECUTIVE COMPENSATION
The information under the captions "Election of Directors -- Director
Compensation" and "Executive Compensation and Other Benefits" in the Company's
1997 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Principal Shareholders and
Beneficial Ownership of Management" in the Company's 1997 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Election of Directors -- Other
Information About Nominees" in the Company's 1997 Proxy Statement is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
The following Consolidated Financial Statements of the Company are
incorporated herein by reference from the pages indicated in the Company's 1996
Annual Report:
Independent Auditors' Report -- page 20.
Consolidated Balance Sheets -- December 31, 1996 and 1995 -- page
13.
Consolidated Statements of Income -- Years Ended December 31, 1996,
1995 and 1994 -- page 12.
Consolidated Statements of Cash Flows -- Years Ended December 31,
1996, 1995 and 1994 -- page 14.
Notes to Consolidated Financial Statements -- pages 15 to 20.
(2) Financial Statement Schedules:
The following financial statement schedule is included herein and
should be read in conjunction with the financial statements referred to above:
Independent Auditors' Report on Financial Statement Schedule
Financial Statement Schedule:
II - Valuation and Qualifying Accounts
All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial statements or
related notes.
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
Modern Controls, Inc.:
Under date of February 14, 1997, we reported on the consolidated balance sheets
of Modern Controls, Inc. and subsidiary as of December 31, 1996 and 1995, and
the related consolidated statements of income, and cash flows for each of the
years in the three-year period ended December 31, 1996, as contained in the 1996
annual report to stockholders. These consolidated financial statements and our
report thereon are incorporated by reference in the annual report on Form 10-K
for the year 1996. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedule as included in Item 14(a)2. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth herein.
/s/ KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
February 14, 1997
SCHEDULE II
<TABLE>
<CAPTION>
MODERN CONTROLS, INC. AND SUBSIDIARY
Valuation and Qualifying Accounts
Balance at Charged to Balance
beginning costs and Deductions at end
Description of year expenses (1) of year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
allowance for doubtful accounts $ 132,000 25,312 2,312 155,000
- --------------------------------------------------------------------------------------------------------
Year ended December 31, 1995
allowance for doubtful accounts $ 147,000 15,323 30,323 132,000
- --------------------------------------------------------------------------------------------------------
Year ended December 31, 1994
allowance for doubtful accounts $ 150,000 0 3,000 147,000
- --------------------------------------------------------------------------------------------------------
(1) Bad debts written off.
</TABLE>
(3) Exhibits
The exhibits to this Report are listed in the Exhibit Index.
A copy of any of the exhibits listed or referred to above will be
furnished at a reasonable cost to any person who was a shareholder of the
Company as of March 21, 1997, upon receipt from any such person of a written
request for any such exhibit. Such request should be sent to Modern Controls,
Inc., 7500 Boone Avenue North, Minneapolis, Minnesota 55428; Attn.: Shareholder
Information.
The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Annual Report on
Form 10-K pursuant to Item 14(c):
A. Employee Stock Option Plan, as amended (filed herewith).
B. 1982 Restated Incentive Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form
S-8 (File No. 33-27730)).
C. 1990 Non-Employee Director Stock Option Plan (incorporated
by reference to the Company's Registration Statement on
Form S-8 (File No. 33-42255)).
D. 1992 Stock Option Plan (incorporated by reference to the
Company's Registration Statement on Form S-8 (File No.
33-49752)).
E. Compensation Committee resolutions setting forth the
Incentive Compensation Plan for fiscal 1994, 1995 and 1996
(incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993
(File No. 0-9273)).
F. Compensation Committee resolutions setting forth the
Incentive Compensation Plan for fiscal 1997, 1998 and 1999
(filed herewith).
G. Paired Profit Sharing Plan effective July 1, 1996 (filed
herewith).
H. Confidentiality Agreement, dated June 3, 1983, between the
Company and William N. Mayer (incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988 (File No. 0-9273)).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the
fiscal year ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 21, 1997 MODERN CONTROLS, INC.
By: /s/ William N. Mayer
-------------------------------------------
William N. Mayer, Chief Executive Officer
(principal executive officer)
By: /s/ Ronald A. Meyer
-------------------------------------------
Ronald A. Meyer, Vice President --
Finance & Administration,
Treasurer and Secretary
(principal financial and accounting 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 March 21, 1997.
Signature and Title
-------------------
/s/ William N. Mayer
-------------------------------------------
William N. Mayer, Chairman of the Board
/s/ Robert L. Demorest
-------------------------------------------
Robert L. Demorest, President and Director
-------------------------------------------
Howard L. Demorest, Director
/s/ Paul L. Sjoquist
-------------------------------------------
Paul L. Sjoquist, Director
/s/ Dean B. Chenoweth
-------------------------------------------
Dean B. Chenoweth, Director
/s/ J. Leonard Frame
-------------------------------------------
J. Leonard Frame, Director
-------------------------------------------
Wallace W. Lindemann, Director
/s/ Richard A. Proulx
-------------------------------------------
Richard A. Proulx, Director
MODERN CONTROLS, INC.
Exhibit Index to Annual Report On
Form 10-K
For Fiscal Year Ended December 31, 1996
<TABLE>
<CAPTION>
Item Method of
No. Item Filing
- ---------- --------------------------------------------------------------- ---------
<S> <C> <C>
3.1 Restated Articles of Incorporation of the Company (1)
3.2 Amendment to Restated Articles of Incorporation of the Company,
effective May 27, 1987 (2)
3.3 Amendment to Restated Articles of Incorporation of the Company,
effective June 28, 1991 (3)
3.4 Third Restated Bylaws of the Company (4)
10.1 Office/Warehouse Lease, dated July 29, 1994 (5)
10.2 Employee Stock Option Plan, as amended (9)
10.3 1982 Restated Incentive Stock Option Plan (6)
10.4 1990 Non-Employee Director Stock Option Plan (6)
10.5 1992 Stock Option Plan (7)
10.6 Compensation Committee resolutions setting forth the Incentive
Compensation Plan for fiscal 1994, 1995 and 1996 (8)
10.7 Compensation Committee resolutions setting forth the Incentive
Compensation Plan for fiscal 1997, 1998 and 1999 (9)
10.8 Paired Profit Sharing Plan effective July 1, 1996 (9)
10.9 Confidentiality Agreement, dated June 3, 1983, between the
Company and William N. Mayer (4)
10.10 Agency and Service Agreement, dated January 1, 1987, between
the Company and MoCon FSC, Inc. (4)
10.11 Foreign Sales Corporation Suppliers Agreement, dated March 28,
1985, between the Company and MoCon FSC, Inc. (4)
11.1 Computation of per share earnings (9)
13.1 Selected pages from the 1996 Annual Report to Shareholders (9)
21.1 Subsidiaries of the Company (4)
23.1 Independent Auditors' Consent (9)
27.1 Financial Data Schedule (9)
</TABLE>
- ------------------------------
(1) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1984 (File No. 0-9273).
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987 (File No. 0-9273).
(3) Incorporated by reference to the Company's Registration Statement on
Form S-8 (File No. 33-42255).
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988 (File No. 0-9273).
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 (File No. 0-9273).
(6) Incorporated by reference to the Company's Registration Statement on
Form S-8 (File No. 33-42255).
(7) Incorporated by reference to the Company's Registration Statement on
Form S-8 (File No. 33-49752).
(8) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 (File No. 0-9273).
(9) Filed herewith.
MODERN CONTROLS, INC.
EMPLOYEE STOCK OPTION PLAN, AS
AMENDED EFFECTIVE MAY 10, 1994
I.
THE PLAN
The name of this Stock Option Plan shall be the Modern Controls, Inc.
Employee Stock Option Plan (referred to as the "Plan").
The purpose of this Plan is to promote the growth and general
prosperity of Modern Controls, Inc. and its subsidiary (referred to as "the
Company") by permitting it to grant options to purchase shares of its common
stock in order to attract and retain the best available personnel. It is further
intended as an incentive for and to encourage stock ownership by employees of
the Company so that they may acquire or increase their proprietary interest in
the success of the Company, and to encourage them to remain in the employ of and
contribute to the success of the Company.
The Plan shall be governed by the laws of the State of Minnesota; if
any provision hereof is held by any court of competent jurisdiction to be
invalid or unenforceable, that provision shall be severed and the remaining
provisions shall continue to be fully effective.
This Plan shall become effective August 1, 1979. No grant of any option
shall be valid unless granted prior to August 1, 1999.
II.
ADMINISTRATION AND AMENDMENT OF THE PLAN
The Plan shall be administered by the Board of Directors of the Company
(referred to as the "Board") or by a committee of individuals appointed by the
Board of Directors for that purpose. The Board shall have sole authority, in its
absolute discretion, to determine the terms of any option and to determine the
eligibility and benefits of any employee under the Plan. The Board (or
committee) may, from time to time, adopt rules and regulations for carrying out
the Plan. The determinations or interpretations and constructions of any
provision of the Plan or of the rules shall be final and conclusive upon
approval by the Board. No member of the Board or of the committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any option granted under the Plan.
The Board may make such changes in, additions to and amendments of the
Plan as it may deem proper and in the best interests of the Company, including
termination of the Plan. However, no amendment or termination of the Plan shall
affect any options theretofore granted, which shall remain in full force and
effect as if the Plan had not been amended or terminated.
III.
ELIGIBILITY
Options may be granted only to employees of the Company, including
officers and directors who are employees of the Company. The Plan does not and
will not confer upon any optionee any right to continued employment with the
Company, nor will the Plan have any effect upon his right, or upon the right of
the Company, to terminate employment at any time.
IV.
OPTION TERMS
Stock options granted pursuant to this Plan shall be evidenced by a
stock option agreement executed by the Company and by the employee to whom such
option is granted, which option shall contain or be subject to the following
terms and conditions:
A. Each agreement shall state the number of shares subject to the
option granted.
B. The purchase price of each share under the option shall be not
less than the fair market value of share of the Company's
common stock at the time of the grant of the option.
C. The period of the option shall be five years and may be
reduced only by termination of employment or death of the
optionee, as more fully provided in (D) below. The option may
not be exercised during the first year after its grant. During
each of the last four years of the option, the optionee shall
have the right to exercise the option for only twenty-five
percent (25%) of the total shares covered by the option,
provided, however, that rights not exercised in prior years
shall be cumulative and may be exercised at any time prior to
termination of the option.
D. The option may be exercised only if the optionee has been
continuously employed by the Company since the date of the
grant. Absence on leave approved by the Board shall not be
considered an interruption of employment. If an optionee shall
cease to be employed by the Company for any reason other than
death, he may, but only within three months of such cessation,
exercise his option to the extent he was entitled to exercise
it as of the date of such cessation.
In the event of death of an optionee while in the employ of
the Company, the option shall be exercisable only within
twelve (12) months of the date of the optionee's death and
then only by a person who acquired the right to exercise such
option by bequest or inheritance or by reason of the death of
the optionee and shall be exercisable only to the extent that
the optionee was entitled to exercise the option at the date
of his death.
E. Exercise of the option may be made only by the giving of
written notice of exercise, accompanied by full payment in
cash, or by certified or bank cashier's check, for the shares
with respect to which the option is exercised; provided,
however, that the Board in its sole discretion may allow the
exercise price to be paid, in whole or in part, by transfer
from the optionee to the Company of Previously Acquired
Shares. In the event the optionee is permitted to pay all or a
portion of the exercise price of an option in whole or in part
with Previously Acquired Shares, the value of such shares
shall be equal to their fair market value on the date of
exercise of the option. For purposes of the Plan, "Previously
Acquired Shares" shall mean shares of common stock that are
already owned by the optionee or shares of common stock that
are to be acquired pursuant to the exercise of an option.
Delivery of certificates for shares purchased hereunder shall
be made within thirty (30) days after receipt of notice.
F. Options granted under the Plan may not be sold, pledged,
assigned or transferred in any manner otherwise than by Will
or the laws of descent or distribution, and may be exercised
during the lifetime of the optionee only by that optionee.
G. The number of shares and exercise price of any option granted
hereunder shall be adjusted to take into account any stock
dividends, stock splits, stock exchanges, mergers,
consolidation or other capital changes, excluding payment of
cash dividends, occurring between the date of grant and the
date of exercise.
H. The Company is entitled to withhold and deduct from future
wages of the optionee, or make other arrangements for the
collection of, all legally required amounts necessary to
satisfy any federal, state or local withholding tax
requirements attributable to the optionee's exercise of an
option or otherwise incurred with respect to an option, or
require the optionee promptly to remit the amount of such
withholding to the Company before acting on the optionee's
notice of exercise of the option. Without limiting the
generality of the foregoing, the Board in its sole discretion
may permit an optionee to satisfy, in whole or in part, any
withholding tax obligation by electing to use Previously
Acquired Shares having a fair market value on the date such
withholding obligation arises (the "Tax Date") equal to the
amount necessary to satisfy the withholding taxes due. An
optionee's election to use Previously Acquired Shares must be
made on or prior to the Tax Date, is irrevocable and is
subject to the consent or disapproval of the Board. If the
optionee is an officer, director or beneficial owner of more
than 10% of the outstanding common stock of the Company, such
election may not be made within six months of the date the
option is granted (except in the case of death or disability)
and must be made either six months prior to the Tax Date or at
a time prior to the Tax Date between the third and twelfth
business days following the public release of any of the
Company's quarterly or annual summary earnings statements.
I. The option agreements authorized under this Plan shall contain
such other provisions or restrictions as the committee or the
Board shall deem advisable.
V.
UNDERLYING SHARES
The Company shall set aside 72,000 shares of its common stock to be
made available for stock options granted pursuant to this Plan. The number of
shares available shall be adjusted to take into account any future stock
dividends, stock splits, stock exchanges, mergers, consolidation or other
capital changes.
Exercise of any options granted hereunder shall be further subject to
compliance with all state and federal laws relating to the offer and sale of
securities. In the event shares of common stock subject to such options are not
covered by a registration statement, such options may be exercised only upon the
optionee making certain representations in writing to the Company that, at the
time of such exercise, the optionee intends to acquire such shares for
investment and not for distribution or resale and certain other representations
relating to the optionee's intent as in the opinion of counsel to the Company
may be necessary to qualify the offer and sale of such shares for such
exemptions, if any, from the registration requirements of state and federal
securities laws as may be deemed to be available. If any law or regulation of
the Securities and Exchange Commission, the Minnesota Commissioner of Securities
or of any other commission or agency having jurisdiction or regulatory authority
over the issuance of such shares shall require the Company or the exercising
optionee to take any action with respect to the shares of stock acquired by the
exercise of the option, then the date upon which the Company shall deliver or
cause to be delivered the stock certificate or certificates for the shares of
stock shall be postponed until full compliance has been made with all such
requirements. Although not bound by anything herein to do so, the Company may
file a Registration Statement with the appropriate state and federal regulatory
authorities as to the shares of common stock subject to such options. In the
event the Company does file such a registration statement, the Company may, but
is not obligated to, maintain the effectiveness of such registration statement
by filing amended and supplemental prospectuses with the appropriate regulatory
authorities.
MOCON INCENTIVE PAY PLAN
RESOLUTION OF THE COMPENSATION COMMITTEE
WHEREAS, the Mocon Incentive Pay Plan was adopted on February 7, 1994,
covering the years 1994, 1995 and 1996, and this Incentive Pay Plan will expire
on December 31, 1996; and
WHEREAS, it is desired that the Mocon Incentive Pay Plan be extended
for the calendar years 1997, 1998 and 1999, subject to terms and conditions
adopted by resolution of the Compensation Committee.
NOW, THEREFORE, be it hereby resolved that the Mocon Incentive Pay Plan
is hereby extended for the calendar years 1997, 1998 and 1999, subject to the
following provisions, with the proviso that these provisions shall be reviewed
by the Compensation Committee at such time that Mocon may make a purchase or
acquisition of another business entity:
1. Total incentives to employees are not to exceed 9.0% of the net
income before taxes and before incentives.
2. The CEO incentive shall be 50% of salary at goal; the actual
incentive paid will be based on the percentage of goal achieved, up
to a maximum of 150%.
3. The net income goals, before tax and incentives, for 1997, 1998 and
1999 shall be based on the company's five year plan prepared in
October 1996. The net income goals shall be modified by a return,
equal to 2% less than the prime interest rate, on cash expended for
subsequent additional dividends or stock purchases.
4. After the CEO's incentive has been determined for each year, the
remaining amount available for incentives shall be distributed at
the discretion of the CEO. For example, the incentives available
for distribution, at goal, will be 9.0% of the net income before
taxes reduced by the CEO incentive of 50% of salary, leaving a
total for discretionary incentives.
5. The incentives for each calendar year shall be paid in one payment
prior to March 15 of the next following year.
6. Any amounts of discretionary incentives which are not distributed
shall remain as net income for the company.
Date: January 3, 1997
COMPENSATION COMMITTEE
By:/s/Paul L. Sjoquist
--------------------------------
By:/s/J. Leonard Frame
--------------------------------
ADOPTION AGREEMENT FOR
QUALIFIED PROFIT SHARING AND 401(K) PLAN
#K DC1
This adoption agreement is used with Plan document # K DC1 and Trust
Agreement #T1. The sections of this adoption agreement correspond with the Plan
and Trust.
1.1 NAME OF PLAN AND TRUST: Modern Controls, Inc. Savings and Retirement
Plan
1.3 Minnesota state law shall govern the Plan and Trust.
1.4 The Plan's original effective date is July 1, 1985.
The effective date of this restatement is July 1, 1996, unless
otherwise specified in the Plan or Adoption Agreement.
The prior name of the Plan was the same as the name of this restated
Plan.
The Fiscal (tax) year of the Principal Sponsoring Employer is January 1
to December 31.
The Limitation Year is January 1 to December 31.
1.5 This Plan is a Profit Sharing Plan and 401(k) Plan.
1.6 This Plan is not an Eligible Individual Account Plan.
DEFINITIONS
2.5 ANNIVERSARY DATE is the last day of the Plan Year.
2.12 SPONSORING EMPLOYER of this Plan is Modern Controls, Inc. and is a "C"
Corporation.
2.13 COMPENSATION. This definition of Compensation relates to the definition
used for determining the amount of the Employer Contribution each
Participant Receives.
Compensation is Earned Income for any Self-employed Individual. See
Plan Section 2.19 if a Self-employed Individual is in the Plan, for
special rules. The definition of Compensation for all other
Participants shall be set forth here.
Compensation is for all years equal to Uniform Compensation under 2.62.
2.18 EARLY RETIREMENT AGE
There is no early retirement age feature.
2.27 FORFEITURE is defined in Plan Section 2.27. (cash outs permitted; see
4.4. Also forfeit certain matching contributions.)
2.28 HIGHLY COMPENSATED EMPLOYEE
(b) When determining the employees to be excluded from the determination of
the number of Employees in the "Top Paid Group" and the number of
Officers who might be Highly Compensated Employees (or Key Employees),
the age and service requirements shall be as set forth in Plan Section
2.28(b).
(h) When determining the lookback and determination years the determination
year is the Plan Year and the lookback year is the prior twelve month
period.
2.29 HOUR OF SERVICE equivalency, when used, shall be 45 hours for each week
worked.
2.30 JOINT AND SURVIVOR ANNUITY is not applicable to this Plan.
2.38 NORMAL RETIREMENT DATE for any Participant shall be age 65 (Normal
Retirement Age).
2.46 PLAN YEAR is the period from January 1 to December 31.
2.47 PRERETIREMENT SURVIVOR ANNUITY is not applicable to this Plan.
2.58 TOTAL COMPENSATION is used in this Plan for determining the limitations
on Contributions and benefits (and for this purpose alone is determined
on the basis of the Limitation Year under 1.4), for determining
Top-Heavy Minimum Contributions, and whenever otherwise specified in
the adoption agreement.
Total Compensation shall be the amount set forth in Plan section
2.58(a), but adjusted as follows: (i) exclude income from sources
outside the United States, and (ii) utilize the cash method of
accounting. This may include amounts earned during the Limitation Year,
but not paid in such year because of the timing of pay periods if these
amounts are paid during the first few weeks of the year.
2.62 UNIFORM COMPENSATION is used in this plan. Uniform Compensation is
Earned Income for any Self-employed Individual. See Plan Section 2.62
if a Self-employed Individual is in the Plan, for special rules. The
definition of Uniform Compensation for all other Participants shall be
set forth below.
(a) (I) Include amounts paid to the Participant during the Plan Year.
(II) See Adoption Agreement section 5.1 to determine whether
Uniform Compensation Paid prior to Participation is counted.
For purposes of performing the tests under Plan section 4.1(e)
(the 401(k) and 401(m) ADP and ACP tests), Uniform
Compensation shall only be taken into account for periods that
the Employee is a Plan Participant.
(III) The cash method of accounting must be utilized.
(b) Uniform Compensation shall be equal to Total Compensation under
2.58(a), and shall include amounts contributed through salary reduction
arrangements (maintained by the Sponsoring Employer) to a 401(k) Plan
or a Cafeteria Plan.
(c) Plan Section 2.13(d) contains rules capping Compensation at $150,000
and special family member aggregation rules for determining this cap.
(d) Plan section 2.13(e) contains rules capping Compensation in Plan Years
beginning before 1989 at $200,000 if the Plan is Top Heavy.
2.67 YEAR OF BENEFIT SERVICE is not used in this Plan.
2.68 YEAR OF ELIGIBILITY SERVICE is any computation period during which the
Employee earns 1000 Hours of Service from the Sponsoring Employer. The
initial computation period must be measured utilizing each Employee's
Employment Year. Subsequent computation periods are based upon Plan
Years (commencing with the Plan Year containing the anniversary of the
Employment Date).
2.69 YEAR OF VESTING SERVICE is any computation period during which the
Employee earns 1000 Hours of Service from the Sponsoring Employer.
Computation periods are based upon Plan Years (commencing with the Plan
Year containing the Employment Date).
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY: Each Employee of a Sponsoring Employer will be eligible to
participate, except the following employees shall not be eligible:
Employees included in a unit of Employees covered by a collective
bargaining agreement, if retirement benefits were the subject of good
faith bargaining between the Employer and Employee representatives
unless such agreement provides for the inclusion of such Employees. For
this purpose, the term employee representatives does not include any
organization more than half of whose members are owners, officers or
executives of the Employer.
Employees who are non-resident aliens and who receive no earned income
which constitutes income from sources within the United States shall
also be ineligible.
3.2 PARTICIPATION: Each employee who is eligible under 3.1 shall begin to
Participate on his Entry Date. Note that the determination of who is
entitled to receive or make contributions is determined only after the
identity of all Participants is determined. Entry into this Plan as a
Participant is determined as follows:
1) The Employee must first meet both the age and service
requirements:
(a) The Age requirement is age 21.
(b) The Service requirement is one (1) Year of
Eligibility Service (see 2.68).
2) Participation begins (if the Employee is still employed) on
the Entry Date coincident with or next following the date the
age and service tests are met.
3) Entry Date(s) under this Plan are the first day of each
Calendar Quarter.
3.3 BREAK IN SERVICE RULES FOR PARTICIPATION.
The break in service rules shall apply.
CONTRIBUTIONS
4.1(a) EMPLOYER CONTRIBUTIONS: The amount of Employer profit sharing
contributions to this Plan, if any, will be determined from time to
time by the Sponsoring Employer at its discretion. If the Sponsoring
Employer fails to timely designate an Employer Contribution (for the
purposes of Code 162 and 404) then it shall be deemed that no Employer
Contribution shall have been made.
The Employer Contribution, if any, may be made notwithstanding the
existence of Employer profits.
4.1(d) OPTIONAL 401(K) FEATURES.
Elective Deferrals shall be made to this Plan by salary reduction.
A Participant may elect to defer up to 12% of his Uniform Compensation
for the Plan Year.
4.1(e) CORRECTION OF EXCESS DEFERRALS
The Employee must report Excess Deferrals (the $7,000 as adjusted
limitation) by March 1 of the next calendar year.
4.2 VOLUNTARY CONTRIBUTIONS may not be made by any Participant.
4.3 ROLLOVERS and DIRECT TRUST TO TRUST TRANSFERS
Direct Trust to Trust Transfers from this Plan are allowed.
Rollovers both to and from this Plan are allowed.
Notwithstanding the above eligibility requirements, solely for the
purpose of this Section 4.3, an Employee who has not yet satisfied the
eligibility requirements set forth above may roll over funds to this
Plan from another qualified plan and thereby establish a Rollover
Account. Any Employee who establishes a Rollover Account prior to
becoming a Participant in the Plan shall be subject to the provisions
of Section 4.3 and related Sections of the Plan for the limited
purposes of such Rollover Account only.
4.4 CASH-OUT/REINSTATEMENT OF FORFEITURES
Reinstatement of cashed-out amounts shall be made only after the
Employee repays distributed amounts in time under Plan Section 4.4.
4.9 MATCHING CONTRIBUTIONS by the Employer may be made at the discretion of
the Sponsoring Employer based upon Elective Contributions under 4.1(d)
and are subject to such limitations on amount as may be determined
periodically by the Sponsoring Employer.
Such Matching Contributions are subject to the Vesting Schedule under
6.2., and shall be made regardless of whether the Participant is
employed on a particular date and regardless of Hours of Service worked
during the Plan Year.
The limit on matching contributions shall be based only upon
compensation paid during periods for which elective deferrals are
actually made.
4.10 FAILSAFE CONTRIBUTIONS may be made at the discretion of the Sponsoring
Employer and shall be allocated to the relevant accounts of all
Participants who are eligible to make Elective Contributions under
4.1(d).
ALLOCATION OF CONTRIBUTIONS AND FORFEITURES
5.1(a) ALLOCATION OF PROFIT SHARING CONTRIBUTION.
(1) Entitled Participants. A Participant shall be entitled to receive an
allocation of the Contribution under 4.1(a) if the Participant is
employed by the Employer on the last day of the Plan Year, or if the
Participant separates from service during the Plan Year due to his
death, his Total and Permanent disability, on or after his Normal
Retirement Date or his Early Retirement Age, if applicable, without
regard to Hours of Service. A Participant who terminates employment for
any other reason not described above shall receive an allocation of the
Employer Contribution only if such Participant has 501 Hours of Service
during the Plan Year.
(2) In addition to the foregoing, if the failure to make an allocation to
Participants who either have less than 1000 Hours of Service during a
Plan Year or who are not employed by the Sponsoring Employer(s) on the
last day of the Plan Year would result in a violation of the Code
410(b) Coverage rules or the Code 401(a)(26) Minimum Participation
rules, then such excluded Participants shall be ranked in order of
highest to lowest Hours of Service earned during the Plan Year and
those with the greatest Hours of Service in (a) category one and then,
if necessary (b) category two, shall be treated as Entitled
Participants. Only the minimum number of such Participants needed to
satisfy such Code sections shall be so deemed Eligible Employees.
Category one shall be those Participants who are employed on the last
day of the Plan Year. Category two, which shall only be utilized if
treating all members in category one as Entitled Participants is not
enough to bring the Plan into compliance with such Code Sections, is
all Participants who have earned more than 500 Hours of Service and who
are not employed on the last day of the Plan Year.
(3) Each Participant entitled to receive an allocation under (1) or (2)
above ("Entitled Participant") shall receive an allocation in
accordance with the following formula, except to the extent modified
for certain family members in (4) below and offset in accordance with
(5) below:
For Plan Years beginning after 1988:
Proportionate Allocation. To each Entitled Participant, in the
proportion that his Compensation bears to such aggregated Compensation
of all Entitled Participants.
Compensation for this purpose means Compensation earned while a
Participant.
(4) Special rule for family members. In any Plan Year that two or more
family members have Compensation or Uniform Compensation aggregated
pursuant to Plan Sections 2.13, 2.58 or 2.62, and this aggregated
Compensation or Uniform Compensation would otherwise exceed the then
existing legal cap under Code 401(a)(17), then remember to first
pro-rate such Compensation or Uniform Compensation among such family
members up to the cap.
(5) Offsets. The amounts allocated under 5.1(a) are not subject to offset.
5.2 FORFEITURES
(a) Shall first be used to reinstate accounts of Cashed-out Participants
under 4.4. The first forfeitures to be used up in making any such
required reinstatements shall be the forfeitures from Profit Sharing
contributions.
(b) Forfeitures of Profit Sharing Contributions. Any remaining Forfeited
Profit Sharing contributions shall next be treated as an additional
Profit Sharing contribution and allocated under 5.1(a) in the year of
Forfeiture.
(c) Forfeitures of Matching Contributions. Any remaining Forfeited Matching
Contributions shall be treated as Matching Contributions to the extent
necessary to discharge the Employer's stated obligation to make such
Matching Contributions under 4.9. Finally, any remaining forfeitures
shall be used to increase the matching contribution under 4.9.
5.5(h) MULTIPLE DEFINED CONTRIBUTION PLANS. If the Employer maintains another
Defined Contribution Plan, then if the limits of Section 5.5 would
otherwise be violated, reductions of amounts allocated to Participants'
Accounts shall be made in the following order: first in this Plan.
VESTING
6.1 VESTING. Except as otherwise provided at adoption agreement Section
4.9, a Participant shall be fully (100%) vested in the value of each of
his Accounts except his Regular Account and Matching Account if so
selected under 4.9.
6.2(b) VESTING SCHEDULE for Regular Account and Matching Account if so
selected under 4.9:
Years of
Vesting Service Vested Percentage
--------------- -----------------
0 0%
1 0%
2 50%
3 75%
4 100%
DISTRIBUTIONS
7.1(a) TIMING OF DISTRIBUTIONS. Subject to Article 7,
(I) (a) Distributions of a terminated Participant's Savings Account
shall be made as soon as administratively feasible, if
permitted under Plan Section 7.6, after the Participant
separates from service with the Sponsoring Employer.
(b) Distributions of the Participant's Accounts attributable to
Employer Contributions under Plan Sections 4.1(a) and 4.9
shall be made as soon as administratively feasible, if
permitted under Plan Section 7.6, after the Participant
separates from service with the Sponsoring Employer.
(c) Notwithstanding the above rules, if the vested account
balances of the Participant do not exceed $3,500 then the
benefits will be paid as soon as administratively feasible
after the Participant terminates employment with the Employer.
(II) In-service distributions are not permitted under this Plan.
(III) Hardship distributions are permitted for only the Savings Account. In
Plan Years beginning after 1988, Earnings credited to the Savings
Account may not be distributed as a Hardship. However, earnings
allocated as of December 31, 1988 may be distributed as a Hardship. But
only for the following designated hardships:
regulatory safe harbor events:
-- (1) To pay medical expenses described in Code
213(d) incurred by the Employee, the
Employee's Spouse, or any dependents of the
Employee.
-- (2) To pay for the purchase (excluding mortgage
payments) of a principal residence for the
employee.
-- (3) To pay for post-secondary education tuition
and related educational fees for the next 12
month period for the Employee, the Employee's
spouse, children or dependents.
-- (4) To prevent the eviction of the Employee from
his principal residence or foreclosure of
such principal residence.
Hardship distributions are permitted only if necessary
to relieve one of the designated hardship events, and
then only to the extent that the distribution is both
required to relieve the financial need and to the
extent that the need can not be satisfied from other
resources which are reasonably available to the
Employee.
-- Safe Harbor Circumstances
This is deemed satisfied if all of the following
requirements are satisfied, (i) the distribution is
not in excess of the amount needed to relieve the
hardship, (ii) the Employee has obtained all other
distributions currently available under all Plans
maintained by the Employer, (iii) all Plans
maintained by the Employer provide that the
Employee's elective contributions and employee
contributions will be suspended for at least 12
months after receipt of the hardship distribution,
and (iv) all Plans maintained by the Employer provide
that the Employee may not make elective contributions
for the Employee's taxable year immediately following
the taxable year of the hardship distribution in
excess of the applicable limitation under Code 402(g)
($7,000 as adjusted under 415(d)) for such next
taxable year less the amount of the Employee's
Elective Contributions for the taxable year of the
hardship distribution. If this provision is elected,
then if utilized, and notwithstanding any provision
in the Plan to the contrary, the provisions in (iii)
and (iv) shall be applied to the Participant
receiving the distribution.
Hardship distributions shall be made as soon as
administratively practicable following the
Participant's valid election. The Participant must
inform the Plan Administrator in writing that he
elects such Hardship distribution.
7.2 FORM OF DISTRIBUTION. Subject to Article 7,
(a) Distributions under this Plan shall be made in accordance with the
Profit Sharing Plan exception to the automatic survivor annuity
requirements. The Participant may elect any of the distribution forms
listed under (b).
(b) Distributions may be paid, at the election of the Participant (or
beneficiary) in the following forms:
-- Lump sum
-- Installments, payable in monthly, quarterly, or
annual payments over a fixed reasonable period of
time, not exceeding the life expectancy of the
Participant, or the joint life and last survivor
expectancy of the Participant and his Beneficiary.
The Participant or Beneficiary, at any time, may
elect to accelerate the payment of all or any
portion of the Participant's unpaid balance
subject to the requirements of Plan Section 7.6.
(c) Notwithstanding the foregoing, but subject to Plan Section 7.6, if the
value of the benefits to be distributed is not in excess of $3,500, the
distribution shall be made in lump sum form.
(d) Spouse. The definition of spouse and surviving spouse in Plan Section
7.2 shall not utilize the one year marriage rule.
7.4. SEPARATE INVESTMENT FUND FOR TERMINATED PARTICIPANT.
The vested interest of a terminated Participant may be segregated under
Plan Section 7.4 into a Separate Investment Fund.
8.2 DEFERRED DISTRIBUTIONS.
No interest shall be paid on deferred distributions made after the most
recent Valuation Date.
9.1 LIFE INSURANCE.
There shall be no life insurance benefits provided under this Plan.
13.1(b) DISTRIBUTION PURSUANT TO A QUALIFIED DOMESTIC RELATIONS ORDER.
Notwithstanding any provisions of this Plan to the contrary,
distribution may be made to an alternate payee under the terms of a
Qualified Domestic Relations Order prior to the Participant's
attainment of the earliest retirement age if the order so provides and
the alternate payee consents (if the amount payable under the order
exceeds $3,500).
14.1 LOANS.
Loans are permitted under this Plan.
Any Participant Loan made under this Plan shall be subject to a formal
written loan policy and procedure in addition to those requirements
enumerated in Article 14.
15.1(e) TOP-HEAVY RULES. If any Non-Key Employee is covered under both a
Defined Contribution Plan and a Defined Benefit Plan of the Employer,
then the minimum top- heavy contribution shall be 5% and shall be
provided under this Plan.
TRUSTEE: The following individual is designated as Trustee of the Trust:
Frontier Trust Company
The adopting employer(s) may not rely on an opinion letter issued by the
National Office of the Internal Revenue Service as evidence that the plan is
qualified under Code 401 of the Internal Revenue Code. In order to obtain
reliance with respect to plan qualification, the employer must apply to the
appropriate key district office for a determination letter.
This adoption agreement may be used only in conjunction with basic plan document
#K DC1 and Trust Document #T1. The Frontier Trust Company master trust agreement
shall also be incorporated by reference to the extent necessary to enable
frontier Trust to act as Trustee.
IN WITNESS WHEREOF, as evidence of the adoption of this Plan and Trust, each
Sponsoring Employer and each Trustee has caused the same to be executed on this
14th day of June, 1996.
TRUSTEE: FRONTIER TRUST COMPANY EMPLOYER:
BY: /s/ RONALD A. MEYER BY: /s/ RONALD A. MEYER
-------------------------------- ----------------------------------
As authorized by Trustee
ITS: VP Finance
---------------------------------
AND: /s/ SARA GUSTAFSON
---------------------------------
ITS: Personnel Administrator
---------------------------------
DEFINED CONTRIBUTION PLAN
DOCUMENT K DC1
PLAN DOCUMENT K DC1
TABLE OF CONTENTS
1. PRELIMINARY MATTERS
2. DEFINITIONS
3. ELIGIBILITY AND PARTICIPATION
4. CONTRIBUTIONS TO THE PLAN
5. ALLOCATION OF EMPLOYER CONTRIBUTIONS AND FORFEITURES
6. VESTING
7. DISTRIBUTIONS
8. ACCOUNTING
9. PURCHASE OF INSURANCE
10. AMENDMENT AND TERMINATION OF THE PLAN
11. CLAIMS PROCEDURE
12. DESIGNATION OF BENEFICIARY
13. MISCELLANEOUS PROVISIONS
14. LOANS
15. TOP HEAVY RULES
1. PRELIMINARY MATTERS
1.1 NAME. The name of this Plan is as stated in the adoption agreement.
The name of the accompanying Trust is also contained in the adoption agreement.
1.2 PURPOSE. This Plan has been created for the exclusive benefit of
the Employees of the Company. The purpose of this Plan is to provide incentives
for increased productivity, to provide a deferral of income and to provide for
each Employee a measure of security upon his retirement or to his Beneficiaries
in the event of his death.
1.3 GOVERNING LAW. Any Trust formed pursuant to this Plan shall be
created in the United States. This Plan is drafted to comply with the applicable
provisions of the Code and ERISA. To the extent that the Code and ERISA do not
preempt local law, this Plan and Trust shall be subject to laws of the State
designated in the adoption agreement. If any provision of this Plan or Trust is
held by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provisions shall continue to be fully effective.
1.4 EFFECTIVE DATE.This Plan is effective on and after the date (or
dates) specified in the adoption agreement. If this document constitutes a
restatement the effective date for this restatement shall be specified in the
adoption agreement. For the purposes of this document, the words "Effective
Date" shall mean the latest of such dates. The provisions of this document
(including the provisions of the amended Trust) apply only to an Employee who
terminates his employment with the Employer on or after the effective date,
unless specifically provided to the contrary. The rights and benefits of any
Employee who terminated his employment with the Employer before the effective
date will be determined under the provisions of this Plan, if any, in effect
before the Effective Date. The fiscal (tax) year of the Employer is the date
specified in the adoption agreement.
1.5 PLAN TYPE. The plan type is as designated in the adoption
agreement.
1.6 ELIGIBLE INDIVIDUAL ACCOUNT PLAN ELECTION.(This section applies
only if so elected in the adoption agreement. If this document is a restatement
and if the last version of this plan was an Eligible Individual Account Plan
then this section shall apply even if affirmatively elected to the contrary in
the adoption agreement). It is intended that this Plan be construed as an
"Eligible Individual Account Plan" within the meaning of ss.407(d)(3) of ERISA.
The Plan and Trust are thus expressly permitted to acquire and hold "qualifying
employer securities", as defined in ss.407(d)(5) of ERISA and to acquire and
hold "qualifying employer real property", as defined in ss.407(d)(4) of ERISA,
in accordance with the provisions of section 2.3(9) of the Trust, in any amount
up to and including 100% of the Trust assets attributable to Company
contributions. Trust assets attributable to Employee contributions, Rollover
Accounts, or other non-Company contribution sources shall not be used in any
event to acquire or hold "qualifying employer securities", any other stock of
the Company, or "qualifying employer real property."
2. DEFINITIONS
2.1 ACCOUNT is the Regular Account, and any of the several other
separate accounts (such as the Savings Account, Suspense Account, Optional
Account and Rollover Account) of a Participant. Accounts may be segregated into
Pre-1987 Limitation Year and Post-1986 Limitation Year components. In addition,
Accounts may be segregated (or further segregated) so that earnings are
accounted for separately, so that any accounting or administrative recordkeeping
system is facilitated or so that a Separate Contract may be maintained.
Separate Accounts shall be maintained for each Employee to which will
be credited the Employer contributions and earnings thereon.
2.2 ACCRUED BENEFIT is the value in the Participant's Accounts. In a
Defined Benefit Plan, the Accrued Benefit is the annual benefit commencing at
Normal Retirement Age expressed in the form of a straight life annuity without
ancillary benefits determined in accordance with the Plan as of the
Determination Date.
2.3 AFFILIATE is any corporation, trade, or business which would be
considered the Employer by application of Code ss.ss. 414(b), (c), (m) or (o),
Code ss.401(d)(9) or Code ss.415(h) where applicable, without regard to whether
or not the corporation, trade or business has adopted this Plan.
2.4 AGGREGATION GROUP (a) shall include each Plan of the Employer or an
Affiliate in which a Key Employee is a Participant, (b) shall include each other
plan of the Employer or an Affiliate which enables any Plan described in (a)
above to meet the requirements of Code ss.401(a)(4) or Code ss.410, (c) may
include at the discretion of the Committee any other plans of the Employer or an
Affiliate not described in (a) or (b) above if such group of plans continues to
meet the requirements of Code ss.401(a)(4) or Code ss.410, (d) shall include any
terminated plan of the Employer or an Affiliate which, if it has not been
terminated during the preceding five Plan Years ending on the Determination
Date, would be described in (a) or (b) above. Plans described in (a), (b) or (d)
are members of the Required Aggregation Group. Plans described in (c) are
members of the Permissive Aggregation Group.
2.5 ANNIVERSARY DATE is the last day of the Plan year unless otherwise
specified in the adoption agreement. In no event shall there be more than 12
consecutive months between Anniversary Dates under this Plan.
2.6 ANNUAL ADDITIONS
(a) Annual Additions is the total of any amounts which are allocated to
the Combined Accounts of a Participant consisting of (1) Company contributions
(excluding Company contributions arising from an award of backpay by agreement
with the Company or by court order); (2) Forfeitures; (3) Employee
contributions, (4) after March 31, 1984 amounts allocated pursuant to an
individual medical account under Code ss. 415(l)(1) which is part of a pension
or annuity Plan maintained by the Employer, and (5) after December 31, 1985 in
taxable years ending after such date, for amounts attributable to post
retirement medical benefits, allocated to the separate account of a Key
Employee, as defined under Code ss.419A(d)(3) under a Code ss.419(e) welfare
benefit fund maintained by the Employer. For purposes of determining Annual
Additions, a rollover contribution from an IRA, or from an account in the
qualified retirement plan of a previous employer of a Participant shall not be
included.
(b) For Plan Years beginning prior to January 1, 1987, (3) above, shall
be equal to the lesser of: (i) one-half of his Voluntary Contributions; or (ii)
all of his Voluntary Contributions in excess of 6% of his Total Compensation.
(c) Annual Additions shall also include Excess Contributions under Code
ss.401(k), Excess Deferrals under Code ss.402(g) and Excess Aggregate
Contributions under Code ss.401(m), even if such amounts are distributed or
forfeited.
2.7 BENEFICIARY is the person or entity designated pursuant to Article
12 to receive the value of the Participant's Vested Accounts which have not been
paid out prior to the Participant's death.
2.8 BREAK IN SERVICE occurs when a person ceases to be an Employee of
the Company or an Affiliate.
2.9 CODE is the Internal Revenue Code of 1986, as amended, and
regulations issued thereunder.
2.10 COMBINED ACCOUNTS is the total of all Accounts of a Participant in
all of the Defined Contribution Plans of the Company and any Affiliate.
2.11 COMMITTEE is the organization appointed by the Sponsoring
Employers for purposes of administering this Plan, keeping records, notifying
Participants of the amounts of their benefits, generally determining the method
and timing of benefit payments, and performing any other duties specified in
this Plan. The Committee may act by whatever rules it considers necessary to
administer the Plan so long as the rules adopted are nondiscriminatory, and are
consistent with the provisions of this Plan and applicable law. The Committee
has full discretion to interpret the terms and conditions and language of this
Plan, and has full discretion to approve or deny Participant claims for benefits
so long as the exercise of discretion is consistent with the terms of the Plan
and is not arbitrary and capricious. Any appointment is subject to approval by
the Sponsoring Employer and a Committee member by written notice may be asked to
resign. In the case of any dispute arising under the terms of this Plan, the
Committee shall be the authorized agent for the service of legal process. The
Committee may create subcommittees to handle any or all of the duties under the
Plan. In the event that no Committee is named, the Board of Directors of the
Sponsoring Employer (or the Partners of the Partnership or the Owner of the Sole
Proprietorship) shall be the Committee.
2.12 COMPANY OR EMPLOYER is the business (or businesses) designated in
the adoption agreement (Sponsoring Employer). Company or Employer also includes
any other Employer which, with the written consent of the Sponsoring Employer
adopts this Plan, in writing on behalf of its Employees. To adopt the Trust,
such Employer shall also obtain the written consent of the Trustee.
If any of the Sponsoring Employers or Affiliates is an unincorporated
entity, then the following additional provisions shall apply:
If this plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan is established
and one or more other trades or businesses, this Plan and the Plan established
for other trades or businesses must, when looked at as a single Plan, satisfy
Code ss.ss.401(a) and (d) for the Employees of this and all other trades or
businesses.
If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or businesses, the
employees of the other trades or businesses must be included in a Plan which
satisfies Code ss.ss.401(a) and (d) and which provides contributions and
benefits not less favorable than provided for Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the Plans of two
or more trades or businesses which are not controlled and the individual
controls a trade or business, then the contributions or benefits of the
Employees under the Plan of the trades or businesses which are controlled must
be as favorable as those provided for him under the most favorable Plan of the
trade or business which is not controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or two or
more Owner-Employees, will be considered to control a trade or business if the
Owner-Employee, or two or more Owner-Employees together:
(l) own the entire interest in an unincorporated trade or
business, or
(2) in the case of a partnership, own more than 50 percent of
either the capital interest or the profits interest in the partnership. For
purposes of the preceding sentence, an Owner-Employee, or two or more
Owner-Employees shall be treated as owning any interest in a partnership which
is owned, directly or indirectly, by a partnership which such Owner-Employee, or
such two or more Owner-Employees, are considered to control within the meaning
of the preceding sentence.
2.13 COMPENSATION for any Self-employed Individual under Code
ss.401(c)(1) shall equal his Earned Income.
(a) General rule. Unless otherwise provided in the adoption agreement,
Compensation shall mean the total amount of all payments made by the Employer to
an Employee for services rendered to the Employer, including bonuses,
commissions, overtime pay and amounts contributed by the Employer pursuant to a
salary reduction agreement under any 401(k), cafeteria, SEP or 403(b) plan.
Compensation shall not include Employee expense reimbursements, fringe
benefits (taxable or nontaxable), director's fees, car allowances, contributions
made by the Employer under the Plan, payments made by the Employer for group
insurance, hospitalization and like benefits, nor contributions made by the
Employer under any other employee benefit plan it maintains.
(b) Adoption agreement may modify the general definition. The
Sponsoring Employer may, in the adoption agreement, redefine the components
entering into or excluded from Compensation, or provide that Compensation is
equal to Total Compensation or Uniform Compensation.
In addition, the adoption agreement may specify that a different
definition of Compensation be used in different Plan Years beginning before
1992.
(c) The adoption agreement shall specify whether or not to include
amounts paid to the Employee before the Employee is a Participant in this Plan
(e.g. if the Participant enters the Plan on a day other than the first day of
the Plan Year).
(d) In post-1988 Plan Years, Compensation may not exceed $200,000 (or a
greater amount determined in accordance with Code ss.415(d)), but in making this
determination, the rules of Plan subsection 2.28(f) shall apply, except that in
applying such rules, the term "family" shall include only the spouse of the
employee and any lineal descendants of the employee who have not attained age 19
before the close of the year.
If, as a result of the application of such family member aggregation
rules, the adjusted $200,000 limitation is exceeded, then (except for purposes
of determining the portion of Compensation up to the integration level if this
plan provides for an integrated contribution) the limitation shall be prorated
among the affected individuals in proportion to each such individual's
Compensation as determined under this section prior to the application of this
limitation, unless future regulations or changes in the law mandate a different
method.
If Compensation is to be determined over a period of more than one
year, then the annual $200,000 Compensation limit in effect for each of the
years used is determined separately for each such year, even though the
limitation changes under Code ss.415(d) from year to year.
The $200,000 limitation shall be applied separately to each group of
plans which are treated as a separate plan and to each separate element in a
component plan.
(e) For Plan Years beginning prior to 1989, in any Plan Year in which
this Plan is a Top Heavy Plan, Compensation shall be limited to the first
$200,000, or such larger amount as prescribed in accordance with ss.416(d)(2) of
the Code.
(f) Compensation shall be determined on the cash basis. The adoption
agreement may also specify the Plan Year, the taxable year ending within the
Plan Year and the Limitation Year ending within the Plan Year as the computation
period for Uniform Compensation for the Plan Year.
(g) In addition to the other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the contrary, for
Plan Year beginning on or after January 1, 1994, the annual compensation of each
Employee taken into account under the Plan shall not exceed the OBRA'93 annual
compensation limit. The OBRA'93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year.
If a determination period consists of fewer than 12 months, the OBRA'93 annual
compensation limit will be multiplied by a fraction, the numerator of which is
the number of months in the determination period, and the denominator of which
is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under 401(a)(17) of the Code shall mean the OBRA'93
annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the current Plan Year,
the compensation for that prior determination period is subject to the OBRA'93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA'93 annual
compensation limit is $150,000.
2.14 DATE OF EMPLOYMENT is the day on which the Employee performs his
first Hour of Service on or following the later of: (a) the date on which he is
employed by the Company, and (b) the date on which he is reemployed by the
Company following a One Year Break in Service.
2.15 DEFINED BENEFIT PLAN is a retirement plan which does not provide
for benefits from an individual account of a Participant, but rather provides
for benefits based on a benefit formula provided by the Plan.
2.16 DEFINED CONTRIBUTION PLAN is a retirement plan which provides for
an individual account for each Participant and for benefits based entirely on
the balance of that account derived from contributions, income, expenses, market
value increases or decreases, and sometimes Forfeitures from Participants who
terminate employment before retirement.
2.17 DETERMINATION DATE is the last day of the preceding Plan Year (or,
in the case of the first Plan Year of a Plan, the last day of a first Plan
Year).
2.18 EARLY RETIREMENT AGE, if utilized, is the date on which the
Participant attains the age and meets the other requirements specified in the
adoption agreement. Distributions may be made to any individual who has attained
his Early Retirement Age (while still employed by the Company) and who separates
from service after attainment of such age and on account of this Early
Retirement provision, in accordance with the provisions of Article 7 of the
Plan.
2.19 EARNED INCOME is the net earnings from self-employment in the
trade or business with respect to which the Plan is established, for which
personal services of the individual are a material income-producing factor. Net
earnings will be determined without regard to items not included in gross income
and the deductions allocable to such items. Net earnings are reduced by
contributions by the Employer to a qualified plan to the extent deductible under
Code ss.404. Net earnings shall be determined with regard to the deduction
allowed to the Employer under Code ss.164(f) for taxable years beginning after
December 31, 1989.
2.20 EFFECTIVE DATE is the effective date or dates set forth in the
Plan and adoption agreement section 1.4.
2.21 EMPLOYEE is any employee of the Sponsoring Employer or any other
employer required to be aggregated under Code ss.ss. 414(b), (c), (m) or (o),
including any Leased Employee deemed to be an employee pursuant to Code
ss.ss.414(n) or (o).
2.22 EMPLOYMENT YEAR is the initial 12 consecutive month period
beginning on an Employee's Date of Employment and any subsequent 12 consecutive
month periods beginning on the anniversary of the Date of Employment.
2.23 ENTRY DATE is the day or days specified in the adoption agreement
under 3.2.
2.24 ERISA OR ACT is the Employee Income Security Act of 1974, as
amended.
2.25 FIDUCIARY is any person who: (a) exercises any discretionary
authority or control over the management or administration of the Plan or
disposition of the Trust Fund; (b) has authority or responsibility to offer
investment advice with respect to the Trust Fund for a fee or other
compensation, whether direct or indirect; or (c) is described as a Fiduciary
under ERISA.
2.26 FIVE PERCENT OWNER is any Employee or former Employee who is or
was a person owning (or considered as owning under Code ss.318) more than five
percent (5%) of the Employer. Ownership percentage shall be based upon either
outstanding stock or stock possessing voting power in the case of a corporation
or the capital or profit interest in the case of an unincorporated trade or
business. Ownership shall be determined by applying Code ss.318, substituting
five (5%) for fifty percent (50%) in subparagraph (C) of Code ss.318(a)(2) in
the case of a corporation. In the case of an unincorporated trade or business,
similar principles shall be applied. Code ss.414(b), (c), and (m) shall not
apply for purposes of determining ownership in the Employer.
2.27 FORFEITURE is the Nonvested portion of a Participant's Regular
Account determined on the earlier of: (1) total distribution of his accounts
and, (2) his fifth consecutive One Year Break in Service. Forfeiture may be
redefined in the adoption agreement to occur on the last day of the Plan Year in
which falls the Participant's fifth consecutive One Year Break in Service.
Matching Contributions which are attributable to: Excess Contributions under
Code ss.401(k), Excess Deferrals under Code ss.402(g) or Excess Aggregate
Contributions under Code ss.401(m) shall also be Forfeitures. See 4.1(e) and
4.2(e).
2.28 HIGHLY COMPENSATED EMPLOYEE
(a) Is any Employee other than Employees who are non-resident aliens
who received no U.S. source income, and who at any time during the current Plan
Year (the "determination year") or the preceding 12 month period (the "lookback
year"):
(1) Was a Five Percent Owner (see 2.26),
(2) Had pay greater than $75,000, but only if the requirements
of paragraph (c) are met,
(3) Had pay greater than $50,000 and was a member of the Top
Paid Group, but only if the requirements of paragraph (c) of
this Section 2.28 are met, or
(4) Was an officer who had pay greater than 50% times the
defined benefit dollar limitation under Code ss.415(b)(1)(A)
as adjusted under Code ss.415(d), but only if the
requirements of paragraph (c) are met. No more than 50
employees, or if lesser, the greater of 3 employees or 10%
of the employees, shall be treated as officers. For the
purpose of determining the number of officers, the employees
excluded in (b)(1) through (6) shall not be taken into
account, although any of such excluded employees can still
be treated as an officer under this subparagraph. If no
officer is described in this subparagraph, then the highest
paid officer of the employer for such year shall be treated
as a Highly Compensated Employee.
(b) Top Paid Group is that group of Employees other than employees who
are non-resident aliens who received no U.S. source income, ranked on the basis
of pay received during the year, who are within the top 20% of such Employees.
In determining the total number of Employees for this purpose the following
Employees shall be excluded:
(1) Employees who have not completed six months of service,
(2) Employees who normally work less than 17 1/2 hours per week
(An Employee is deemed to work more than 17 1/2 hours per
week if he works at that threshold for more than 50% of the
total weeks worked by such Employee during the year. Weeks
that the Employee did not work must be disregarded. This may
be applied by the Employer on the basis of groups of
Employees who fall within particular job categories),
(3) Employees who normally work fewer than six months (This is
to be determined on the basis of the facts and circumstances
which relate to the Employer as evidenced by the Employer's
customary experience in the years preceding the
Determination Year. An Employee who works on one day during
a month is deemed to have worked that month. This test may
be applied by the Employer on the basis of groups of
Employees who fall within particular job categories),
(4) Employees in collective bargaining units covered by a
collective bargaining agreement, but only if 90% or more of
the Employees of the Employer are covered under such
collective bargaining agreements, and the plan being tested
covers only Employees who are not covered under such
bargaining agreements.
(5) Employees who have not attained age 21, and
(6) Former Employees.
The Employer may elect (on a reasonable and consistent basis) lower age
and service requirements, provided it utilizes this definition of the Top Paid
Group for all purposes, and this election is provided for in all plans
maintained by the Employer. Employees who perform no services are disregarded in
determining the number of Employees in the top paid group and the identity of
the particular Employees in such top paid group.
(c) The requirements of this paragraph (c) are met only if either (1)
the individual was described in (a)(2), (3) or (4) above in the lookback year or
(2) during the determination year the individual was a member of the group of
100 Employees, other than Employees who are non-resident aliens who received no
U.S. source income, paid the greatest pay by the Employer. The Employer may
elect not to apply the 100 Employee rule.
(d) A highly compensated former employee will be treated as a Highly
Compensated Employee.
A highly compensated former employee for a determination year is any
former employee who, with respect to the Employer, had a separation year prior
to the determination year and was a Highly Compensated Employee for either such
employee's separation year or any determination year ending on or after the
employee's 55th birthday.
An Employee who performs no services for an Employer during the
determination year is treated as a former employee.
The Employer may make an irrevocable election to use the following
special definition of a highly compensated former employee for employees who
separated from service prior to January 1, 1987: A highly compensated former
employee includes any former employee who separated from service with the
Employer prior to January 1, 1987, and was described in any one or more of the
following groups during either (A) the employee's separation year (or the year
preceding such separation year) or (B) any year ending on or after such
individual's 55th birthday (or the last year ending before such employee's 55th
birthday): (1) the Employee was a Five Percent Owner at any time during the
year, (2) the employee received pay in excess of $50,000 during the year. These
determinations may be made on the basis of the calendar year, the Plan Year, or
any other twelve month period selected by the employer and consistently applied.
Separation Year is generally the determination year during which the
Employee separates from service. An Employee who performs no services for the
Employer during a determination year will be treated as having separated in the
year he last performed services for the Employer. In addition, solely for
purposes of determining whether an employee is a highly compensated former
employee after he actually separates from service, an employee will have a
deemed separation year if, in a determination year prior to the attainment of
age 55, the employee receives pay in an amount less than 50% of the employee's
average annual compensation for the three consecutive year calendar years
preceding such determination year during which the employee received the
greatest amount of pay from the Employer (or his total period of service, if
less). There will be a deemed resumption of employment only if, after such
deemed separation year, and before the year of actual separation, such
employee's services for and pay from the Employer for a determination year
increase significantly. This is a facts and circumstances determination.
(e) The $75,000 and $50,000 pay requirements of (a)(2) and (3) above
shall be adjusted for increases in cost of living in accordance with Code
ss.415(d).
(f) Special Rule. For purposes of testing under Code ss.401(k) or (m),
family members of (i) Five Percent Owners or (ii) Highly Compensated Employees
in the group of the ten Highly Compensated Employees who received the greatest
pay during either the lookback year or the determination year, shall not be
considered as separate Employees and shall have their Compensation or Uniform
Compensation treated as paid to such individual, and any contribution or benefit
on behalf of such family member shall be treated as if it were paid to such Five
Percent Owner or Highly Compensated Employee.
(1) Family for this purpose is the Employee's spouse, lineal
ascendant or descendants, and the spouses of such lineal
ascendant or descendants.
(2) Two or more Highly Compensated Employees (or Five Percent
Owners) who are members of the same family shall be treated
as one Highly Compensated Employee (or Five Percent Owner).
(3) An individual who is a family member on any day during the
year is treated as a family member throughout that year even
if that relationship changes because of divorce.
(g) The Controlled Group, Affiliated Service Group and Leased Employee
Rules of Code ss.ss. 414(b), (c), (m), (n) and (o) shall be applied before
testing for Highly Compensated Employees under this section. The Separate Line
of Business Rules of Code ss.414(r) shall not be applied in testing for Highly
Compensated Employees.
(h) The Employer may elect to make the look-back year calculation for a
determination year on the basis of the calendar year ending with or within the
applicable determination year.
In the case of a calendar year determination year, no separate
determination year calculation is required.
In the case of a non-calendar year determination year, the
determination year calculation must be made on the basis of the lag period by
which the applicable determination year extends beyond such calendar year; and
in such case the appropriate $50,000 and $75,000 (as adjusted) dollar amounts
must be pro-rated by multiplying the relevant amounts by a fraction, the
numerator of which is the number of months in the lag period, and the
denominator of which is twelve.
Alternatively, the employer may elect to make the determination year
the same period as the look-back year period described in the immediately
preceding paragraph, and the look-back year the prior calendar year.
(i) Pay for purposes of this section is the same as Total Compensation
except for the following: (1) deferrals to a cafeteria plan, a cash or deferred
(401(k)) arrangement, a Simplified Employee Pension Plan or Employer
Contributions made pursuant to a salary reduction agreement, without regard to
Code ss.403(b) shall be added back into the definition of pay; (2) pay shall be
measured on the basis of the relevant periods used under this section and not
the Plan Year or any "limitation year"; and (3) the adjusted $150,000 (or
$200,000) limitation does not apply.
Proposed regulations issued May 10, 1990 permit a Plan to add back into
Uniform Compensation, deferrals under an eligible deferred compensation plan
within the meaning of Code ss.457(b) (deferred compensation plans of state and
local governments and tax-exempt organizations) and employee contributions
(under governmental plans) described in Code ss.414(h)(2) that are picked up be
the employing unit and thus are treated as employer contributions). It is not
clear whether these amounts must be, or even may be, added back into pay for the
purpose of applying the Highly Compensated Employee tests. Unless otherwise
specifically provided under the law, these deferrals and contributions shall not
be so added back for this purpose.
(j) The Employer may adopt any reasonable rule relating to rounding
calculations or breaking ties among two or more Employees.
(k) The Employer may elect on a reasonable and consistent basis to
include in the Highly Compensated Employee determination those leased employees
who are otherwise covered by a safe harbor plan described in Code ss.414(n)(5).
(l) This section shall be applied in accordance with regulations under
the Internal Revenue Code.
2.29 HOUR OF SERVICE is any and all of (a) hours worked by any Employee
for which he is directly or indirectly paid (or entitled to pay) by the Company
for performance of duties; (b) hours during which an Employee is on Company
approved vacation, holiday, sick leave, jury duty, military duty, layoff or
Company approved leave of absence; and (c) hours for which backpay, irrespective
of mitigation of damages, is either awarded or agreed to by the Company (to the
extent not previously credited); but excludes: (d) hours for which the payment
is made for the purpose of complying with applicable worker's compensation,
unemployment compensation or disability insurance laws, or which reimburses the
Employee solely for medical or medically-related expenses incurred by the
Employee; (e) hours in excess of 501 Hours of Service accrued during any single
period during which the Employee performs no duties.
Any determination of Hours of Service shall be made in accordance with
the Department of Labor Regulation ss.2530.200b-2(b). Hours of Service shall be
credited to the appropriate period determined by application of Department of
Labor Regulation ss.2530.200b-2(c).
Hours of Service shall be credited for service with an Affiliate and
for any individual considered an Employee of the Employer or an Affiliate for
purposes of this Plan under Code ss.414(n).
An Employee who is not paid on an hourly basis or for whom time records
are not kept shall receive credit for Hours of Service based on the equivalency
set forth in the adoption agreement.
For purposes of this section, "Company" includes a corporation which is
a member of a controlled group of corporations or an affiliated service group,
as defined by Code ss.ss.414(b) and 414(m), respectively, and also includes
trades or businesses defined in Code ss.ss.414(c) and 414(o). Finally, for
purposes of this section, if the Company maintains the plan of a predecessor
employer, service with the predecessor will be counted as service with the
Company.
2.30 JOINT AND SURVIVOR ANNUITY is an annuity for the life of the
Participant, plus a survivor annuity for the life of his spouse equal to 50% of
the amount of the annuity which is payable during the joint lives of the
Participant and the spouse and which is the actuarial equivalent of a single
annuity for the life of the Participant, reduced by any security interest held
by the Plan by reason of a loan outstanding to such Participant if the reduction
is treated as repayment of the loan; provided, however, that if the Spousal
Consent provisions for Plan Loans are both required and not complied with then
the actuarial equivalent of the survivor portion of the annuity may not be less
than 50% of the Participant's portion of such Annuity, unreduced by the value of
the security interest. The adoption agreement may set the survivor percentage
between 50% and 100%. If the exception to the automatic survivor requirements is
elected in the adoption agreement, this Section 2.30 is not applicable to this
Plan.
2.31 KEY EMPLOYEE is an Employee and his Beneficiaries who at any time
during the five Plan Years ending on the Determination Date was described in (a)
below as determined in accordance with (b) below.
(a) An Employee or former Employee who was: (1) an officer of the
Employer or an Affiliate whose annual compensation from the Employer and any
Affiliate was greater than 50% times the maximum dollar amount described in Code
ss.415(b)(1)(A) as adjusted under Code ss.415(d) for such Plan Year; (2) one of
the ten Employees owning (or considered as owning within Code ss.318) the
largest interest in the Employer if such individual's compensation exceeds 100%
of the dollar limitation under Code ss.415(c)(1)(A); (3) a Five Percent Owner;
or (4) a One Percent Owner whose annual compensation from the Employer and any
Affiliate exceeds $150,000.
(b) In determining Key Employees: (1) no more than fifty (50) Employees
or, if less, the greater of three (3) or ten percent (10%) of all Employees
shall be considered officers; (2) if two Employees in (a)(2) above own the same
interest in the Employer, the Employee having the greater annual Compensation
from the Employer and any Affiliate shall be treated as owning a larger
interest; and (3) the constructive ownership rules of Code ss.318 shall apply to
determine ownership of the Employer. The Committee shall determine who is a key
employee in accordance with Code ss.416(i)(1) and the regulations thereunder as
the same may be amended from time to time, which amendments shall supersede the
provisions hereof.
(c) Compensation is compensation defined in 2.28(i).
(d) Employees excluded from determining the number of employees in the
top-paid group under 2.28(b) shall be excluded from the determination of the
number of officers under this section who may be considered to be key-employees.
2.32 LEASED EMPLOYEE means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code
ss.414(n)(6) on a substantially full time basis for a period of at least one
year, and such services are of a type historically performed by Employees in the
business field of the recipient employer. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient Employer.
A Leased Employee shall not be considered an Employee of the recipient
if: (i) such employee is covered by a money purchase pension plan of the leasing
organization providing: (1) a nonintegrated employer contribution rate of at
least 10 percent of compensation, as defined in section Code ss.415(c)(3), but
including amounts contributed pursuant to a salary reduction agreement which are
excludable from the employee's gross income under Code ss.ss.125, 402(a)(8),
402(h) or 403(b), (2) immediate participation, and (3) full and immediate
vesting; and (ii) Leased Employees do not constitute more than 20 percent of the
recipient's nonhighly compensated workforce.
2.33 LIMITATION YEAR is the 12 consecutive month period ending on the
date specified in 1.4 of the adoption agreement.
2.34 NAMED FIDUCIARY is the Plan Administrator. However the Sponsoring
Employer may appoint a successor Named Fiduciary at any time, provided such
successor Named Fiduciary accepts the responsibilities in writing. A Named
Fiduciary, by written notice, may quit or be removed by the Sponsoring Employer
at any time.
2.35 NON-HIGHLY COMPENSATED EMPLOYEE is any Employee who is not a
Highly Compensated Employee.
2.36 NON-KEY EMPLOYEE is any Employee who is not a Key Employee.
2.37 NONVESTED is that portion of the Regular Account of a Participant
which has not become Vested under Article 6.
2.38 NORMAL RETIREMENT DATE is the date on which the Participant
attains the age (and other requirements, if any) specified in the adoption
agreement.
2.39 ONE PERCENT OWNER is any Employee or former Employee who is or was
a person owning (or considered as owning under Code ss.318) more than one
percent (1%) of the Employer. The same rules shall apply in determining
ownership as are described in the definition of Five Percent Owner.
2.40 ONE YEAR BREAK IN SERVICE is the Plan Year (or if the appropriate
measuring period is the employment year then the employment year) during which
occurs, as of the last day of such Year, a person not completing more than five
hundred (500) Hours of Service. The One Year Break in Service shall be deemed to
have commenced on the first day of such Year. For the sole purpose of
determining whether a One Year Break in Service has occurred, Hours of Service
shall include any period during which an Employee is absent from work by reason
of the pregnancy of the individual or the caring of a child of the individual
immediately following the birth or placement in connection with the adoption of
the child, if such Employee gives timely information to the Plan Administrator
of the reason for the absence and the number of days of such absence. The
Employee shall receive credit for the number of Hours of Service which otherwise
would have been credited but for such absence, or in any case in which such
hours cannot be determined, eight Hours of Service per day of such absence, as
may be necessary to prevent a One Year Break in Service, but not to exceed 501
Hours of Service. Such Hours of Service shall be credited only in the Plan Year
(or employment year if appropriate) in which such absence begins if such Hours
of Service are necessary to prevent a One Year Break in Service in such Year, or
in any other case, the relevant Year immediately following. Notwithstanding the
above, no hours of service shall be credited as set forth above unless the
individual furnishes to the Plan Administrator such timely information as the
Plan Administrator may require to establish that the absence from work was due
to the reasons set forth above and the number of days of absence related to such
reasons.
2.41 OPTIONAL ACCOUNT is the Account of a Participant which is credited
with his nondeductible Voluntary Contributions. Optional Failsafe Account is the
account of a Participant which is credited with Optional Failsafe Contributions.
2.42 OWNER EMPLOYEE is an individual who is a sole proprietor, or who
is partner owning more than 10% of either the capital or profits interest of the
partnership.
2.43 PARTICIPANT is an Employee who becomes entitled to share in a Plan
contribution or benefit because he has met the eligibility conditions of Article
3.
2.44 PLAN is this Plan, see 1.1, with all amendments.
2.45 PLAN ADMINISTRATOR is the Committee.
2.46 PLAN YEAR is specified in the adoption agreement.
2.47 PRERETIREMENT SURVIVOR ANNUITY is a survivor annuity for the life
of the Surviving Spouse of the Participant where the actuarial equivalent of the
annuity is equal to 100%, or such smaller percentage as set forth in the
adoption agreement, of the Account balance of the Participant as of the date of
death, reduced by the value of any security interest held by the Plan by reason
of a loan outstanding to the Participant if the reduction is treated as a
repayment of the loan; provided, however, that if the Spousal Consent for Plan
loan provisions are both required and not complied with, then the actuarial
equivalent of the annuity may not be less than 50% of such account balance,
unreduced by the value of the security interest. If the exception to the
automatic survivor requirements is elected in the adoption agreement, this
Section 2.47 is not applicable to this Plan.
2.48 REGULAR ACCOUNT is the Account of a Participant to which his
portion of the Company contribution under 4.1(a) is allocated.
2.49 ROLLOVER ACCOUNT is the Account of a Participant to which amounts
described in 4.3, if utilized, are allocated.
2.50 SAVINGS ACCOUNT is the separate account of the Participant to
which Employer Contributions under 4.1(d) are allocated pursuant to Employee
Elections.
2.51 SELF-EMPLOYED INDIVIDUAL is an individual who has earned income
for the taxable year from the trade or business for which the Plan is
established; also, an individual who would have had earned income but for the
fact that the trade or business had no net profits for the taxable year.
2.52 SUPER TOP HEAVY PLAN is each Plan in the Required Aggregation
Group contained in the Top Heavy Group where the aggregate Top Heavy Ratio of
such Plans exceeds .9 (90%). If a Plan is in the Permissive Aggregation Group
and this inclusion drops the Top Heavy Ratio of the Top Heavy Group below .9
(90%) then no Plan in such group is Super Top Heavy.
2.53 SUSPENSE ACCOUNT is, depending upon the context, either: (a) the
Account of a Participant consisting of the Nonvested portion of his Regular
Account, determined during the Plan Year in which the Employee has his or her
benefits paid out in a distribution (which is not a "cash-out" under 4.4.) and
which will be reallocated to the Participant upon his return as an Employee
under 4.4 or (b) the Account of the Employee described in 5.4 consisting of
unallocated Company contributions and Forfeitures until such time as the amounts
are allocated to the accounts of Plan Participants.
2.54 TOP HEAVY GROUP is the Aggregation Group.
2.55 TOP HEAVY PLAN is each Plan in the Required Aggregation Group
contained in the Top Heavy Group where the aggregate Top Heavy Ratio of such
Plans exceeds .6 (60%). If a Plan is in the Permissive Aggregation Group and
this inclusion drops the Top Heavy Ratio of the Top Heavy Group below .6 (60%)
then no Plan in such group is Top Heavy.
2.56 TOP HEAVY RATIO is the decimal equivalent of the fraction, the
numerator of which is the sum, as of the Determination Date, of the present
value of cumulative Accrued Benefits and the value of the Account balances,
derived from Employer and Employee contributions, on behalf of all those
Participants and their Beneficiaries who are Key Employees and the denominator
of which is the sum, as of the Determination Date, of the present value of
cumulative Accrued Benefits and the value of the Account balances, derived from
Employer and Employee contributions, on behalf of all Participants and their
Beneficiaries. Generally, when determining Accrued Benefits and Account balances
include (a) Employer contributions due as of the Determination Date, (b)
aggregate distributions made during the five Plan Years ending on the
Determination Date, and (c) aggregate distributions from any terminated plan
which, if it had not been terminated would have been required to be included in
the Aggregation Group, but exclude (d) any contributions after December 31, l983
constituting a rollover from a Plan not maintained by the Employer or an
Affiliate; (e) any distributions from a Plan which are required to be included
in another Plan of an Employer or an Affiliate; (f) any accumulated Deductible
Employee Contributions pursuant to Code ss.72(o)(5); (g) the Account balance of
a Participant who is a Non-Key Employee but who was a Key Employee with respect
to a prior Determination Date; and (h) the Account balance of a Participant who
has not performed any service for the Employer or Affiliate at any time during
the five Plan Years ending on the Determination Date. For Defined Benefit Plans,
the Top Heavy Ratio shall be determined by substituting the term present value
of cumulative Accrued Benefits for Account balance in the preceding sentence.
The Top Heavy Ratio shall be measured in accordance with Treasury Regulation
1.416-1.
2.57 TOTAL AND PERMANENT DISABILITY shall be determined by a physician
selected by the Committee. For purposes of this paragraph, a Participant shall
be considered totally and permanently disabled if such Participant incurs a
mental or physical disability which may be expected to result in death or be of
long and indefinite duration and which renders the Participant unable to engage
in any substantial gainful activity. The Committee may, in its discretion,
accept as conclusive the opinion of a qualified and independent physician
selected by the Participant or his or her family.
2.58 TOTAL COMPENSATION
(a) For Limitation Years (defined at 1.4) beginning prior to January 1,
1991, unless modified in accordance with (b) below, Total Compensation shall
include: (i) wages, salaries, commissions, tips, bonuses, overtime pay, paid
leaves of absence (such as vacations, holidays, etc.), and any other amounts
received from personal services rendered by a Participant for the Limitation
Year, any of which result from employment with the Employer or an Affiliate, and
without regard to whether or not an amount is paid in cash, (ii) income from
sources outside the United States, (iii) Earned Income (for Self Employed
Individuals), (iv) amounts described in Code ss.ss. 104(a)(3), 105(a) and
105(h), but only to the extent that these amounts are includable in the gross
income of the Employee, (v) amounts paid or reimbursed by the Employer for
moving expenses incurred by an Employee, but only to the extent that these
amounts are not deductible by the Employee under Code ss.217, and (vi) the
amount includable in the gross income of the Employee upon making the election
described in Code ss.83(b).
Such term excludes (i) contributions made by the Employer to a plan of
deferred compensation to the extent that, before the application of the Code
ss.415 limitations to that Plan, the contributions are not includable in the
gross income of the Employee for the taxable year in which contributed; Employer
contributions made on behalf of an Employee to a simplified employee pension
plan described in Code ss.408(k) to the extent such contributions are deductible
by the Employee under Code ss.219; any distributions from a plan of deferred
compensation regardless of whether such amounts are includable in the gross
income of the Employee when distributed, however, any amounts received by an
Employee pursuant to an unfunded non-qualified plan to the extent such amounts
are includable in the gross income of the Employee are considered as Total
Compensation, (ii) amounts realized from the exercise of a non-qualified stock
option or when restricted stock (or property) held by an Employee either becomes
freely transferable or is no longer subject to a substantial risk of forfeiture;
(iii) amounts realized from the sale, exchange or other disposition of stock
acquired under a qualified stock option; and (iv) other amounts which receive
special tax benefits, such as premiums for group term life insurance (but only
to the extent that the premiums are not includable in the Employee's gross
income), or contributions made by the Employer (whether or not under a salary
reduction agreement) towards the purchase of any annuity contract described in
Code ss.403(b) (whether or not the contributions are excludable from the
Employee's gross income).
The Employer may, by written resolution, include accrued compensation
as Total Compensation for the limitation year. If this election is made, all
Affiliates which maintain the Plan must make this election. The written
resolution is deemed satisfied if contained in this Plan or in an amendment
thereto. Notwithstanding the foregoing, the accrual method may not be used in
Limitation Years beginning after December 31, 1991.
(b) For Limitation Years beginning after December 31, 1991, Total
Compensation shall be equal to (I) (II) or (III), whichever is elected in the
adoption agreement. The Sponsoring Employers may elect in the adoption agreement
to utilize one of these definitions for any or all Plan Years beginning prior to
January 1, 1992.
(I) General Rule. If this is elected, Total Compensation shall be
the amount set forth in subsection (a) above, but adjusted as follows: (i)
exclude income from sources outside the United States, and (ii) utilize the cash
method of accounting. Total Compensation may include amounts earned during the
Limitation Year, but not paid in such year because of the timing of pay periods
if these amounts are paid during the first few weeks of the year.
(II) Code ss.3121(a) wages. If this is elected, Total Compensation
shall be wages as defined in Code ss.3121(a), for purposes of calculating social
security taxes, but without regard to the wage base limitation in Code
ss.3121(a)(1), the special rules in Code ss.3121(v) (applicable to certain
elective contributions and nonqualified deferred compensation), any rules that
limit covered employment based on the type or location of the Employer, and any
rules that limit the remuneration included in wages based on familial
relationship or based on the nature or location of the employment or the
services performed (such as the exceptions to the definition of employment in
Code ss.ss. 3121(b)(1) through (20)).
(III) Code ss.3401(a) wages. If this is elected, Total
Compensation shall be wages as defined in Code ss.3401(a) for purposes of income
tax withholding at the source but determined without regard to any rules that
limit the remuneration included in wages based on the nature or location of the
employment or the services performed (such as the exception for agricultural
labor in Code ss.3401(a)(2)).
(c) In Plan Years beginning after December 31, l988, if Total
Compensation is the relevant definition of compensation for any of the following
purposes: (i) determining a Participant's contribution allocation or benefit
accrual, or Top Heavy minimum contribution or benefit, (ii) performing the ADP
or ACP tests set forth in Code ss.ss. 401(k)(3) and 401(m)(2)(A), or (iii)
working with the permitted disparity (integration) rules of Code ss.ss.
401(a)(5) and 401(l), then solely for such purposes Total Compensation in excess
of $150,000 (or $200,000) (as adjusted pursuant to Code ss.415(d)) for the
specific Plan Year being reviewed, shall not be considered, but in making this
determination, the rules of Plan subsection 2.28(f) shall apply, except that in
applying such rules, the term "family" shall include only the spouse of the
employee and any lineal descendants of the employee who have not attained age 19
before the close of the year.
If, as a result of the application of such family member aggregation
rules, the adjusted $150,000 (or $200,000) limitation is exceeded, then (except
for purposes of determining the portion of Compensation up to the integration
level if this plan provides for an integrated contribution) the limitation shall
be prorated among the affected individuals in proportion to each such
individual's Compensation as determined under this section prior to the
application of this limitation, unless future regulations or changes in the law
mandate a different method.
If Total Compensation is to be determined over a period of more than
one year, then the adjusted $150,000 (or $200,000) Total Compensation limit in
effect for each of the years used is determined separately for each such year,
even though the limitation changes under Code ss.415(d) from year to year.
This limitation shall be applied separately to each group of plans
which are treated as a separate plan and to each separate element in a component
plan.
(d) For Plan Years beginning prior to 1989, in any Plan Year in which
this Plan is a Top Heavy Plan, Total Compensation shall be limited to the first
$200,000, or such larger amount as prescribed in accordance with ss.416(d)(2) of
the Code.
2.59 TRUST OR TRUST AGREEMENT is the Trust designated in 1.1, with all
amendments.
2.60 TRUSTEE is the individual or corporation, appointed by the Company
under the Trust Agreement who accepts the duties and responsibilities for the
management and investment of the Trust Fund in accordance with the terms of the
Trust Agreement.
2.61 TRUST FUND is the total of contributions made to this Plan,
increased by profits, income, refunds, and other recoveries received, and
decreased by losses and expenses incurred, and benefits paid. Fund or Trust Fund
may also include any assets transferred to the Trust from the qualified trust of
any trust of any other company, H.R. 10 Plan, or an Individual Retirement
Account as provided under the Code.
2.62 UNIFORM COMPENSATION Uniform Compensation for Self- employed
Individuals shall be Earned Income.
(a) Generally, Uniform Compensation is equal to Total Compensation
under 2.58, although other definitions may be chosen under the adoption
agreement. However, the accrual method is not permitted even if this method is
used when computing Total Compensation for other purposes in the Plan. The
elections hereunder in the adoption agreement shall not bind the Plan to utilize
that same definition of Uniform Compensation when testing rules set out under
the Code which are not otherwise specifically explained in this Plan document
(e.g. Code ss.ss. 401(a)(4) and 410(b)).
(I) The adoption agreement may specify the Plan Year, the taxable
year ending within the Plan Year and the Limitation Year ending within the Plan
Year as the computation period for Uniform Compensation for the Plan Year. In
the absence of a specific election, the computation period shall be the Plan
Year.
(II) The adoption agreement shall specify whether or not to
include amounts paid to the Employee before the Employee is a Participant in
this Plan (e.g. if the Participant enters the Plan on a day other than the first
day of the Plan Year).
When computing the ADP test of Code ss.401(k)(3) and the ACP test of
Code ss.401(m)(2)(A) Uniform Compensation shall be based on the entire Plan
Year; however, for Plan Years beginning before January 1, 1992, or later if
permitted under law the adoption agreement may limit Uniform Compensation taken
into account to Uniform Compensation paid to the Employee while a Participant.
(b) For Plan Years beginning before January 1, 1992: Uniform
Compensation shall be either Total Compensation under Plan section 2.58(a) or
W-2 Compensation.
(c) For Plan Years beginning after December 31, 1991, Uniform
Compensation shall be equal to (I), (II), or (III) below, as modified by (IV)
whichever is elected in the adoption agreement, unless the Alternative
Definition is elected under (V). The Sponsoring Employers may elect in the
adoption agreement to utilize one of these definitions for any or all Plan Years
beginning prior to January 1, 1992.
(I) General Rule. If this is elected, Uniform Compensation shall
be the amount set forth in 2.58(a), but adjusted as follows: (i) exclude income
from sources outside the United States, and (ii) utilize the cash method of
accounting. Uniform Compensation may include amounts earned during the Plan
Year, but not paid in such year because of the timing of pay periods if these
amounts are paid during the first few weeks of the year.
(II) Code ss.3121(a) wages. If this is elected, Uniform
Compensation shall be wages as defined in Code ss.3121(a), for purposes of
calculating social security taxes, but without regard to the wage base
limitation in Code ss.3121(a)(1), the special rules in Code ss.3121(v)
(applicable to certain elective contributions and nonqualified deferred
compensation), any rules that limit covered employment based on the type or
location of the Employer, and any rules that limit the remuneration included in
wages based on familial relationship or based on the nature or location of the
employment or the services performed (such as the exceptions to the definition
of employment in Code ss.ss. 3121(b)(1) through (20)).
(III) Code ss.3401(a) wages. If this is elected, Uniform
Compensation shall be wages as defined in Code ss.3401(a) for purposes of income
tax withholding at the source but determined without regard to any rules that
limit the remuneration included in wages based on the nature or location of the
employment or the services performed (such as the exception for agricultural
labor in Code ss.3401(a)(2)).
(IV) Safe Harbor Adjustment. If this is elected in the adoption
agreement, then Uniform Compensation shall equal the amount determined in
accordance with the election in (I) (II) or (III), reduced by all of the
following items (even if includable in gross income): reimbursements or other
expense allowances, fringe benefits (cash and non-cash), moving expenses,
deferred compensation, and welfare benefits.
(A) Special rule for Self-Employed Individuals which applies
if Safe Harbor Adjustment is used. Notwithstanding the foregoing, the Safe
Harbor Adjustment shall not apply to a Self Employed Individual when determining
his or her Uniform Compensation. For these persons Uniform Compensation is
Earned Income. However, if the Safe Harbor Adjustment is elected in the adoption
agreement, then when calculating Earned Income for such Self Employed Individual
an equivalent alternative compensation amount must be determined for such Self
Employed Individual.
(B) The equivalent alternative compensation amount for any
Self Employed Individual is determined by multiplying the Self Employed
Individual's Earned Income by the aggregate Uniform Compensation actually
determined for the Non-Highly Compensated Employees taken into account in
satisfying the requirements of the applicable provision being tested under this
Plan (e.g. including the reductions under the Safe Harbor Adjustment) and
dividing this by the aggregate Uniform Compensation for such Non-Highly
Compensated Employees as determined under any of (d)(I) (II) or (III) and
without taking into account reductions under the Safe Harbor Adjustment. If
Uniform Compensation includes any elective contributions described in (f) or
(f)(I) below, then the Self Employed Individual's Earned Income for this purpose
shall be increased by the amount of elective contributions made by the Employer
on behalf of such Self Employed Individual and the aggregate Uniform
Compensation taken into account under (d)(I) (II) or (III) must include all the
types of elective contributions described in (f) and (f)(I) made by the Employer
to all common-law employees other than Highly Compensated Employees. The amount
taken into account under (d)(I) (II) or (III) may not exceed $200,000 as
determined under the rules of (h) below.
(V) Alternatively, for Plan Years beginning after December 31,
1991, the adoption agreement may specify that Uniform Compensation shall be
equal to the amount determined under Plan section 2.13. This definition is
permissible only if it is (i) "reasonable", (ii) does not by design favor Highly
Compensated Employees and (iii) satisfies the nondiscrimination requirement set
forth below. A special rule for Self Employed Individuals is also set forth
below. The Sponsoring Employers may elect in the adoption agreement to utilize
one of these definitions for any or all Plan Years beginning prior to January 1,
1992.
(A) Whether a definition is reasonable or does not by design
favor Highly Compensated Employees is to be determined by examining all the
facts and circumstances.
(B) The alternative definition satisfies the
nondiscrimination requirement if the average percentage of Uniform Compensation
included under the alternative selected for the Highly Compensated Employees as
a group does not exceed by more than a de minimis amount the average percentage
of Uniform Compensation included under the alternative selected of the
Non-Highly Compensated Employees as a group. This test may be run either by
determining the percentages separately for each individual and averaging those
percentages (the denominator of the percentages being the aggregate amount of
Uniform Compensation as determined under any of (c)(I) (II) or (III)), or if the
following does not produce a distortion as of the result of extra weight given
employees with higher compensation in the relevant group, by dividing the
aggregate amount of Uniform Compensation of all employees in the group by the
aggregate amount of Uniform Compensation as determined under any of (c)(I) (II)
or (III) above for such group members.
(C) Notwithstanding the foregoing, the Alternative Definition
adopted hereunder shall not apply to a Self Employed Individual when determining
his or her Uniform Compensation. For these persons Uniform Compensation is
Earned Income. However, when calculating Earned Income for such Self Employed
Individual an equivalent alternative compensation amount must be determined for
such Self Employed Individual.
(D) The equivalent alternative compensation amount for any
Self Employed Individual is determined by multiplying the Self Employed
Individual's Earned Income by the aggregate Uniform Compensation actually
determined for the Non-Highly Compensated Employees taken into account in
satisfying the requirements of the applicable provision being tested under this
Plan and dividing this by the aggregate Uniform Compensation for such Non-Highly
Compensated Employees as determined under any of (c)(I) (II) or (III) above. If
the alternative definition includes any elective contributions described in (g)
or (g)(I) below, then the Self Employed Individual's Earned Income for this
purpose shall be increased by the amount of elective contributions made by the
Employer on behalf of such Self Employed Individual and the aggregate Uniform
Compensation taken into account under (c) must include all the types of elective
contributions described in (g) and (g)(I) made by the Employer to all common-law
employees other than Highly Compensated Employees. The amount taken into account
under (c) may not exceed $200,000 as determined under the rules of (d) below.
(d) For Plan Years beginning after 1988, Uniform Compensation may not
exceed $200,000 (or a greater amount determined by the Commissioner of Internal
Revenue), but in making this determination, the rules of Plan subsection 2.28(f)
shall apply, except that in applying such rules, the term "family" shall include
only the spouse of the employee and any lineal descendants of the employee who
have not attained age 19 before the close of the year.
If, as a result of the application of such family member aggregation
rules the adjusted $200,000 limitation is exceeded, then (except for purposes of
determining the portion of Uniform Compensation up to the integration level if
this plan provides for an integrated contribution) the limitation shall be
prorated among the affected individuals in proportion to each such individual's
Compensation as determined under this section to the application of this
limitation.
If Uniform Compensation is to be determined over a period of more than
one year, then the annual $200,000 Uniform Compensation limit in effect for each
of the years used is determined separately for each such year, even though the
limitation changes under Code ss.415(d) from year to year.
The $200,000 limitation shall be applied separately to each group of
plans which are treated as a separate plan and to each separate element in a
component plan.
(e) For Plan Years beginning prior to 1989, in any Plan Year in which
this Plan is a Top Heavy Plan, Uniform Compensation shall be limited to the
first $200,000 (or such larger amount permitted under law).
(f) Alternatively for Plan Years beginning prior to January 1, 1992,
the adoption agreement may specify that instead of the above definitions,
Uniform Compensation shall be equal to either (A) regular or base salary or
wages (excluding overtime and bonuses) received during the applicable period by
the Employee, or (B) regular or base salary plus either or both overtime and/or
bonuses received during the applicable period by the Employee.
(g) If (a), (b) or (c), are operative then, the adoption agreement may
specify that any amount which is contributed by the Employer pursuant to a
salary reduction agreement under a 401(k) arrangement, Cafeteria Plan, SEP or
403(b) annuity shall be included in Uniform Compensation. This also applies to
computations of Earned Income.
(I) Unless (b) or (f) is applicable, the adoption agreement may
specify that deferrals under an eligible deferred compensation plan within the
meaning of Code ss.457(b) (deferred compensation plans of state and local
governments and tax-exempt organizations), or employee contributions (under
governmental plans) described in Code ss.414(h)(2) that are picked up be the
employing unit and thus are treated as employer contributions) be added back
into Uniform Compensation. This also applies to computations of Earned Income.
(h) In addition to the other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the contrary, for
Plan Year beginning on or after January 1, 1994, the annual compensation of each
Employee taken into account under the Plan shall not exceed the OBRA'93 annual
compensation limit. The OBRA'93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, the OBRA'93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the determination period, and
the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under 401(a)(17) of the Code shall mean the OBRA'93
annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the current Plan Year,
the compensation for that prior determination period is subject to the OBRA'93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA'93 annual
compensation limit is $150,000.
2.63 VALUATION DATE is any date on which the market valuation of the
Trust Fund is made. This valuation shall be made on each Anniversary Date, and
the Committee may, in its discretion, authorize additional Valuation Dates.
2.64 VESTED is that portion of a Regular Account to which a Participant
has a nonforfeitable interest.
2.65 VESTING SCHEDULE is the schedule contained in 6.1 which is used to
determine the Vested interest of a Participant in his Regular Account upon a
Break in Service other than by reason of his death, disability, or attainment of
Normal Retirement Age.
2.66 VOLUNTARY CONTRIBUTIONS are those contributions, if permitted
under 4.2, made by the Participant and held in the Participant's Optional
Account.
2.67 YEAR OF BENEFIT SERVICE is defined in the adoption agreement.
2.68 YEAR OF ELIGIBILITY SERVICE is the Employment Year of an Employee,
provided he completes at least 1,000 Hours of Service (or fewer, if so specified
in the adoption agreement) during such Employment Year. The adoption agreement
shall specify whether subsequent computational periods for Years of Eligibility
Service shall be based either upon Plan Years or Employment Years. If Plan Years
are selected then subsequent computational period shall be the Plan Year,
starting with the Plan Year next following his Date of Employment. The
Participant shall receive credit for one Year of Eligibility Service for each
computational period in which he earns at least 1000 Hours of Service, but if
subsequent computational periods are based upon the Plan Year then an Employee
who is credited with 1,000 Hours of Service in both the Employment Year and the
Plan Year next following his Date of Employment shall be credited with two years
of Eligibility Service. For purposes of eligibility under Article 3, Years of
Eligibility Service shall include service with an Affiliate and shall include
Employment Years and Plan Years prior to the Effective Date of this Plan. The
adoption agreement may specify utilization of the elapsed time method.
When a fractional Year of Eligibility Service is used as the sole
service requirement, Hours of Service measurements will be employed in the
proportion that the fraction specified is to 1000 Hours of Service. Service will
be measured for the fraction of a year specified starting with the first paid
Hour of the Employee. Where the Employee is not credited with the necessary
Hours during the fractional year, another measuring period will begin at the
point the prior measuring period ended.
Where there is both a full and partial Year of Eligibility Service
requirement, the partial Year shall be measured only after the full Years of
Eligibility Service have been credited. In that case, the partial Year shall be
measured by the number of Months represented by the fraction of a Year
specified, and shall then be measured in accordance with the preceding
paragraph.
The following provisions shall be utilized if the adoption agreement
specifies the use of the Elapsed Time Method:
For purposes of determining an Employee's initial or continued
eligibility to Participate in the Plan, (except for periods of service which may
be disregarded on account of the "rule of parity" described in Plan section
3.3(c)) an Employee will receive credit for the aggregate of all time period(s)
commencing with the Employee's first day of Employment or reemployment and
ending on the date a Break in Service begins. The first day of Employment or
reemployment is the first day the Employee performs an Hour of Service. An
Employee will also receive credit for any period of severance of less than 12
consecutive months. Fractional periods of a year will be expressed in terms of
days.
Break in Service if the Elapsed Time method is utilized, and solely for
purposes of this section, is a period of severance of at least 12 consecutive
months.
Period of severance is a continuous period of time during which the
Employee is not Employed by the Employer. Such period begins on the date the
Employee retires, quits or is discharged, or if earlier, the 12 month
anniversary of the date on which the Employee was otherwise first absent from
service.
In the case of an individual who is absent from work for maternity or
paternity reasons, the 12-consecutive month period beginning on the first
anniversary of the first date of such absence shall not constitute a Break in
Service. For purposes of this paragraph, an absence from work for maternity or
paternity reasons means an absence (1) by reason of the pregnancy of the
individual, (2) by reason of the birth of a child of the individual, (3) by
reason of the placement of a child with the individual in connection with the
adoption of such child by such individual, or (4) for purposes of caring for
such child for a period beginning immediately following such birth or placement.
Each Employee will share in Employer contributions for the period
beginning on the date the Employee commences Participation under the Plan and
ending on the date on which such Employee severs Employment with the Employer or
is no longer a member of an eligible class of Employees.
2.69 YEAR OF VESTING SERVICE is any Plan Year, beginning with the Plan
Year containing the Employee's Employment Date, during which such Employee
completes at least 1,000 Hours of Service, or fewer, if so specified in the
adoption agreement. For purposes of vesting, Years of Vesting Service shall
include service with an Affiliate and shall include all Plan Years including
Plan Years prior the Effective Date of this Plan, except as specified otherwise
in the adoption agreement. The Sponsoring Employer may specify in the adoption
agreement that the computation period for Years of Vesting Service be based upon
a computation period other than the Plan Year (e.g. the Employment Year of each
Participant) or under the elapsed time method.
The following provisions shall be utilized if the adoption agreement
specifies the use of the Elapsed Time Method:
For purposes of determining an Employee's the nonforfeitable interest
in the Participant's Account balance derived from Employer contributions,
(except for periods of service which may be disregarded on account of the "rule
of parity" described in Plan section 6.3(c)) an Employee will receive credit for
the aggregate of all time period(s) commencing with the Employee's first day of
Employment or reemployment and ending on the date a Break in Service begins. The
first day of Employment or reemployment is the first day the Employee performs
an Hour of Service. An Employee will also receive credit for any period of
severance of less than 12 consecutive months. Fractional periods of a year will
be expressed in terms of days.
Break in Service if the Elapsed Time method is utilized, and solely for
purposes of this section, is a period of severance of at least 12 consecutive
months.
Period of severance is a continuous period of time during which the
Employee is not Employed by the Employer. Such period begins on the date the
Employee retires, quits or is discharged, or if earlier, the 12 month
anniversary of the date on which the Employee was otherwise first absent from
service.
In the case of an individual who is absent from work for maternity or
paternity reasons, the 12-consecutive month period beginning on the first
anniversary of the first date of such absence shall not constitute a Break in
Service. For purposes of this paragraph, an absence from work for maternity or
paternity reasons means an absence (1) by reason of the pregnancy of the
individual, (2) by reason of the birth of a child of the individual, (3) by
reason of the placement of a child with the individual in connection with the
adoption of such child by such individual, or (4) for purposes of caring for
such child for a period beginning immediately following such birth or placement.
3. ELIGIBILITY AND PARTICIPATION
3.1. ELIGIBILITY. The Employees Eligible to Participate in this Plan
(or in the various components of the Plan, if different) are specified in the
adoption agreement.
3.2. PARTICIPATION. Every Employee who is eligible under 3.1 shall
become a Participant in the Plan on his Entry Date only after meeting the
requirements specified under adoption agreement section 3.2. The Employee must
Participate no later than the earlier of: (l) the first day of the plan year
beginning after the date on which the employee has met the minimum age and
service requirements or (2) six months after the date the requirement is met.
3.3. PARTICIPATION UPON REEMPLOYMENT.
(a) Unless specified otherwise in the adoption agreement, this Plan
shall not utilize any special break in service rules dealing with the
Participation of reemployed Participants. Therefore, former employees who were
Participants in this Plan and who are reemployed shall immediately be
Participants again and all pre-break service shall be credited for purposes of
determining the date of Participation for all employees who never were
Participants.
(b) If the adoption agreement specifies that the Break in Service rules
shall apply for Participation then, except as provided in subsections (c), (d)
and (e) below, all service will be taken into account in determining a
Participant's Years of Eligibility Service.
(c) In computing an Employee's Years of Eligibility Service, in the
case of any Participant who has any One Year Break in Service, service before
such break shall not be taken into account until he or she has completed a Year
of Eligibility Service after his or her return. If a former Participant
completes a Year of Eligibility Service in accordance with this provision, his
or her Participation will be reinstated as of the date of reemployment. If he
shall fail to complete one Year of Eligibility Service, any Employer
contribution allocated to the Participant following the reemployment date shall
be deemed to have been made by mistake and shall be considered to be an advance
contribution of the Employer for the next succeeding Plan Year.
(d) In computing an Employee's Years of Eligibility Service, in the
case of any participant whose Regular Account is not vested to any extent, Years
of Eligibility Service before any period of consecutive One Year Breaks in
Service will be taken into account only if the number of consecutive One Year
Breaks in Service within such period is less than the greater of: (1) 5, or (2)
the aggregate number of Years of Eligibility Service before such break.
(e) In the event that the Vesting Schedule in section 6.2 provides for
a vested percentage of one hundred percent (100%) for any Participant with three
or more Years of Vesting Service, then for purposes of computing an Employee's
Years of Eligibility Service, if such Employee has not satisfied service
requirements, if any, set forth in adoption agreement section 3.2 prior to such
One Year Break in Service, service before such break will not be taken into
account.
3.4. LOSS OF ELIGIBILITY.
Notwithstanding any other provision in this Plan to the contrary, in
the event that a Participant becomes ineligible to Participate within the
meaning of Plan section 3.1, then that Participant (A) shall be considered to be
a Participant for purposes of receiving Hours of Service credit for Years of
Eligibility Service and Years of Vesting Service; (B) shall be deemed to be
employed by the Company on the last day of the Plan Year of the Company for the
sole purposes of receiving an allocation under Plan sections 5.1, 5.2 and 15.1,
but only if they are actually so employed by the Company on such day, and then
only as to the Plan Year during which such Participant became ineligible; (C)
shall not be considered to have Compensation or Total Compensation after he
became ineligible, except that for the sole purpose of computing Uniform
Compensation over a wage base or dollar figure in section 5.1, if any, which is
used to provide allocations for Participants which are integrated with Social
Security, all Compensation earned during the Plan Year the Participant became
ineligible shall be considered Compensation for the same Plan Year; and (D)
shall not be a Participant for any other purpose in the Plan, unless
specifically set forth to the contrary under this Plan.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any taxable
year under applicable provisions of the Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made, the
Employer shall not be entitled to recover the contribution made with respect to
the ineligible person regardless of whether or not a deduction is allowable with
respect to such contribution. In such event, the amount contributed with respect
to the ineligible person shall constitute a Forfeiture for the Plan Year in
which the discovery is made. If this Plan does not provide for Forfeitures in
the adoption agreement, any contributions which become Forfeitures by operation
of this section 3.6 shall be used to reduce the Employer contribution for the
relevant Plan Year. In no event shall Elective Contributions or Elective
Deferrals be forfeited. Such contributions made by an Ineligible Employee shall
be returned to such Employee if discovered before such Employee becomes eligible
or shall remain in the Plan if discovered after the Employee has become eligible
to participate in the Plan.
4. CONTRIBUTIONS TO THE PLAN
4.1 EMPLOYER CONTRIBUTIONS
4.1(a) The Employer contributions to this Plan shall be made in
accordance with section 4.1(a) of the adoption agreement.
4.1(b) The Employer contribution shall be subject to the limitations,
if any, contained in 5.5 and 5.6 of the Plan.
4.1(c) During any Plan Year in which the Plan is a Top Heavy Plan, a
contribution necessary to satisfy the Top Heavy requirements of Article 15 shall
be made.
4.1(d)(1) The Sponsoring Employers may, in the adoption agreement,
activate either (a) or (b) below.
(a) Salary Reduction Election. If activated, then, in any
Plan Year, except as hereinafter provided, and subject to the limitations set
forth in Article 5 and this section, each Participant may enter into a written
agreement with the Employer to reduce his Compensation in return for the
Employer making an equal amount of Employer contributions on his behalf. These
Employer Contributions are known as Elective Contributions and Elective
Deferrals.
(b) Cash or Deferred Election. If activated, then, in any
Plan Year except as hereinafter provided, and subject to the limitations set
forth in Article 5 and this section, each Participant may enter into a written
agreement with the Employer to take a certain amount of the Employer
Contribution contributed under 4.1(a) and otherwise allocable to his account
under 5.1(a) as an immediate distribution in cash. Amounts subject to this
election and not taken in cash are known as Elective Contributions and Elective
Deferrals.
(2) The Employer shall, in its sole discretion, determine the
times and periods during each Plan Year, if any, that such Elective
Contributions may be made, the maximum percentage or amount of Uniform
Compensation which may be deferred, the effective periods for necessary
elections, and the amount of Matching Contributions, if any, pursuant to Plan
Section 4.10. The Employer also has complete authority to develop any rules
necessary to administer this section, including rules relating to the timing of
elections and the changing or revoking of elections on more than an annual
basis. The Employer may set forth any such rules and may adopt specific
provisions relating to investment options available to Participants who make
Elective Contributions under this section. The Employer shall communicate the
terms and conditions under which such elections shall be made a reasonable
period prior to the due dates for any such elections. The Employer's
determinations hereunder shall be carried out by the Plan Administrator.
The amount of such Elective Contributions may be reduced or eliminated
by action of the Plan Administrator. Each such Elective Contribution shall be
transferred to the Participant's Suspense Account, to be held therein subject to
the distribution rules described in Article 7 hereof and applicable to such
Elective Contributions.
4.1(e)(1): 402(g) limitation. No Employee may make Elective Deferrals
in excess of the then applicable limitation during any taxable year. This
limitation is equal to the amount described in code ss.402(g) ($7,000 in 1987 as
adjusted for cost-of-living increases pursuant to Code ss.415(d), which raises
the limit to $7,313 for 1988, $7,627 for 1989, and $7,979 for 1990). This limit
is applied to each Participant on the basis of his own tax year. Any deferrals
in excess of this limitation shall be distributed to the Employee no later than
April 15 of the year following the year in which these "excess deferrals"
occurred. The distribution shall include income (or shall be reduced for
losses). The amount of the income (or loss) shall be determined in accordance
with the rules set forth in 4.1(e)(2) (substituting the term Excess Deferral for
Excess Contribution and measuring income in the "gap period" to the date of the
distribution, instead of the last day of the month preceding the distribution).
Code ss.402(g) applies on an Employee by Employee basis regardless of
the fact that the Employee might Participate in more than one Plan maintained by
unrelated Employers. The Employee must, not later than March 1 of each year
following the year of the "excess deferral", notify the Plan Administrator of
the amount of excess deferrals received by this Plan. The Employer may, in the
adoption agreement change this March 1 date to any date up to April 15 of the
year following the year of the excess deferral, or alternatively may
administratively allow the individual to respond by such later April 15 date.
4.1(e)(2): PARTICIPANT ELECTIVE CONTRIBUTIONS - SPECIAL DISCRIMINATION
TEST. For each Plan Year, the Committee shall determine whether the Elective
Contributions made by Eligible Employees satisfy one of the following average
deferral percentage ("ADP") tests: (i) The ADP for the Highly Compensated Group
does not exceed 1.25 times the ADP of the Nonhighly Compensated Group; or (ii)
The ADP for the Highly Compensated Group does not exceed the ADP for the
Nonhighly Compensated Group by more than two (2) percentage points (or the
lesser amount prescribed by the Secretary of the Treasury) and the ADP for the
Highly Compensated Group is not more than twice the ADP for the Nonhighly
Compensated Group.
For purposes of the ADP test, the following rules apply:
(a) "Highly Compensated Group" means the Eligible Employees who are
Highly Compensated Employees for the Plan Year.
(b) "Eligible Employee" means a Participant who is eligible to make
Elective Contributions, irrespective of whether he actually makes
Elective Contributions for the Plan Year. An Employee who is unable to
make a Voluntary or Mandatory Contribution merely because his
compensation is below a stated amount, or merely because of a
suspension from the plan due to a distribution, loan, or a non-one time
election not to participate, or because of limitations under Code
ss.415, is still an eligible Employee.
(c) The "ADP" for a group is the average of the separate deferral
percentages calculated for each Eligible Employee who is a member of
that group. An Eligible Employee's deferral percentage is equal to his
Elective Contributions (plus any Qualified Nonelective Contributions or
Qualified Matching Contributions treated as Elective Contributions)
allocated to his account for the Plan Year divided by his Uniform
Compensation. When determining the amount of Elective Contributions for
this ADP test any Excess Deferrals or Excess Contributions which have
been distributed in accordance with Code ss.ss. 402(g)(2) and
401(k)(8), respectively, or have been recharacterized as Employee
After-Tax Contributions are to be included. However, excess deferrals
of Nonhighly Compensated Employees are not included in that
Participant's Elective Contributions for purposes of this ADP test, to
the extent that such excess deferrals are made under a plan or plans of
the same Employer.
(d) The special rules described in Plan Section 2.28(f) for aggregation
of family members of Five Percent Owners and the top ten paid Highly
Compensated Employees apply here. When computing the ADP with any
aggregated family group, such group's deferral percentage shall be:
For Plan Years beginning before 1991, either
(A) the greater of (I) the ratio determined by combining
the Elective Contributions and amounts treated as
Elective Contributions of all the eligible family
members who are highly compensated Employees, and
(II) the ratio determined by combining such amounts
of all eligible family members, divided by the
aggregate Uniform Compensation of each member whose
contributions are so combined, or
(B) the ratio of the combined Elective Contributions and
amounts treated as Elective Contributions of all
eligible family members divided by the aggregate
Uniform Compensation of such members.
For Plan Years after 1990, the amount determined under (B)
above.
(e) The Committee may (in a manner consistent with Treasury
regulations) determine the deferral percentages of the eligible
Employees by treating Qualified Nonelective Contributions, Qualified
Matching Contributions or elective deferrals under a cash or deferred
arrangement (401(k)) made to this Plan or to any other qualified Plan
maintained by the Employer, which meet the applicable requirements of
the Final and Proposed Treasury Regulation ss.1.401(k)-1, as Elective
Contributions subject to this ADP test.
(f) Note that the special family member aggregation rule applies for
determining whether the $150,000 (or $200,000) (as adjusted) cap on
Uniform Compensation applies for the family member aggregation group.
In Plan Years beginning after 1989, Compensation over the entire Plan
Year must be counted; Compensation earned prior to the time that the
Employee was a Participant may not be disregarded, unless otherwise
provided under the law.
(g) "Nonelective contributions" are contributions made by the Employer
which are not subject to a deferral election by the Employee under a
Code ss.401(k) arrangement and which are not Matching Contributions.
(h) "Qualified Nonelective Contributions" are nonelective contributions
which are one hundred percent (100%) vested and nonforfeitable at all
times, which are subject to the distribution restrictions described in
paragraph (k), and which are not distributable on account of Hardship.
Contributions to the Failsafe Account under 4.10 of this Plan are
designed to be Qualified Nonelective Contributions. In addition the
401(k) regulations may permit aggregation with other plans containing
Qualified Nonelective Contributions which may be used under this plan
for the ADP test.
(i) "Matching Contributions" are contributions made by the Employer on
account of Employee contributions or on account of elective deferrals
under a Code ss.401(k) arrangement. See 4.9 of this Plan.
(j) "Qualified Matching Contributions" are matching contributions which
are one hundred percent (100%) vested and nonforfeitable at all times,
which are subject to the distribution restrictions described in
paragraph (k), and which are not distributable on account of Hardship.
(k) The term "distribution restrictions", generally, means the plan
will not permit distribution of the accrued benefit attributable to the
specified contributions except (1) in the event of the Participant's
death, disability, termination of employment, attainment of age 59 1/2,
(2) solely for elective contributions under a cash or deferred
arrangement (and allocable earnings credited to the Participant's
account as of 12/31/88, or later if permitted by the regulations) in
the event of financial hardship, (3) a lump sum distribution in the
event of a plan termination, without establishment of a successor plan,
or (4) a lump sum distribution in the event of a sale of assets used in
a trade or business or of a subsidiary. The completion of a stated
period of participation or the lapse of a fixed number of years are not
events which shall satisfy the distribution limitations. This paragraph
shall be applied in accordance with Code ss.ss.401(k)(2)(B) and (10)
and the regulations thereunder.
The Employer may, in the adoption agreement, set forth rules, standards
and other relevant conditions allowing distributions of amounts due to
this section 4.1(e), which rules shall be in addition to the rules set
forth in Article 7 of this plan. No distributions shall be permitted
unless they are made in compliance with Code ss.ss. 401(k)(2)(B) and
(k)(10) and the regulations thereunder.
(l) A Highly Compensated Employee's deferral percentage shall include
applicable deferrals or contributions made on his behalf to any other
plan maintained by the Employer, but a Nonhighly Compensated Employee's
deferral percentage shall not include contributions or deferrals
outside of this Plan unless the Employer treats this Plan and the other
plan as a unit for coverage and discrimination purposes under the Code.
(m) "Employer" includes related Employers under Code ss.ss. 414(b),
(c), (m) and (o), to the extent required under such Code sections.
(n) This plan specifically incorporates the effective dates under the
Code ss.ss. 401(k) and 402(g) final and proposed regulations.
Treatment of excess contributions.
(o) In general. If the Committee determines the Plan fails to satisfy
the ADP test for a Plan year, it shall distribute the excess contributions, as
adjusted for allocable income or loss, no later than the last day of the
succeeding Plan Year. However, the Employer will incur an excise tax equal to
ten percent (10%) (or such other amount as may be imposed by law) of the amount
of excess contributions for a Plan Year not distributed to the appropriate
Highly Compensated Employees by 2 1/2 months following the close of that Plan
Year. The excess contributions are the amount of Elective Contributions (and
amounts treated as Elective Contributions) allocated to the Highly Compensated
Employees which causes the Plan to fail to satisfy the ADP test. The Committee
shall distribute to each Highly Compensated Employee his respective share of the
excess contributions.
The Committee shall determine the respective shares of excess
contributions by starting with the Highly Compensated Employee(s) who has the
greatest deferral percentage, reducing his deferral percentage to the next
highest deferral percentage then, if necessary, reducing the deferral percentage
of the Highly Compensated Employee(s) at the next highest deferral percentage
(including the deferral percentage of the Highly Compensated Employee(s) whose
deferral percentage the Plan Administrator already has reduced), and continuing
in this manner until the ADP for the Highly Compensated Group satisfies the ADP
test.
The Committee shall determine the amount of income or loss allocable to
the Highly Compensated Employee's excess contributions by (1) determining the
allocable income for the Plan Year.
The plan year amount equals: (a) income (or loss) for the plan year
allocable to Elective Contributions (and amounts treated as such); multiplied by
(b) the excess contribution for such Employee and divided by (c) the total
account balance of the Employee attributable to such contributions as of the end
of the plan year minus gains and plus losses allocable to such total for the
plan year.
Allocable income. To determine the amount of the corrective
distribution required under this Section, the Committee must calculate the
allocable income for the Plan Year in which the excess contributions arose.
"Allocable income" means net income or net loss. To calculate allocable income
for the Plan Year, the Committee will use a uniform and nondiscriminatory method
which reasonably reflects the manner used by the Plan to allocate income to
Participants' Accounts.
(p) Family member aggregation. If family members are
aggregated in accordance with Plan Section 2.28(f), then
(A) if the ADP for such family members was determined under
4.1(e)(2)(d)(A) then:
(i) if the family group's deferral percentage is determined
under 4.1(e)(2)(d)(A)(I), then the group's excess
contribution, if any, is reduced and allocated among
the family members in two steps: (1) the deferral
percentage of the Highly Compensated Employees is
reduced in accordance with normal rules, but not below
the deferral percentage of the group of eligible family
members who are not Highly Compensated Employees, and
(2) if further reduction of the deferral percentage is
necessary, by taking into account the contributions of
all the eligible family members and allocating the
excess in proportion to the Elective Contributions of
each family member.
(ii) if the family group's deferral percentage is determined
under 4.1(e)(2)(d)(A)(II), then the group's excess
contribution, if any, is reduced in accordance with
normal rules and the excess contributions for the
family unit shall be allocated among family members in
proportion to the Elective Contributions of each family
member which was combined to determine the deferral
percentage.
(B) if the ADP for such family members was determined under
4.1(e)(2)(d)(B), which, if relevant, shall be the case in
Plan Years beginning after 1990, then the group's excess
contribution, if any, is reduced in accordance with normal
rules and the excess contributions for the family group are
allocated among the family members in proportion to the
Elective Contribution of each family member which was
combined to determine the deferral percentage.
4.1(e)(3) MATCHING CONTRIBUTIONS, AND AFTER-TAX CONTRIBUTIONS - SPECIAL
DISCRIMINATION TEST.
For each Plan Year, the Committee shall determine whether the Aggregate
Contributions made by Eligible Employees satisfy one of the following average
contribution percentage ("ACP") tests: (i)
The ACP for the Highly Compensated Group does not exceed 1.25 times the
ACP of the Nonhighly Compensated Group; or (ii) The ACP for the Highly
Compensated Group does not exceed the ACP for the Nonhighly Compensated Group by
more than two (2) percentage points (or the lesser amount prescribed by the
Secretary of the Treasury) and the ACP for the Highly Compensated Group is not
more than twice the ACP for the Nonhighly Compensated Group.
For purposes of the ACP test the following rules apply:
(a) "Highly Compensated Group" means the Eligible Employees who are
Highly Compensated Employees for the Plan Year.
(b) "Eligible Employees" are Employees who are directly or indirectly:
(i) Eligible to make Voluntary Contributions or Mandatory
Contributions,
(ii) Eligible to make Elective Contributions under Code
ss.401(k), if taken into account under the ACP test, or
(iii) Eligible to receive a Matching Contribution, including
matching contributions derived from forfeitures.
An Employee who is unable to make a Voluntary or Mandatory Contribution
merely because his compensation is below a stated amount, or merely
because of a suspension from the plan due to a distribution, loan, or a
non-one time election not to participate, or because of limitations
under Code ss.415, is still an eligible Employee.
(c) The "ACP" for a group is the average of the separate contribution
percentages calculated for each eligible Employee who is a member of
that group. An Eligible Employee's "Contribution Percentage" for any
individual is equal to the sum of his Matching Contributions (but only
to the extent that these contributions are not used for the ADP test)
plus his Voluntary Contributions and mandatory contributions (plus any
Elective Contributions and Qualified Elective Contributions treated as
Matching Contributions) divided by his Compensation for the Plan Year
in question.
(d) The special rules described in Plan Section 2.28(f) for aggregation
of family members of Five Percent Owners and the top ten paid Highly
Compensated Employees apply here.
When computing the ADP with any aggregated family group, such group's
contribution percentage shall be:
For Plan Years beginning before 1991, either
(A) the greater of (I) the ratio determined by combining such
Employee and Matching Contributions and amounts treated as
Matching Contributions of all the eligible family members
who are Highly Compensated Employees, and (II) the ratio
determined by combining such amounts of all eligible family
members divided by the aggregate Uniform Compensation of
each member whose contributions are so combined, or
(B) the ratio of the combined Employee and Matching
Contributions and amounts treated as Matching Contributions
divided by the aggregate Uniform Compensation of such
members.
For Plan Years after 1990, the amount determined under (B) above.
(e) The Employer may elect to take Elective Contributions and Qualified
Nonelective Contributions made under the Plan or any other Plan
maintained by the Employer (and not utilized in the ADP test) into
account as Matching Contributions in computing this Contribution
Percentage to the extent permitted by the regulations under Code ss.ss.
401(k) and (m).
(f) "Matching Contributions" are any Employer Contributions made
because of (i) an Elective deferral under a cash or deferred
arrangement, (ii) a Voluntary Contribution ,or (iii) Mandatory
Contributions if required under this Plan. Such term also includes any
forfeiture allocated on the basis of Voluntary, Mandatory, matching or
elective deferrals. Contributions allocated to the matching account,
including those due to reallocated forfeitures, are also matching
contributions under this Plan.
(g) "Voluntary Contributions" are after-tax Employee contributions.
(h) "Mandatory Contributions" are contributions which Employees must
make in order to participate in this Plan or receive an Employer
Contribution.
(i) "Qualified Nonelective Contributions" are nonelective contributions
which are one hundred percent (100%) vested and nonforfeitable at all
times, which are subject to the distribution restrictions described in
paragraph (l), and which are not distributable on account of Hardship.
Contributions to the Failsafe Account under 4.10 of this Plan are
designed to be Qualified Nonelective Contributions. In addition the
401(k) regulations may permit aggregation with other plans containing
Qualified Nonelective Contributions which may be used under this plan
for the ACP test.
(j) "Elective Deferrals" are contributions made to the Plan pursuant to
Code ss.402(g)(3)(A).
(k) "Excess Aggregate Contributions" are the excess of (i) the
aggregate amount of Matching Contributions, Voluntary Contributions and
Mandatory Contributions (plus Failsafe Contributions and Elective
Contributions taken into account in computing the Contribution
Percentage) actually made on behalf of Highly Compensated Employees for
such Plan Year, over (ii) the maximum amount of such contributions
permitted under the ACP test.
(l) The term "distribution restrictions", generally, means the plan
will not permit distribution of the accrued benefit attributable to the
specified contributions except (1) in the event of the Participant's
death, disability, termination of employment, attainment of age 59 1/2,
(2) solely for elective contributions under a cash or deferred
arrangement (and allocable earnings credited to the Participant's
account as of 12/31/88, or later if permitted by the regulations) in
the event of financial hardship, (3) a lump sum distribution in the
event of a plan termination, without establishment of a successor plan,
or (4) a lump sum distribution in the event of a sale of assets used in
a trade or business or of a subsidiary. The completion of a stated
period of participation or the lapse of a fixed number of years are not
events which shall satisfy the distribution limitations. This paragraph
shall be applied in accordance with Code ss.ss. 401(k)(2)(B) and
(k)(10) and the regulations thereunder.
The Employer may, in the adoption agreement, set forth rules,
standards and other relevant conditions allowing distributions of
amounts due to this section 4.1(e), which rules shall be in addition to
the rules set forth in Article 7 of this Plan. No distributions of the
specified contributions shall be permitted unless they are made in
compliance with Code ss.ss. 401(k)(2)(B) and (k)(10) and the
regulations thereunder.
(m) A Highly Compensated Employee's contribution percentage shall
include applicable deferrals or contributions made on his behalf to any
other plan maintained by the Employer, but a Nonhighly Compensated
Employee's contribution percentage shall not include contributions or
deferrals outside of this Plan unless the Employer treats this Plan and
the other plan as a unit for coverage and discrimination purposes under
the Code.
(n) "Employer" includes related Employers under Code ss.ss. 414(b),
(c), (m) and (o), to the extent required under such Code sections.
(o) This plan specifically incorporates the effective dates under the
Code ss.401(m) final and proposed regulations.
Treatment of excess aggregate contributions.
(p) In general. If the Committee determines the Plan fails to satisfy
the ACP test for a Plan year, it shall distribute or forfeit if
appropriate, the excess aggregate contributions, as adjusted for
allocable income or loss, no later than the last day of the succeeding
Plan Year. However, the Employer will incur an excise tax equal to ten
percent (10%) of the amount of excess aggregate contributions for a
Plan Year not distributed to (or forfeited by) the appropriate Highly
Compensated Employees by 2 1/2 months following the close of that Plan
Year. The excess aggregate contributions are the amount of aggregate
contributions allocated to the Highly Compensated Employees which cause
the Plan to fail to satisfy the ACP test. The Committee shall
distribute to each Highly Compensated Employee his respective share of
the excess aggregate contributions.
The Committee shall determine the respective shares of excess
aggregate contributions by starting with the Highly Compensated
Employee(s) who has the greatest contribution percentage, reducing his
contribution percentage to the next highest contribution percentage of
any Highly Compensated Employee(s) (but only to the extent necessary to
comply with the ACP test, if this amount of reduction would be
smaller), then reducing the next group of Highly Compensated Employees
who are tied with the greatest remaining contribution percentage
(including the Highly Compensated Employee(s) who have already been
reduced) until their contribution percentages are equal to that of the
next highest Highly Compensated Employee(s), and so on until the ACP
test has been complied with.
(q) Family member aggregation. If family members are aggregated in
accordance with Plan Section 2.28(f), then
(A) if the ACP for such family members was determined under
4.1(e)(3)(d)(A) then:
(i) if the family group's contribution percentage is
determined under 4.1(e)(3)(d)(A)(I), then the group's
excess aggregate contribution, if any, is reduced and
allocated among the family members in two steps: (1)
the contribution percentage of the Highly Compensated
Employees is reduced in accordance with normal rules,
but not below the contribution percentage of the group
of eligible family members who are not Highly
Compensated Employees, and (2) if further reduction of
the contribution percentage is necessary, by taking
into account the contributions of all the eligible
family members and allocating the excess in proportion
to the Employee Contributions and Matching
Contributions of each family member.
(ii) if the family group's deferral percentage is determined
under 4.1(e)(2)(d)(A)(II), then the group's excess
contribution, if any, is reduced in accordance with
normal rules and the excess contributions for the
family unit shall be allocated among family members in
proportion to the Elective Contributions and Matching
Contributions of each family member which was combined
to determine the contribution percentage.
(B) if the ADP for such family members was determined under
4.1(e)(3)(d)(B), which, if relevant, shall be the case in Plan
Years beginning after 1990, then the group's excess aggregate
contribution, if any, is reduced in accordance with normal rules
and the excess aggregate contributions for the family group are
allocated among the family members in proportion to the Elective
Contributions and Matching Contributions of each family member
which was combined to determine the contributions percentage.
(r) Excess aggregate contributions (plus income, minus loss) are
corrected by (1) forfeiting such excess to the extent that it is
attributable to forfeitable (i.e non fully vested) Matching
Contributions, and (2) distributing the excess to the extent that it is
attributable to other Matching Contributions, Employee Contributions or
to other amounts which are not forfeitable under the terms of the Plan.
The excess will be apportioned between such Matching Contributions and
other contributions, if any, on a pro-rata basis. Distributions of
excess aggregate contributions may be made notwithstanding any other
provision in the law or in the plan. In addition, Matching
Contributions during a Plan Year, which are not otherwise treated as
excess contributions under ss.401(k) or excess aggregate contributions,
shall be forfeited if the contribution to which the Matching
Contribution relates is treated as an excess aggregate contribution, an
excess contribution under Code ss.401(k), or an excess deferral under
Code ss.402(g).
The Committee shall determine the amount of income or loss allocable to
the Highly Compensated Employee's excess aggregate contributions by determining
the allocable income for the Plan Year.
The plan year amount equals: (a) income (or loss) for the plan year
allocable to aggregate contributions (and amounts treated as such); multiplying
by (b) the excess aggregate contribution for such Employee and divided by (c)
the total account balance of the Employee attributable to such contributions as
of the end of the plan year minus gains and plus losses allocable to such total
for the plan year.
Allocable income. To determine the amount of the corrective
distribution required under this Section, the Committee must calculate the
allocable income for the Plan Year in which the excess contributions arose.
"Allocable income" means net income or net loss. To calculate allocable income
for the Plan Year, the Committee will use a uniform and nondiscriminatory method
which reasonably reflects the manner used by the Plan to allocate income to
Participants' Accounts.
4.1(e)(4): PROHIBITION AGAINST MULTIPLE USE OF THE ADP AND ACP 2.0
FACTORS.
(a) If
(i) any highly compensated Employee is eligible to make Elective
Contributions under a cash or deferred arrangement maintained by the Employer
and contributions to a plan maintained by the Employer subject to Code
ss.401(m),
(ii) the actual deferral percentage (ADP) of the entire group of
eligible Highly Compensated Employees (HCE) exceeds 1.25 times the actual
deferral percentage ADP of the entire group of eligible non-HCE's,
(iii) the actual contribution percentage (ACP) of the entire group
of eligible Highly Compensated Employees (HCE) exceeds 1.25 times the ACP of the
entire group of eligible non-HCE's,
(iv) the sum of the "adjusted ADP" for the entire group of eligible
HCE's plus the "adjusted ACP" for the entire group of eligible HCE's exceeds the
"aggregate limit", and
(v) the contributions fail such other tests provided under the law
as set forth in future regulations or IRS promulgations,
then the plan has a prohibited multiple use of the 2.0 ADP and ACP
factors, and this multiple use must be corrected in accordance with subparagraph
(f) below.
(b) The adjusted ADP shall be determined after using "qualified
nonelective contributions" and "qualified matching contributions" to
meet the requirements of the ADP test. This is accomplished by
adjusting the ADP for corrective distributions of excess deferrals
(402(g)) and excess contributions (401(k)), without regard to this
subsection, and after any recharacterization of excess contributions
required without regard to this multiple use test.
(c) The adjusted ACP shall be determined after using qualified
nonelective contributions and elective contributions to meet the
requirements of the ACP test. This is accomplished by adjusting the ACP
for corrective distributions of excess deferrals (402(g)), excess
contributions (401(k)), and excess aggregate contributions (401(m)),
provided that the use of elective contributions to meet the ACP test is
limited to the amount necessary to meet the requirements of the plus
two and times 2 ACP factor test.
(d) The aggregate limit is equal to the greater of
(A) the sum of:
i) 1.25 times the greater of (A) the ADP for the eligible
non-HCE's or (B) the ACP for the eligible non-HCE's,
plus
ii) the lesser of (A) 2.0 plus the lesser of the ADP or ACP
from i) above, or (B) 2.0 times the lesser of the ADP
or ACP from i) above, and
(B) the sum of:
i) 1.25 times the lesser of (A) the ADP for the eligible
non-HCE's or (B) the ACP for the eligible non-HCE's,
plus
ii) the lesser of (A) 2.0 plus the greater of the ADP or
ACP from i) above, or (B) 2.0 times the greater of the
ADP or ACP from i) above.
(e) If the Employer maintains two or more cash or deferred arrangements
which are not aggregated pursuant to Treasury Regulation
ss.1.401(k)-1(b)(5), multiple use shall be tested separately with
respect to each such arrangement subject to ss.401(k) and each plan or
aggregate group of plans subject to ss.401(m) maintained by the
Employer. Similarly, if the Employer maintains two or more plans
subject to ss.401(m) which are not aggregated pursuant to Treasury
Regulation ss.1.401(m)-1(b)(4), multiple use shall be tested
separately with respect to each plan subject to ss.401(m) and each
arrangement or aggregated group of arrangements subject to ss.401(k).
(f) Correction of prohibited multiple use of 2.0 factors. Multiple use,
if it exists, must be corrected by the reduction of the actual
contribution ratios for all HCE's under the plan or arrangements
subject to reduction. This required reduction shall be treated as an
excess aggregate contribution under 4.1(e)(C). If excess contributions
are treated under the plan as recharacterized Employee contributions,
then such amount will be treated as an excess aggregate contribution
for this multiple use test.
4.1.(f). At the discretion of the Employer contributions by the
Employer to the Plan provided for in (a) above, may be made in cash, in
qualifying Employer securities, as defined in ss.407(d)(5) of ERISA, or in
qualifying Employer real property, as defined in ss.407(d)(4) of ERISA, subject
to the limitation that no contribution of qualifying Employer securities or
qualifying Employer real property, or both, by the Employer in any Plan Year
shall be made unless the value of all qualifying Employer securities or
qualifying Employer real property, or both, held by the Trust immediately after
the contribution is not more than fifty percent (50%) (100% if the Plan is
designated as an Eligible Individual Account Plan; 10% if the Plan is designated
as a Money Purchase Pension or Target Benefit Pension Plan) of the value of the
Trust Fund immediately after the contribution.
4.2 EMPLOYEE CONTRIBUTIONS.
(a) Unless prohibited in the adoption agreement, then subject to the
consent of the Committee, each Participant in the Plan shall have the right to
make Voluntary Contributions to the Plan from time to time in any amount which
is limited in accordance with Plan Sections 4.1(e)(3) and 4.1(e)(4). The
Participant's Voluntary Contribution shall also be subject to the limitations of
5.5 and 5.6 of the Plan.
(b) Voluntary Contributions may be made by payroll deductions expressly
authorized by the Participant in writing or by such other method as may be
agreed upon between the Participant and the Employer. Voluntary Contributions
will be turned over to the Trustee by the Employer at such intervals as may be
agreed upon between the Employer and the Trustee.
(c) In addition to any other account, the Committee shall maintain a
separate Optional Account in the name of each Participant. Such Optional Account
will consist of the Voluntary Contributions of a Participant received by the
Trustee and revalued from time to time as provided in Article 8. At its
discretion, the Committee may instruct and authorize the Trustee to segregate
the assets of the Trust Fund attributable to some or all of the Optional
Accounts. Any amounts in the Participant's Optional Account shall be at all
times fully (100%) Vested.
(d) Upon thirty (30) days written notice to the Plan Administrator, a
Participant may withdraw from the Trust, as of any Valuation Date, an amount not
to exceed the lesser of (1) the aggregate of the Voluntary Contributions he has
made to date, reduced, however, by any prior withdrawals therefrom, or (2) the
net value of his Optional Account. Any amount in excess of the aggregate of the
Participant's Voluntary Contributions from time to time shall be distributed
only at such time as the Participant is eligible to receive a distribution of
his Vested interest, if any, in his Regular Account. Plan Administrators are
advised that certain distributions made prior to the date the Participant
attains age 59 1/2 may be subjected to an excise tax.
(e) Special discrimination tests for Voluntary Contributions and
Matching Contributions are set forth at 4.1(e)(3) and 4.1(e)(4) above.
(f) No contribution will be required of any Participant under this
Plan.
(g) A separate account will be maintained by the trustee for the
nondeductible employee contributions of each participant.
(h) Employee contributions and earnings thereon will be
nonforfeitable at all times.
4.3. ROLLOVER CONTRIBUTIONS.
(a) With the written consent of the Committee, and if so provided in
the adoption agreement, any Participant (or non Participant Employee if
permitted in the adoption agreement) may contribute to a Rollover Account for
the Participant either (1) part or all of a Participant's qualifying rollover
distribution as defined in Code ss.402(a) from a qualified retirement plan
maintained by a former Employer, excluding contributions made by the Participant
as a Participant in such plan; or (2) the value of any Individual Retirement
Account as defined in Code ss.408 that was established solely as a conduit for
the qualifying rollover distribution received from a qualified retirement plan
of any former Employer, excluding any contributions made by the Participant to
such plan account or the IRA.
(b) As a condition to making the rollover contribution, the Participant
shall present a written certification, in form satisfactory to the Committee,
stating substantially: (1) the amount so contributed is an amount described in
(a)(1) or (a)(2) above; (2) no portion of such amount consists of contributions
made by the Participant; and (3) if such amount is being paid by the Participant
personally, it was received within the prior sixty (60) calendar days as a
qualifying rollover distribution from such other plan or Individual Retirement
Account.
(c) No contribution to a Rollover Account will be accepted which
consists, in whole or in part, of insurance policies with respect to which
future premium payments are or may become due unless the Committee is satisfied
that there are sufficient other assets being transferred so as to make
maintenance of such policies feasible without violation of any limitations set
forth in 9.1.
(d) Direct Inter-Plan Transfers. Any Participant may, with the written
consent of the Committee, and if so provided in the adoption agreement, direct
the appropriate funding agency or fiduciary of any qualified retirement plan of
a former Employer to distribute directly to the Trustee such Participant's
entire interest in the distributing plan, exclusive of contributions made by the
Participant as an Employee or Participant thereunder. Upon receipt of such a
distribution, the Trustee shall establish a Rollover Account on behalf of the
Participant in whose behalf such distribution was received.
(e) The adoption agreement may provide that rollovers or direct
transfers to or from the Plan are not allowed.
4.4. CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED
PARTICIPANTS/RESTORATION OF FORFEITED ACCRUED BENEFIT.
(a) If a partially-vested Participant receives a distribution of the
entire present value of the Participant's nonforfeitable Accrued Benefit, the
distribution is completed no later than the close of the second year immediately
following the year the Participant separates from the service of the Employer,
such distribution is made on account of that separation from service (or in the
case where the Employee voluntarily elects to receive the immediate
distribution, the distribution is made on termination of the Employee's
participation in the plan), and the distribution is made before he resumes
employment covered under this plan, then the distribution is a cash-out
distribution. A cash-out distribution shall result in an immediate forfeiture of
the nonvested portion of the Participant's Accrued Benefit. A partially-vested
Participant is a Participant who is not fully vested in his accrued benefits. If
any Participant has no nonforfeitable Accrued Benefit and suffers a forfeiture
of an Accrued Benefit greater than $0, then such Participant shall also be
treated as having received a cash- out distribution, and shall be treated as
having repaid the full amount of the cash-out distribution attributable to
Employer contributions on the date of his reemployment by the Employer.
(b) RESTORATION AND CONDITIONS UPON RESTORATION. A partially-vested
Participant who is re-employed after receiving a cash-out distribution shall
have the right to repay the Trustee the full amount of the cash-out distribution
attributable to Employer contributions, in which case the Committee must restore
his Accrued Benefit due to Employer Contributions, under the requirements of
this Section 4.4. Subject to the conditions of this Paragraph (b), if a
Participant makes the cash-out distribution repayment, the Committee shall
restore his Accrued Benefit attributable to Employer contributions to the same
dollar amount as the dollar amount of his Accrued Benefit on the Accounting
Date, or other valuation date, immediately preceding the date of the cash-out
distribution, unadjusted for any gains or losses occurring subsequent to that
Accounting Date, or other valuation date. Restoration of the Participant's
Accrued Benefit shall include restoration of all Code ss.411(d)(6) "protected
benefits" with respect to that restored Accrued Benefit, in accordance with
applicable Treasury regulations.
The Committee shall not restore a re-employed Participant's Accrued
Benefit under this paragraph if:
(1) the distribution was on account of the Employee's separation from
service, and such repayment is not made before the end of
whichever of the following ends earlier:
(a) Five (5) years after the first day the Participant is
subsequently employed, or
(b) The close of the first period of Five Consecutive 1
Year "Breaks in Service" commencing after the
distribution.
(2) the distribution occurs for a reason other than on account of the
Employee's separation from service, and such repayment is not
made before 5 years after the date of the distribution, or
(3) The distribution was not less than the amount of his accrued
benefit determined under the same "protected form of benefit" as
the distribution was made.
(c) TIME AND METHOD OF RESTORATION. If none of the three (3) conditions
preventing restoration of the Participant's Accrued Benefit applies, the
Committee shall restore the Participant's Accrued Benefit as of the Plan Year
Accounting Date coincident with or immediately following the repayment. To
restore the Participant's Accrued Benefit, the Committee, to the extent
necessary, shall allocate to the Participant's Accounts:
(1) First, the amount, if any, of Participant forfeitures of
terminated Employees of the Employer.
(2) Second, the amount, if any, of the Trust Fund net income or gain
for the Plan Year; and
(3) Third, the normal Employer Contribution under 4.1(a) for the Plan
Year to the extent made under a discretionary formula.
To the extent the amount(s) available for restoration for a particular
Plan Year are insufficient to enable the Committee to make the required
restoration, the Employer shall contribute, without regard to any requirement or
condition of Section 4.1, such additional amount as is necessary to enable the
Committee to make the required restoration. If, for a particular Plan Year, the
Committee must restore the Accrued Benefit of more than one (1) reemployed
Participant, then the Committee shall make the restoration allocation(s) to each
such Participant's Account in the same proportion that a Participant's restored
amount for the Plan Year bears to the restored amount for the Plan Year of all
re-employed Participants. The Committee shall not take into account the
allocation(s) under this Section 4.4 in applying the limitation on allocation
under Article 5.
The adoption agreement may provide that such reinstatement shall be
made without the Participant making such repayment.
The adoption agreement may alternatively provide that no forfeitures
may take place until the conclusion of five consecutive one-year breaks in
service. In this alternative case, a separate account shall be established for
the Participant's interest in the Plan as of the time of the distribution and at
any relevant time the Participant's nonforfeitable portion of the separate
account will be equal to an amount ("X") determined by the formula:
X = P(AB + (R x D)) - (R x D)
For purposes of applying the formula: P is the nonforfeitable
percentage at the relevant time, AB is the account balance at the relevant time,
D is the amount of the distribution, and R is the ratio of the account balance
at the relevant time to the account balance after distribution.
4.5. DEDUCTIBLE VOLUNTARY CONTRIBUTIONS.
(a) No Deductible Voluntary Contributions are permitted for Plan Years
beginning after December 31, l986.
(b) In addition to any other account, the Committee shall maintain a
separate Deductible Voluntary Contribution Account in the name of each
Participant who has made a Deductible Voluntary Contribution.
(c) Upon thirty (30) days written notice to the Plan Administrator, a
Participant may withdraw from the Trust, as of any Valuation Date, an amount not
to exceed the lesser of: (1) the aggregate of the Deductible Voluntary
Contributions he has made to date, reduced, however, by any prior withdrawals
therefrom and (2) the net asset value of his Deductible Voluntary Contribution
Account. Any amount in excess of the aggregate of the Participant's Deductible
Voluntary Contributions from time to time shall be distributed only at such time
as the Participant is eligible to receive a distribution of his Vested interest,
if any, from his Regular Account, but in no event later than the taxable year in
which the Participant attains age 70 1/2.
4.6. LIMIT OF DUTY. The Committee, Plan Administrator and Trustee shall
be under no duty to determine the correctness of, or to enforce the collection
of, any Employer or Participant contribution.
4.7. AGGREGATION OF PROFITS. The Committee shall have the authority to
(but shall not be required to) impose a contribution formula on the Sponsoring
Employers and to aggregate the profits of the Sponsoring Employers for the
purpose of determining the amount of contribution any Employer is permitted to
make. Any Employer, with the consent of the Committee, shall have the right to
make a contribution to the Plan from its accumulated or current profits to be
held for the benefit of the Employees of any other Employer. Any exercise by the
Committee of this discretionary authority granted shall be made subject to the
limitations of Code ss.404(a)(3)(B).
4.8. TIMING FOR CONTRIBUTIONS. All Employer contributions must be made
within the time prescribed by Code ss.404(a)(6) for obtaining a federal tax
deduction for the Plan Year. Finally, contributions made by Employees as
elective deferrals to a 401(k) plan or voluntary after-tax contributions, must
be deposited into the Trust as soon as administratively feasible, but never
beyond 90 days after receipt.
4.9 MATCHING CONTRIBUTIONS. The Employer may in addition to each of the
contributions described above, make matching contributions either to encourage
elective contributions under this 401(k) plan, or to encourage voluntary
after-tax contributions if otherwise permitted under this Plan, or both. The
adoption agreement may specify specific terms, conditions, limitations and
vesting requirements for these matching contributions. If the adoption agreement
provides that the amount of matching contribution each year is discretionary
then the Employer may make matching contributions elective contributions at any
specified level. The Employer may set more than one rate.
If the Employer does not declare that it will make a matching
contribution prior to the time that the Employees under the plan make elections,
then the matching contribution will not be permitted if it is discriminatory in
favor of highly compensated Employees.
If this Plan is designated as a 401(k) and Thrift Plan, matching
contributions are made only to Eligible Employees under 4.1(e)(2)(b) who make
elective contributions and to Eligible Employees under 4.1(e)(3)(b) who make
Voluntary or Mandatory Contributions; and since matching contributions may be
made as to these two different contribution types, the adoption agreement shall
specify the amount of matching attributable to each type of contribution; or if
the matching contributions are discretionary, the Employer shall make these
determinations administratively. If this Plan is designated as a 401(k) plan,
and not a Thrift Plan, then all matching contributions shall be made only to
Eligible Employees under 4.1(e)(2)(b) who make elective contributions. If this
Plan is designated as a Thrift Plan and not a 401(k) Plan, then all matching
contributions shall be made only to Eligible Employees under 4.1(e)(3)(b) who
make Voluntary or Mandatory Contributions.
The adoption agreement may specify that only Non-Highly Compensated
Employees or Non-Key Employees receive matching
contributions.
4.10. FAILSAFE CONTRIBUTIONS. If permitted in the adoption agreement,
the Employer may elect to contribute to the Failsafe Account of each Participant
either a stated dollar amount or a set percentage of each Participant's Uniform
Compensation. Such Contribution must be made no later than the date that will
entitle such Contributions to be taken into account in computing the ADP test
under 4.1(e)(2), if utilized, the ACP test under 4.1(e)(3), if utilized, or the
Multiple use test under 4.1(e)(4), if appropriate. These contributions may, if
so desired, be made only to Non-Highly Compensated Employees or Non-Key
Employees who are eligible Employees under the various tests.
Notwithstanding section 5.1, contributions made pursuant to sections
4.1(a) may be designated to any extent by the Employer as contributions under
this Section 4.10. The Committee may utilize separate accounts for these
Failsafe contributions; one for the ADP test under Code ss.401(k)(3) and another
for the ACP test under Code ss.401(m).
5. ALLOCATION OF CONTRIBUTIONS AND FORFEITURES
5.1. CONTRIBUTIONS.
(a) The Employer contribution under 4.1(a), if any, shall be allocated
to those Participants designated as entitled to share in such contribution in
accordance with the adoption agreement. The allocation formula shall also be set
forth in the adoption agreement. Any such allocated amount shall be credited to
the Participant's Regular Account. This Account is subject to the vesting
schedules set forth in adoption agreement section 6.2.
(b) If the Employer or an Affiliate has, in addition to this Plan,
another Employee benefit plan which is integrated with the Federal Insurance
Contributions Act, then for purposes of this section, the two plans shall be
treated as one plan and the extent of integration for both plans shall not
exceed 100%.
(c) In any Plan Year in which the Plan is a Top Heavy Plan, there shall
be allocated to each Non-Key Employee's Regular Account the Employer
contribution specified in Plan Subsection 4.1(c).
(d) The Employer contribution, if any, for the Plan Year under 4.1(d)
in the case of an Elective Contribution made through a Salary Reduction
Election, or the amount otherwise allocated to the Regular Account but treated
as an Elective Contribution under a Cash or Deferred Election pursuant to 4.1(d)
shall be allocated exclusively to that Participant's Savings Account. This
Account shall always be fully vested.
(e) Matching Contributions under Plan Section 4.9, if any, shall be
allocated to the Participant's Matching Account. This Account shall always be
fully vested, except that the Employer may specify in the adoption agreement
that these contributions will be subject to the vesting schedule under 6.2(b)
(or 6.2(c), if the Plan is Top Heavy).
(f) Failsafe Contributions under Plan Section 4.10, if any, shall be
allocated to the Participant's Failsafe Account. This Account shall always be
fully vested.
(g) Employee Voluntary Contributions under Plan Section 4.2 shall be
allocated to that Participant's Optional Account. This Account shall always be
fully vested.
5.2. FORFEITURES. Forfeitures shall be allocated in the manner set
forth in the adoption agreement.
5.3. PARTICIPANT DIRECTED INVESTMENTS. The Plan Administrator, in its
sole discretion, may determine that all Participants be permitted to direct the
Trustee as to the investment of all or a portion of their interest in any one or
more of their individual Account balances. If the Plan Administrator so permits,
then Participants may, subject to a procedure established and applied in a
uniform and nondiscriminatory manner, direct the Trustee in writing to invest
any portion of such Accounts in specific assets or other investments permitted
under the Plan. That portion of the Account will be segregated in a special
Directed Investment Account which will not share in Trust earnings and losses
but which will be separately credited with earnings, losses and expenses as well
as any appreciation or depreciation in market value during each Plan Year
attributable to that Account.
To the extent permitted under ERISA ss.404 and any regulations issued
thereunder, the Trustee is relieved of any fiduciary responsibility for any
portion of a Participant's Account which is held as a Directed Investment
Account.
5.4. EMPLOYER SUSPENSE ACCOUNT. Any portion of the Employer
contribution and Forfeitures which would be allocated to a Participant's Account
but for 5.5 and 5.6, shall be reallocated among the remaining Participants in
the same manner as provided in 5.1(a). To the extent there remains an amount
which cannot be allocated in that Plan Year, the Committee shall direct the
Trustee to establish a separate Suspense Account on behalf of the Employer for
such amount. The Employer shall allocate the amount in the Suspense Account as
of the next succeeding Plan Anniversary Date and each succeeding Anniversary
Date until it has allocated any and all amounts in the Suspense Account. The
Suspense Account shall not be increased for net gains or decreased by net
losses. Any and all amounts in the suspense account must be allocated and
reallocated to Participants' accounts before any Employer or Employee
contributions may be made to the Plan for that Limitation Year.
5.5. DEFINED CONTRIBUTION PLAN LIMITATIONS.
(a) The amount of Annual Additions which can be made to the Combined
Accounts of a Participant for any Limitation Year shall not exceed the lesser
of: (1) 25% of his Total Compensation, and (2) $30,000, or, if greater, one
quarter of the dollar limitation placed on benefits under Defined Benefit Plans
pursuant to Code ss.415(b)(1)(A) as adjusted by Code ss.415(d).
(b) Annual Additions shall be determined by aggregating all Defined
Contribution Plans maintained by the Employer and all Affiliates during the
Limitation Year.
(c) The Committee shall return to the Participant before the end of the
Limitation Year any Voluntary Contribution made by the Participant, not
increased by net gains nor decreased by net losses, to the extent necessary to
reduce the Annual Additions for the Limitation Year to the maximum amount
provided in (a) above. Any Employer contribution or Forfeitures which exceed the
maximum amount provided in (a) above shall be allocated under 5.4.
(d) For the purpose of determining Total Compensation in Paragraph
(a)(1) above, in the case of a Participant:
(1) who is Totally and Permanently Disabled;
(2) who is not an officer, owner or highly compensated Employee,
and
(3) with respect to whom the Employer elects in such manner as
the Secretary of the Treasury may prescribe to have this
Section apply; Total Compensation will include the
Compensation such Participant would have received for the
Plan Year if such Participant was paid at the rate of
Compensation paid immediately before becoming Totally and
Permanently Disabled. If the Employer so elects, then all
contributions made with respect to amounts treated as
Compensation due to such election will be fully vested.
(e) If the Limitation Year is less than 12 months because of a change
in the Limitation Year, the Annual Additions Limitation will be determined by
multiplying the $30,000 limitation (or larger limitation as the Secretary of the
Treasury may prescribe) by a fraction having as its numerator the number of
months in the short Limitation Year and as its denominator the number 12.
(f) The limitation under (a)(1) shall not apply to (1) any contribution
for medical benefits (within the meaning of Code ss.419A(f)(2)) after separation
from service which is otherwise treated as an Annual Addition, or (2) any amount
otherwise treated as an Annual Addition to an individual medical account under
Code ss.415(1)(2), maintained by the Employer.
(g) In the event that the Employer or an Affiliate maintains another
Defined Contribution Plan, then if the Limitations of this Section would be
violated in the aggregate, reductions in the amounts allocated to the
Participant's Accounts shall be made to the extent necessary by reducing
allocations to the Accounts of Participants in the plans and in the order
specified in the adoption agreement.
(h) Correction of Annual Additions Limitation. If, as a result of a
reasonable error in determining the amount of elective deferrals an Employee may
make without violating the limitations of Sections 5.5 and 5.6 of the Plan, an
Excess Amount results, the Committee will return the Excess Amount (as adjusted
for allocable income) attributable to the elective deferrals. The Committee will
make this distribution before taking any corrective steps pursuant to Sections
4.1(e) and 7.7 of the Plan. The Committee will disregard any elective deferrals
returned under this Section for purposes of Sections 4.1(e) and 7.7.
5.6. DEFINED BENEFIT AND DEFINED CONTRIBUTION PLAN LIMITATION
(a) If a Participant is also a Participant in a Defined Benefit Plan
maintained by the Employer or an Affiliate, in any Plan Year in which this Plan
is not a Top Heavy Plan or Super Top Heavy Plan, the decimal equivalent of the
sum of the fractions determined under (1) and (2) below for all Defined Benefit
Plans and Defined Contribution Plans maintained by the Employer and any
Affiliate in which the Participant participates shall not exceed 1.0.
(1) Defined Benefit Fraction. A fraction, the numerator of which
is the projected annual benefit of the Participant under all Defined
Benefit Plans of the Employer and any Affiliate and the denominator of
which is the lesser of: (A) the product of 1.25 multiplied by the
maximum dollar limitation determined under Code ss.ss. 415(b) and (d);
and (B) one hundred forty percent (140%) of the Participant's average
Compensation for his high three Plan Years, including any adjustments
under Code ss.415(b). Notwithstanding the above, if the Participant
was a Participant as of the first day of the first Limitation Year
beginning after December 31, 1986 in one or more Defined Benefit Plans
maintained by the Employer or Affiliates which were in existence on
May 6, 1986, the denominator of this fraction will not be less than
125% of the sum of the annual benefits under such plans which the
Participant had accrued as of the close of the last Limitation Year
beginning before January 1, 1987, disregarding any changes in the
terms and conditions of the Plan after May 5, 1986. The preceding
sentence applies only if the Defined Benefit plans individually and in
the aggregate satisfied the requirements of Code ss.415 for all
Limitation Years beginning before January 1, 1987.
(2) Defined Contribution Fraction. A fraction, the numerator of
which is the sum, as of the end of the Plan Year, of the actual Annual
Additions to the Participant's Combined Accounts under Defined
Contribution Plans of the Employer and any Affiliate for the current
and all prior Limitation Years (including annual additions
attributable to the Participant's nondeductible Employee contributions
to all Defined Benefit plans, whether or not terminated, and the
Annual Additions attributable to all welfare benefits funds under Code
ss.419(e) and individual medical accounts under Code ss.415(l)(2)) and
the denominator of which is the sum for such Plan Year and for each
such prior Year of Service with the Employer and any Affiliate of the
lesser of (A) the product of 1.25 multiplied by the maximum dollar
amount of Annual Additions to the Participant's Accounts permitted by
law or regulation for all Defined Contribution Plans for such Plan
Year; and (B) thirty-five percent (35%) of the Participant's Total
Compensation for such Plan Year.
(b) In any Plan Year in which the Plan is a Top Heavy Plan and the
company contribution under 4.1 (to those Non-key Employees entitled to receive
the defined contribution minimum under 15.1) is not at least four percent (4%)
of each such Non-Key Employee's Total Compensation, the denominator of the
fraction for Defined Benefit Plans and the denominator of the fraction for
Defined Contribution Plans in (a) above shall be determined by substituting 1.0
for 1.25 in (1)(A) and (2)(A) above. If in any Plan Year a non-key Employee is
covered under both a defined contribution and a defined benefit plan then seven
and one-half percent (7 1/2%) shall replace four percent (4%) in the preceding
sentence.
(c) In any Plan Year in which the Plan is a Super Top Heavy Plan, the
denominator of the fraction for Defined Benefit Plans and the denominator of the
fraction for Defined Contribution Plans in (a) above shall be determined by
substituting 1.0 for 1.25 (1)(A) and (2)(A) above.
(d) The Annual Addition for any Limitation Year beginning before
January 1, l987 shall not be recomputed to treat all Employee Contributions as
an Annual Addition.
(e) If the Employee was a Participant as of the end of the first day of
the first Limitation Year beginning after December 31, 1986 in one or more
Defined Contribution Plans maintained by the Employer or an Affiliate which were
in existence on May 6, 1988, the numerator of the Defined Contribution Fraction
will be adjusted if the sum of this fraction and the Defined Benefit Fraction
would otherwise exceed 1.0. Under this adjustment, an amount equal to the
product of (1) the excess of the sum of the fractions over 1.0 times (2) the
denominator of this fraction, will be permanently subtracted from the numerator
of this fraction. The adjustment is calculated using the fractions as they would
be computed as of the end of the last Limitation Year beginning before January
1, 1987, and disregarding any changes in the terms and conditions of the Plan
made after May 5, 1986, but using the Code ss.415 limitation applicable to the
first Limitation Year beginning on or after January 1, 1987.
(f) The computation of the fractions shall be made in accordance with
regulations, transitional rules, and authoritative IRS promulgations.
(g) If the limitations of this Plan Section are exceeded, then
contributions to the Defined Contribution Plan and/or benefits from the Defined
Benefit Plan shall be reduced so as to maximize the Employer's deductible
contributions to such plans in the aggregate.
5.7. AGGREGATE COMPENSATION. The Plan Administrator shall have complete
authority to promulgate uniform rules regarding (1) aggregation of an Employee's
Compensation earned during the Plan year with Compensation paid by any Employer
or affiliate and (2) allocation of an Employee's Compensation to any Employer
based on length of employment of the Employee with such Employer.
5.8. SEPARATE PLANS OF AFFILIATES. If a Participant of the Employer
transfers to an Affiliate or if an Employee from an Affiliate transfers to the
Employer, then for purposes of allocating Employer contributions and
Forfeitures, Compensation shall include only that Compensation earned by the
Employee while employed by the Employer.
6. VESTING
6.1 VESTING. Except as otherwise provided in this Plan or adoption
agreement, a Participant shall be fully (100%) vested in the value of each of
his Accounts except his Regular Account.
6.2. REGULAR ACCOUNT
(a) A Participant shall be fully (100%) Vested in the value of his
Regular Account upon the occurrence of any of the following events, provided
such event occurs while he is an Employee:
(1) his Normal Retirement Date;
(2) his death;
(3) his Total and Permanent Disability.
(4) the partial or total termination of this Plan or the complete
discontinuance of Company contributions to this Plan; provided that if a
Participant has separated from service before the Plan so terminates such
Participant has not incurred five consecutive one-year breaks in service and the
Plan has not yet treated such Participant's non-vested Accounts as a Forfeiture,
then his Regular Account shall become 100% vested without regard to whether the
termination occurs while such Participant is an Employee.
(5) if so provided in the adoption agreement, his early
retirement due to his attainment of his Early Retirement Age, if provided by the
plan. See 2.18.
(b) A Participant who is not described in (a) above shall, except as
provided in (c) below, be Vested in the value of his Regular Account according
to the Vesting Schedule specified in the adoption agreement.
(c) For any Plan Year in which the Plan is a Top Heavy Plan, a
Participant not described in (a) above shall be Vested in the value of his
Regular Account in accordance with the Vesting Schedule designated for Top Heavy
Plan Status in the adoption agreement, if such designated schedule is required.
For any Plan Year in which this Plan is a Top-Heavy Plan, one of the
minimum vesting schedules as elected by the Employer in the adoption agreement
will automatically apply to the Plan. The minimum vesting schedule applies to
all benefits within the meaning of Code ss.4ll(a)(7) except those attributable
to Employee contributions, including benefits accrued before the effective date
of Code ss.4l6 and benefits accrued before the Plan became Top-Heavy.
Further, no decrease in a Participant's nonforfeitable percentage may
occur in the event the Plan's status as Top-Heavy changes for any Plan Year.
However, this section does not apply to the Accounts of any Employee who does
not have an Hour of Service after the Plan has initially become Top-Heavy and
such Employee's Account balance attributable to Employer contributions and
Forfeitures will be determined without regard to this section.
(d) The Sponsoring Employers may provide for a transitional vesting
schedule for Plan Years prior to 1989. This shall apply to all Participants who
had one Hour of Service after the effective date of this Plan (or effective date
of this restatement, if this Plan is a restatement).
6.3. DETERMINATION OF YEARS OF VESTING SERVICE.
If a former Employee has a One Year Break in Service, is reemployed and
meets the eligibility requirements for participation under Article 3, then the
Years of Vesting Service prior to his or her One Year Break in Service shall be
aggregated with his or her Years of Vesting Service subsequent to such One Year
Break in Service, subject to the following:
(a) Years of Vesting Service of an Employee prior to a One Year Break
in Service will be taken into account only if that Employee completes a Year of
Vesting Service after his or her return.
(b) Years of Vesting Service after a Participant has Five Consecutive
One Year Breaks in Service shall not be taken into account in determining the
vested percentage or Vested Amount of such Participant in any Employer
Contribution made prior to the Five Consecutive One Year Breaks in Service.
(c) In the case of a Participant who is not Vested in his Regular
Account, Years of Vesting Service before any period of consecutive One Year
Breaks in Service will be taken into account only if the number of consecutive
One Year Breaks in Service within such period is less than the greater of:
(1) 5, or
(2) the aggregate number of Years of Vesting Service before such
period.
6.4. EMPLOYEE SUSPENSE ACCOUNT. If any reemployed Participant again
incurs a Break in Service before he is fully (100%) Vested, the Vested portion
of any Suspense Account established in accordance with 4.4 shall be the decimal
equivalent of the fraction, the numerator of which is the Participant's
Nonvested percentage as of the date he incurred a Break in Service minus his
current Nonvested percentage, and the denominator of which is his Nonvested
percentage as of the date he incurred a Break in Service. If the Participant
again terminates employment and becomes reemployed with the Company under
circumstances which result in another Suspense Account being established, the
Participant shall be Vested in his Suspense Account determined as provided in
this paragraph.
6.5. VESTING AFTER AMENDMENT.
(a) If an amendment changes the Vesting Schedule of this Plan, or
directly or indirectly affects the computation of the nonforfeitable percentage
of a Participant's benefits derived from Employer contributions, (determined
pursuant to Labor Department Regulations Part 2530) such Participant, who has
completed at least three (3) Years of Vesting Service at the end of the election
period specified below, may make an irrevocable election to have such
Participant's nonforfeitable percentage of Employer contributions computed
without regard to such amendment. The election period shall start on the date
such amendment is adopted, and end 60 days following the latest of the following
dates: (1) the date the amendment is adopted; (2) the date the amendment is
effective; and (3) the date written notice of the amendment is given to the
Participants. If the Participant fails to make an election described above
during the election period, he shall be subject to the Vesting Schedule provided
by the amendment, but shall not forfeit any Vested benefits. The election shall
not be available to a Participant whose nonforfeitable percentage under the
Plan, as amended at any time, cannot be less than such percentage determined
without regard to such amendment.
(b) If any amendment to the Plan or change in the Company's fiscal year
results in a change in the applicable computation period for calculating a
Participant's Years of Vesting Service, the nonforfeitable percentage of the
Participant's benefit derived from Employer contributions shall not be less on
any date after such change than such nonforfeitable percentage would be in the
absence of such change. Double crediting of service shall not be required unless
failure to do so would violate the terms of this paragraph.
(c) If a Participant is not credited with at least one Hour of Service
in any Plan Year beginning after 1988 (or such later year that ss.1113 of the
Tax Reform Act of 1986 first applies) then paragraph (a) shall be amended by
deleting the words "three (3) Years" and inserting "five (5) Years".
7. DISTRIBUTION
7.1. DISTRIBUTION COMMENCEMENT DATE.
(a) Subject to (b), (c) and 7.3 and 7.7 below, the Committee shall set
the starting date of distribution from the Regular, Optional and other Accounts
of the Participant for as soon as administratively practicable following the
date or events set forth in the adoption agreement. The adoption agreement may
also specify that different Accounts of a single Participant, or portions of the
Participant's Accounts, are subject to different distribution starting dates.
(b) Distribution of the accounts of a Participant shall begin within 60
days after the latest of: (1) the last day of the Plan Year in which he attained
age 65; (2) the last day of the Plan Year in which he dies or terminates his
employment with the Company; and (3) the tenth anniversary of the year in which
the Participant commenced participation in the Plan. A Participant may elect, in
writing, to defer the date distribution is otherwise required to begin under
this Paragraph, if such deferral is in compliance with (c) below. The failure of
a Participant and spouse to consent to a distribution while a benefit is
immediately distributable under Plan section 7.7 is deemed to be an election to
defer commencement of payment of any benefit sufficient to satisfy this section.
(c) Distribution of the accounts of a Participant shall begin no later
than that Participant's required beginning date. Generally, each Participant's
required beginning date is April 1 of the calendar year following the calendar
year in which the Participant attains age 70 and 1/2. For Participant's who
attain age 70 and 1/2 before January 1, 1988, the required beginning date (I) if
the Participant is not a Five Percent Owner is the April 1 of the calendar year
following the calendar year in which the later of retirement or attainment of
age 70 and 1/2 occurs; and (II) if the Participant is a Five Percent Owner
during any year beginning after December 31, 1979 is April 1 of the calendar
year following the calendar year in which the Participant attains age 70 and 1/2
or the earlier of the calendar year with or within which ends the Plan Year in
which the Participant becomes a Five Percent Owner or the calendar year in which
the Participant retires. The required beginning date of a Participant who is not
a Five Percent Owner who attains age 70 and 1/2 during 1988 and who has not
retired as of January 1, 1989, is April 1, 1990. An individual is treated as a
Five Percent Owner under this subsection if that individual meets the
requirements of section 2.26 at any time during the Plan Year ending with or
within the calendar year in which such owner attains age 66 and 1/2 or any
subsequent Plan Year.
Notwithstanding the above, the Committee shall defer the distribution
of a Participant who was eligible to make and who made a timely election which
complied with the requirements of ss.242(b) of the Tax Equity and Fiscal
Responsibility Act of l982, as amended, in accordance with such election,
provided that the deferral was permitted by the Code and the Plan at the time of
election and the deferral would not otherwise disqualify the Plan. If a valid
election later fails to meet the requirements of such ss.242(b), the Committee
shall immediately begin distribution in accordance with 7.2 and 7.3. If this
designation is revoked or changed (other than through the mere substitution or
addition of another beneficiary which does not alter the period over which
distributions are to be made under the designation directly or indirectly) the
Trust must distribute by the end of the calendar year following the calendar
year of revocation or change the total amount not yet distributed which would
have been required to have been distributed under Code ss.401(a)(9) and the
regulations (as set forth under 7.3., including in Calendar Years beginning
after December 31, 1988 the rules set forth in Treasury Regulation
ss.1.401(a)(9)-2. In the case in which an amount is transferred or rolled over
from one plan to another plan the rules in Treasury Regulation ss.1.401(a)(9)-1,
Q&A J-2 and J-3 shall apply.
To the extent that distributions are required under this subsection,
they shall be made in accordance with the minimum distribution rules contained
in Treasury Regulation ss.1.401(a)(9)-1 and the incidental benefit rules
contained in Treasury Regulation ss.1.401(a)(9)-2, and these provisions as well
as all transitional rules and effective dates are incorporated by reference
herein.
(d) Notwithstanding any provisions of this Plan to the contrary (except
Plan Sections 7.1(b) and 7.3) in no event shall the distribution of benefits be
made to a Participant so as to cause the Trust to incur any penalty or
capitalization charge for early withdrawal or premature liquidation of an
investment. The Trustee shall make every reasonable effort to comply with any
Participant request for distribution of benefits under the Plan and shall
attempt, insofar as possible, to structure investments so as to anticipate the
liquidity needs of the Trust with respect to benefit payments.
7.2. FORM OF DISTRIBUTION.
(a) Except as otherwise provided in this Section or in Section 7.7, all
distributions under this Plan shall be made in one of or a combination of the
forms of distribution permitted under the adoption agreement, and as selected by
the Participant. The distribution options set forth in the adoption agreement
are available only if the present value of the Participant's nonforfeitable
Accrued Benefit, at the time of the distribution to the Participant, exceeds
$3,500. Any annuity contract distributed herefrom shall be nontransferable, and
shall comply with the terms and requirements of this Plan.
(b) Distributions described in Subsection (a) may be made in cash or in
kind or partly in each, provided that distributions made in kind will be
distributed at fair market value.
(c) If the Participant dies before his vested account balances are
completely distributed to him, then such vested account balances shall be paid
in full to that Participant's surviving spouse, or to a designated beneficiary
pursuant to a "Qualified Election", described in Subsection (d)(4) below. The
amount to be paid shall be reduced by any security interest held by the Plan by
reason of a loan outstanding to such Participant.
(d) Notwithstanding the foregoing, if (i) this Plan is a Pension Plan,
or if the adoption agreement so designates that the Survivor Annuity rules
automatically apply, or (ii) with respect to any Participant: (A) the Plan
contains an option to pay benefits in the form of a life annuity and the
Participant exercises his option to select a Life Annuity, or (B) the Plan is a
direct or indirect transferee of a Pension Plan or a Stock Bonus or Profit
Sharing Plan which under law is required to provide for a life annuity form of
payment to the Participant, or if this Plan is used to offset benefits in any
Plan which under law is required to provide for a life annuity form of payment
to the Participant; then for that specific Participant and for those specific
funds the following distribution rules shall apply:
(1) The provisions of this Subsection (d) shall apply to any
Participant who is credited with at least one Hour of Service with the company
on or after August 23, 1984. Subject to (e) below, Participants not covered
hereunder may elect the distribution options described above.
(2) Unless an optional form of benefit is selected pursuant to a
qualified election within the 90-day period ending on the Annuity Starting Date,
a Participant's vested account balance will be paid in the form of a joint and
survivor annuity. The Participant may elect to have such annuity distributed
upon attainment of the earliest retirement age under the Plan.
(3) Unless an optional form of benefit has been selected within
the election period pursuant to a qualified election, if a participant dies
before the Annuity Starting Date, then 100% of the participant's vested account
balance shall be applied toward the purchase of a Preretirement Survivor Annuity
for the life of the surviving spouse. The surviving spouse may direct the
commencement of benefits under this Preretirement Survivor Annuity within a
reasonable time after the Participant's death.
(4) Definitions for purposes of this section:
(A) Election period: The period which begins on the first day
of the plan year in which the participant attains age 35 and ends on the date of
the participant's death. If a participant separates from service prior to the
first day of the plan year in which age 35 is attained, with respect to the
account balance as of the date of separation, the election period shall begin on
the date of separation. The adoption agreement may specify that Participants who
will not have attained age 35 by the end of any current Plan Year may elect an
optional form of benefit other than a Preretirement Survivor Annuity if such
elections cease to apply upon the beginning of the Plan Year in which the
Participant attains age 35, the notice requirements of (5) below are met and the
waiver is made pursuant to a Qualified Election. Preretirement Survivor Annuity
coverage will be automatically reinstated as of the first day of the Plan Year
in which the Participant attains age 35, subject to new waivers made in full
compliance with this Section 7.2.
(B) Earliest retirement age: The earliest date on which,
under the plan, the participant could elect to receive retirement benefits. If
the Plan provides for distributions of voluntary contributions which commence
upon the Participant's separation from service, the earliest retirement age is
the earliest age at which the Participant could separate from service and
receive a distribution. The death of the Participant is treated as a separation
from service. If the Plan provides for in-service distributions, the earliest
retirement age is the earliest age at which an in-service distribution may be
made. If the Plan provides for both types of distributions, the earliest
retirement age is the earlier of the age determined under the separate rules
above.
(C) Qualified election: A waiver of a Joint and Survivor
Annuity or a Preretirement Survivor Annuity. The waiver must be in writing and
must be consented to by the participant's spouse. Any waiver of these annuities
shall not be effective unless: (a) the Participant's spouse consents in writing
to the election; (b) the election designates a specific beneficiary, including
any class of beneficiaries or any contingent beneficiaries, which may not be
changed without spousal consent (or the spouse expressly permits designations by
the Participant without any further spousal consent); (c) the spouse's consent
acknowledges the effect of the election ; and (d) the spouse's consent is
witnessed by a Plan Representative or a notary public. Additionally, a
Participant's waiver of the Joint and Survivor Annuity shall not be effective
unless the election designates a form of benefit payment which may not be
changed without spousal consent (or the spouse expressly permits designations by
the Participant without any further spousal consent). Notwithstanding this
consent requirement, if the participant establishes to the satisfaction of a
plan representative that such written consent may not be obtained because there
is no spouse, the spouse is legally incompetent and the legal guardian of such
spouse consents, the Participant and spouse are legally separated or the
Participant has been abandoned under local law and the Participant has a court
order to that effect and a Qualified Domestic Relations order does not provide
to the contrary, or the spouse cannot be located, then a waiver will be deemed a
qualified election.
Any consent necessary under this provision (or the establishment that
consent of such spouse is not required) shall be effective only with respect to
such spouse. A consent that permits designations by the Participant without any
requirements of further consent of such spouse must acknowledge that the spouse
has the right to limited consent to a specific beneficiary, and a specific form
of benefit where applicable, and that the spouse voluntarily elects to
relinquish either or both of such rights. A revocation of a prior waiver may be
made by a Participant without the consent of the spouse at any time before the
commencement of benefits. The number of revocations shall not be limited. No
consent obtained under this provision shall be valid unless the Participant has
received the required notices.
After the Participant's death, and subject to Plan Section 7.3, a
beneficiary may, if the choice is unanimous among all designated beneficiaries
change the optional form of benefit if payments of the benefit have not
commenced.
(D) Spouse (surviving spouse): The spouse or surviving spouse
of the participant, provided that a former spouse will be treated as the spouse
or surviving spouse to the extent provided under a qualified domestic relations
order as described in ss.414(p) of the Code. Except as provided in a Qualified
Domestic Relations Order, if a Participant divorces his spouse prior to the
Annuity Starting Date, any elections made while the Participant was married to
his former spouse remain valid unless the Participant changes them or is
remarried. The Sponsoring Employer may, in the adoption agreement, provide that
no individual shall be considered to be a spouse or surviving spouse unless he
or she was married to the Participant for a least one year ending on the date of
the participant's death or if earlier the Annuity Starting Date.
(E) Annuity Starting Date: is the first day of the first
period for which an amount is paid as an annuity or any other form.
(5) Notice Requirements.
(A) In the case of a Joint and Survivor Annuity as described
in Subsection (b), the Plan Administrator shall provide each participant no less
than 30 days and no more than 90 days before the Annuity Starting Date a written
explanation of: (i) the terms and conditions of a joint and survivor annuity;
(ii) the participant's right to make and effect of an election to waive the
joint and survivor annuity form of benefit; (iii) the rights of a participant's
spouse; (iv) the right to make, and the effect of, a revocation of a previous
election to waive the Joint and Survivor Annuity; (v) a general explanation of
the eligibility conditions and other material features of the optional forms of
payment; and (vi) sufficient additional information to explain the relative
value of the optional forms of benefits available under the Plan.
(B) In the case of a Preretirement Survivor Annuity, the Plan
Administrator shall provide each Participant a written explanation of such
annuity in such terms and in such manner as would be comparable to the
explanation provided for meeting the requirements of the preceding paragraph
relating to a Joint and Survivor Annuity. Such notice shall be provided in the
period described in (I) through (V) below and which, with respect to a
Participant, ends last:
(I) the period beginning with the first day of the Plan
Year in which the Participant attains age 32 and ending with the close of the
Plan Year preceding the Plan Year in which the Participant attains age 35;
(II) a reasonable period after the individual becomes a
Participant;
(III) a reasonable period ending after the Plan ceases to
fully subsidize the cost of the Preretirement Survivor Annuity with respect to
the Participant, in the case of a Participant who had been subject to full
subsidization of these annuities; and
(IV) a reasonable period ending after the Preretirement
Survivor Annuity and Joint and Survivor Annuities of this section first applies
to the Participant.
Notwithstanding the foregoing, notice must be provided in the case of a
Participant who separates from service before attaining age 35, within the two
year period beginning one year prior to separation and ending one year after
separation. If such Participant later returns to service with the Employer, the
applicable period for receipt of notice shall be redetermined.
For purposes of this subparagraph (B), a reasonable period ending after
the enumerated events described in (II) (III) and (IV) is the end of the
two-year period beginning one year prior to the date the applicable event occurs
and ending one year after that date.
(C) Notwithstanding the other requirements of this Subsection
(5), the respective notices prescribed by this section need not be given to a
participant if (1) the plan "fully subsidizes" the costs of a joint and survivor
annuity or preretirement survivor annuity, and (2) the plan does not allow the
Participant to waive the Joint and Survivor Annuity or Preretirement Survivor
Annuity and does not allow a married Participant to designate a nonspouse
beneficiary. For purpose of this Subsection, a plan fully subsidizes the costs
of a benefit if no increase in cost, or decrease in benefits to the Participant
may result from the Participant's failure to elect another benefit.
(e) Special Transitional Rules.
(1) If any Participant meets all of the following tests, then the
rules set forth in (C) and (D) below shall apply:
(i) The Participant had at least one Hour of Service under
this Plan or a Predecessor Plan on or after September 2, 1974;
(ii) The Participant separated from service prior to the
first Plan Year beginning after December 31, 1975, and was not reemployed after
such date;
(iii) As of August 23, 1984, the Participant was alive; and
(iv) As of August 23, 1984, the Participant's Annuity
Starting Date had not occurred.
(2) If any Participant meets all of the following tests, then the
Participant may elect to have the Preretirement Survivor Annuity Rules of
subsections (a) through (e) above apply to his distributions; and in addition
the rules of (3) below shall apply:
(i) The Participant had at least one Hour of Service under
this Plan or a Predecessor Plan in the first Plan Year beginning on or after
January 1, 1976;
(ii) The Participant has had no Hours of Service with this
Plan or a Predecessor Plan on or after August 23, 1984;
(iii) When the Participant separated from service he had a
nonforfeitable right to any portion of his Account Balance derived from Company
contributions, and also had at least 10 Years of Eligibility Service under the
Plan;
(iv) As of August 23, 1984, the Participant was alive; and
(v) As of August 23, 1984, the Participant's Annuity Starting
Date had not occurred.
(3) The respective opportunities to elect (as defined in
Subsections (f)(2) and (f)(4) must be afforded to the appropriate participants
during the period commencing on August 23, 1984, and ending on the date benefits
would otherwise commence to said participants.
(4) Any participant who is covered under Subsection (f)(1) of this
article shall have his or her benefits distributed in accordance with all of the
following requirements if benefits would have been payable in the form of a life
annuity if he so elects:
A. Automatic joint and survivor annuity. If benefits in
the form of a life annuity become payable to a married
participant who:
(i) begins to receive payments under the plan on or
after normal retirement age; or
(ii) dies on or after normal retirement age while
still working for the employer; or
(iii) begins to receive payments on or after the
qualified early retirement age; or
(iv) separates from service on or after attaining
normal retirement age (or the qualified early
retirement age) and after satisfying the
eligibility requirements for the payment of
benefits under the plan and thereafter dies
before beginning to receive such benefits;
then such benefits will be distributed under this plan in the form of a
joint and survivor annuity, unless the participant has elected otherwise during
the election period. The election period must begin at least 6 months before the
participant attains qualified early retirement age and end not more than 90 days
before the commencement of benefits. Any election hereunder will be in writing
and may be changed by the participant at any time.
B. Election of early survivor annuity. A participant who is
employed after attaining the qualified early retirement age will be given the
opportunity to elect, during the election period, to have a survivor annuity
payable on death. If the participant elects the survivor annuity, payments under
such annuity must not be less than the payments which would have been made to
the spouse under the joint and survivor annuity if the participant had retired
on the day before his or her death. Any election under this provision will be in
writing and may be changed by the participant at any time. The election period
begins on the later of (1) the 90th day before the participant attains the
qualified early retirement age, or (2) the date on which participation begins,
and ends on the date the participant terminates employment.
C. For purposes of this Subsection (f)(4) qualified early
retirement age is the latest of:
(i) the earliest date, if any, under the plan, on which the
participant may elect to receive retirement benefits,
(ii) the first day of the 120th month beginning before the
participant reaches normal retirement age, or
(iii) the date the participant begins participation.
7.3. TIMING OF DISTRIBUTION. Any distribution commenced under 7.1 in
the manner described in 7.2, shall be distributed in accordance with the
following restrictions:
(A) Minimum Distribution Requirements for Participants. The Committee
shall not direct the Trustee to distribute the Participant's Nonforfeitable
Accrued Benefit, nor shall the Participant elect to have the Trustee distribute
his Nonforfeitable Accrued Benefit, under a method of payment which, as of the
Required Beginning Date (set forth at Plan section 7.1(c)), does not satisfy the
minimum distribution requirements under Code ss.401(a)(9) and Treasury
Regulationss.ss.1.401(a)(9)-1 and 1.401(a)(9)-2. Generally, the minimum
distribution for a calendar year equals the Participant's Nonforfeitable Accrued
Benefit as of the latest valuation date preceding the beginning of the calendar
year divided by the lesser of (1) the Participant's life expectancy or, if
applicable, the joint and last survivor expectancy of the Participant and his
designated Beneficiary (in computing a minimum distribution, the Committee shall
use the unisex life expectancy multiples under Treasury Reg. ss.1.72-9 Tables V
and VI or such other tables as may be permitted under law), and (2)(a) if the
distribution is not in the form of a Joint and Survivor Annuity, the Minimum
Distribution Incidental Death requirement divisor or maximum period certain set
forth in ss.1.401(a)(9)-2, or (b) if the distribution is in the form of a Joint
and Survivor Annuity, the factor in (1) shall be used as the denominator, and
the Survivor Annuity portion may not exceed the applicable percentage set forth
under such regulations.
The Committee, shall compute the minimum distribution for a calendar
year subsequent to the first calendar year for which the Plan requires a minimum
distribution by redetermining the applicable life expectancy(s) of the
Participant and his Spouse. The Committee may not redetermine the joint life and
last survivor expectancy of the Participant and a nonspouse designated
Beneficiary in a manner which takes into account any adjustment to a life
expectancy other than the Participant's life expectancy. The Participant may by
written election cause the Plan not to recalculate his life expectancy, his
spouse's life expectancy, or both. This election must be made no later than the
date that distribution is first required under this part (A) or part (B) below.
If the Participant's spouse is not his designated Beneficiary, the
Committee shall not direct the Trustee to distribute the Participant's
Nonforfeitable Accrued Benefit, nor shall the Participant elect to have the
Trustee distribute his Nonforfeitable Accrued Benefit, under a method of payment
which provides more than incidental benefits to the Beneficiary. The incidental
death benefit rules are generally covered above and are contained in Treasury
Regulation ss.1.401(a)(9)-2, and the Committee will administer the plan in a
manner consistent with such regulations. For Calendar Years beginning before
January 1, 1989, the method of distribution must assure that at least 50% of the
present value of the amount available for distribution is paid within the life
of the Participant. The Committee shall determine whether benefits to the
Beneficiary are incidental as of the date the Trustee is to commence payment of
the retirement benefits to the Participant, or as of any date the Trustee
redetermines the payment period to the Participant.
If separate beneficiaries are named as beneficiaries of separate
Accounts, then these rules shall be applied separately to each such Account.
(B) Minimum Distribution Requirements for Beneficiaries. If the
Participant's death occurs after his Required Beginning Date or, if earlier, the
date the Participant commences an irrevocable annuity, the portion of the
Participant's benefit which has not been distributed shall be distributed to the
Beneficiary at least as rapidly as under the method of payment being used as of
the date of his death. If the Participant's death occurs prior to his Required
Beginning Date, and the Participant had not commenced an irrevocable annuity,
the method of payment to the Beneficiary must provide for completion of payment
to the Beneficiary over a period not exceeding: (i) five (5) years after the
date of the Participant's death (this period will expire on December 31 of the
calendar year which contains the fifth anniversary of the Participant's death);
or (ii) if the Beneficiary is a designated Beneficiary, the designated
Beneficiary's life expectancy. The Committee shall not direct payment of the
Participant's Nonforfeitable Accrued Benefit over a period described in clause
(ii) unless the Trustee will commence payment to the designated Beneficiary no
later than the December 31 following the close of the calendar year in which the
Participant's death occurred or, if later, and the designated Beneficiary is the
Participant's surviving spouse, December 31 of the calendar year in which the
Participant would have attained age seventy and one-half (70 1/2). If the
Trustee will make distribution in accordance with clause (ii), the minimum
distribution for a calendar year equals the Participant's Nonforfeitable Accrued
Benefit as of the latest valuation date preceding the beginning of the calendar
year divided by the designated Beneficiary's life expectancy. The Participant
(or surviving beneficiary) may elect, no later than the date that distribution
is required to commence under this Paragraph, whether (i) or (ii) shall apply.
In the absence of such election, (i) shall apply, however, if the surviving
spouse is the beneficiary (ii) shall apply.
The Committee shall use the unisex life expectancy multiples under
Treasury Regulation ss.1.72-9 Tables V and VI (or such other tables as may be
permitted under law) for purposes of applying this paragraph.
The Committee shall recalculate the life expectancy of the
Participant's surviving spouse not more frequently than annually, but may not
recalculate the life expectancy of a nonspouse designated Beneficiary after the
Trustee commences payment to the designated Beneficiary. The Participant or the
Participant's surviving spouse, may by written election cause the Plan not to
recalculate his life expectancy, his spouses life expectancy, or both. This
election must be made no later than the date that distribution is first required
either under part (A) above or this part (B).
The Committee shall apply this subsection by treating any amount paid
to the Participant's child, which becomes payable to the Participant's surviving
spouse upon the child's attaining the age of majority, as paid to the
Participant's surviving spouse.
Upon the Beneficiary's written request, the Committee shall direct the
Trustee to accelerate payment of all, or any portion, of the Participant's
unpaid Accrued Benefit, as soon as administratively practicable following the
effective date of that request.
If separate beneficiaries are named as beneficiaries of separate
Accounts, then these rules shall be applied separately to each such Account.
7.4. SEPARATE INVESTMENT FUND FOR TERMINATED PARTICIPANT. If so
provided in the adoption agreement, the Committee at the request of a terminated
Employee, shall direct the Trustee to transfer the Participant's Vested interest
in his account as of the next Valuation Date to such investment of deposit as
may be agreed upon between the Participant and the Committee. Any distributions
shall be made out of the Separate Investment Fund and the final distribution
shall be the total account balance as of the date of distribution in the
Separate Investment Fund. Such Separate Investment Fund shall be considered a
Directed Investment under Plan Section 5.3.
7.5. DISTRIBUTION TO AN IRA OR ANOTHER QUALIFIED PLAN. The Committee,
after a distribution is permitted under this Article 7, shall at the
Participant's request direct the Trustee to make distribution of the Vested
interest of a Participant's account balances under this Plan directly to an
Individual Retirement Account (as defined in the Internal Revenue Code and
referred to as IRA in this Plan) of a Participant or to the Participant's
account or credit in another Qualified Retirement Plan, if such distribution is
permitted by law. Neither the Company, the Committee, the Plan Administrator,
nor the Trustee shall be liable to the Participant or any other person for any
account distributions made in the correct amount to a Participant's IRA or
another qualified Plan in accordance with such written request, regardless of
any adverse tax consequences which may result to the Participant by reason of
such distribution.
(a) The following applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the plan to the contrary that would
otherwise limit a distributee's election under this Article, a distributee may
elect, at the time and in the manner prescribed by the plan administrator, to
have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
(b) Definitions.
(i) Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any portion of the balance
to the credit of the distributee, except that an eligible rollover
distribution does not include: a distribution that is one of a series
of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee or
the joint lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period of ten
years or more; any distribution to the extent such distribution is
required under Section 401(a)(9) of the Code; and the portion of any
distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to
employer securities).
(ii) Eligible retirement plan: An eligible retirement plan is
an individual retirement account described in Section 408(a) of the
Code, an individual retirement annuity described in Section 408(b) of
the Code, an annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code, that accepts
the distributee's eligible rollover distribution. However, in the case
of an eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account or
individual retirement annuity.
(iii) Distributee: A distributee includes an employee or
former employee. In addition, the employee's or former employee's
surviving spouse and the employee's or former employee's spouse or
former spouse who is the alternate payee under a qualified domestic
relations order, as defined in Section 414(p) of the Code, are
distributees with regard to the interest of the spouse or former
spouse.
(iv) Direct rollover: A direct rollover is a payment by the
plan to the eligible retirement plan specified by the distributee.
7.6. RESTRICTIONS ON IMMEDIATE DISTRIBUTIONS. If the value of a
Participant's vested account balance derived from Employer and employee
Contributions exceeds (or at the time of any prior distribution exceeded)
$3,500, and the account balance is immediately distributable, the Participant
and the Participant's spouse (or the survivor, if applicable) must consent to
any distribution of such account balance. The consent of the Participant and the
spouse shall be obtained in writing within the 90 day period ending on the
annuity starting date (which is the first day of the first period for which an
amount is paid as an annuity or any other form). The Plan Administrator shall
notify the Participant and spouse of the right to defer any distribution until
the Participant's account balance is no longer immediately distributable. Such
notification shall include a general description of the material features, and
an explanation of the relative values of, the optional forms of benefit
available under the Plan in a manner that would satisfy the notice requirements
of Codess.417(a)(3) (see section 7.2 above), and shall be provided no less than
30 days and no more than 90 days prior to the annuity starting date.
Notwithstanding the foregoing, only the Participant need consent to the
commencement of a distribution in the form of a Joint and Survivor Annuity while
the account balance is immediately distributable. If payment in the form of a
Joint and Survivor Annuity is not required with respect to the Participant, only
the Participant need consent to the distribution of an account balance that is
immediately distributable. Neither the consent of the Participant nor the spouse
shall be required to the extent that a distribution is required to satisfy Code
ss.ss.401(a)(9) or 415. In addition, upon termination of this PlaN, if the Plan
does not offer an annuity option (purchased from a commercial provider), the
Participant's account balance may, without the Participant's or spouse's
consent, be transferred to another defined contribution plan (other than an
employee stock ownership plan as defined in Code ss.4975(e)(7)) within the same
controlled group.
An account balance is immediately distributable if any part of the
account balance could be distributed to the Participant (or surviving spouse)
before the Participant attains (or would have attained if not deceased) the
later of Normal Retirement Age or 62.
For purposes of determining the applicability of the foregoing consent
requirements to distributions made before the first day of the first Plan Year
beginning after December 31, 1988, the Participant's vested account balance
shall not include amounts attributable to accumulated deductible employee
contributions within the meaning of Code ss.72(o)(5)(B).
See section 4.4 if the employee later returns to service.
If a Preretirement Survivor Annuity is the required form of
distribution, then the Employee's spouse may obtain an immediate distribution by
requesting this in writing from the Plan Administrator; the term "immediate"
shall be subject to reasonable administrative delays.
7.7. DISTRIBUTIONS OF EXCESS DEFERRALS, EXCESS CONTRIBUTIONS AND EXCESS
AGGREGATE CONTRIBUTIONS.
Excess Deferrals under 4.1(e), if utilized, plus earnings and minus
losses, shall be distributed by April 15 of the calendar year following the year
in which the excess arose for the individual in question, if the individual
notifies the Plan on or before the date specified in adoption agreement section
4.1(e)(1).
Excess Contributions and Excess Aggregate Contributions under Plan
Subsection 4.1(e), if utilized, (or 4.2, if utilized) plus earnings and minus
losses, shall be distributed to the Highly Compensated Employee to whom
attributed, no later than the end of the Plan Year following the close of the
Plan Year in which such excess arose, or else an Excise Tax will be due. These
amounts must be distributed no later than the close of the Plan Year following
the Plan Year in which such excess arose.
Distributions under this paragraph do not require any Participant or
spousal consent and shall be made notwithstanding the existence of a Qualified
Domestic Relations Order or any other Plan Section to the contrary.
8. ACCOUNTING
8.1. VALUATION DATE. As of each Valuation Date (including the
Anniversary Date), the Committee will:
(1) If applicable, determine the dates and amounts of Salary
Deferral reductions made by each Participant during the Plan Year.
(2) Credit the employee's optional account, if any, with his
Voluntary Contributions and his Deductible Voluntary Contribution Account with
his Deductible Voluntary Contributions.
(3) Credit the employee's appropriate Accounts for their allocated
share of other Company Contributions and Forfeitures.
(4) Reduce the Participant's appropriate Accounts for any Separate
Investment Fund created by the Participant since the last entry date, for any
distributions made to him during the Plan Year, and for any insurance premiums
paid from his Accounts.
(5) Make any appropriate adjustments between the accounts which is
required by the Plan or the Code. Reallocations under this provision shall not
be considered additions to any Account of the Participant until they are
reallocated to a specific Account of the Participant.
(6) Direct the Trustee to separately value each Separate
Investment Fund, each other investment which is separately maintained for
different Participants, and the general Trust Fund, and allocate earnings and
losses among the various classes of investments in an equitable manner among all
Participants who have their Accounts invested in the particular class of
investment. As of the Anniversary Date of each Plan Year, the Committee first
shall reduce Accounts (excluding segregated accounts) for any forfeitures and
then, subject to the restoration allocation requirements of section 4.4, shall
allocate the net income (or net loss) from the Trust and the increase or
decrease in the fair market value of the assets of the Trust for the valuation
period to each Participant's Account in the same ratio as such Participant's
Account bears to the total of all Participants, Accounts, based on the balance
in the Participant's Account as of the most recent Anniversary Date, reduced by
any withdrawals or distributions made during such period and increased by the
time-weighted value of any additions made to the Participant's Account during
such period. Excluded from the above allocation shall be any segregated Accounts
and the cash value of any incidental benefit insurance contracts.
(7) Each different Account of each Participant shall be accounted
for separately.
(8) Any insurance maintained for a Participant shall be accounted
for separately.
8.2. VALUATION OF DEFERRED DISTRIBUTIONS
When the distributions of part or all of any account balance is
deferred beyond the next Anniversary Date, the accounts shall continue to share
pro-rata in the gains and losses of the Trust Fund, except as provided in 5.3 or
7.6. The final distribution will be based on the account balance as of the
Valuation Date immediately preceding the distribution except that the final
distribution (other than the distribution from a Separate Investment Fund) made
to a Participant or his Beneficiary more than ninety (90) days after the most
recent Valuation Date immediately preceding the distribution shall include
interest on the amount of the distribution as an expense of the Trust Fund. The
interest shall accrue on such amount at a rate of six percent (6%) per annum
from such Valuation Date to the date of distribution. The adoption agreement may
provide that no interest will accrue on such deferred distributions.
In the event that distributions are made to all Participants (other
than Participants to whom for whatever reason distributions may not currently be
made) on account of the complete Termination of this Plan, the 6% interest
factor will be ignored and the Participants accounts will be credited with their
fair share of the earnings and losses of the trust fund through the date of
distribution.
9. PURCHASE OF INSURANCE
9.1. DESIGNATION BY PARTICIPANT.
(a) If permitted under the adoption agreement, then with the consent of
and in accordance with any rules established by the Committee, a Participant may
designate a portion of his Regular, Optional and/or Rollover Accounts to be set
aside as a separate account and used to purchase life insurance on his life. For
such time as the Participant's Accounts are maintained in the Trust Funds, the
designated owner and beneficiary of all life insurance in this separate account
shall be the Trustee.
(b) No amount shall be set aside in any Plan Year for the payment of
premiums in which the percent equivalent of the fraction, at any particular
time, the numerator of which is the aggregate amounts of insurance premiums paid
out of the Participant's accounts and the denominator of which is the aggregate
amount of Company contributions which have been allocated to a Participant's
accounts for at least two years, if any, exceeds (1) twenty-five percent (25%),
in the case of term insurance, or (2) fifty percent (50%) in the case of
ordinary life insurance.
(c) In addition to the limit provided in (b) above, no amount shall be
set aside for the payment of annual premiums which exceed twenty-five percent
(25%) of the net Company contributions and Forfeitures which have been allocated
to the Participant's accounts for less than two years if the amount is set aside
for term life insurance, and fifty percent (50%) of such net company
contributions and Forfeitures if the amount is set aside for ordinary or whole
life insurance which accumulates a cash value.
(d) The Trustee shall apply for and will be the owner of any insurance
contract purchased under the terms of this Plan. The insurance contract(s) must
provide that proceeds will be payable to the Trustee, however the Trustee shall
be required to pay over all proceeds of the contract(s) to the Participant's
designated beneficiary in accordance with the distribution provisions of this
plan. A Participant's spouse will be the designated beneficiary of the proceeds
in all circumstances unless a qualified election has been made in accordance
with section 7.2, if applicable. However, in the event that this Plan provides
that less than a 100% preretirement survivor Annuity is to be provided to the
surviving spouse, then that same percentage of the proceeds shall be so paid to
the spouse.
(e) Under no circumstances shall the trust retain any part of the
proceeds.
(f) Any dividends or credits earned on insurance contracts will be
allocated to the participant's account derived from employer contributions for
whose benefit the contract is held.
(g) In the event of any conflict between the terms of this plan and the
terms of any insurance contract purchased hereunder, the plan provisions shall
control.
9.2. DISTRIBUTION OF POLICY. When a Participant who has life insurance
under the Plan incurs a Break in Service for any reason other than death, the
Committee shall, after consulting with the Participant, direct the Trustee to do
one of the following:
(1) surrender the policies, allocating the cash surrender
value, if any, to the Participant's accounts;
(2) transfer the ownership of the policies to the Participant
by subtracting the cash surrender value of the policies from the Vested
portion of his accounts. If such Vested portion of his accounts is less
than the entire cash surrender value of the policies, the Participant
shall pay the difference in cash to the Trustee before the ownership of
his policies is transferred and the policies delivered to him;
(3) borrow from the insurance company the full cash value of
the policies, allocate the amount borrowed between the Participant's
accounts and transfer ownership and deliver the policies to the
Participant.
9.3. TERMINATION OF INSURANCE INVESTMENT. When a Participant who has
life insurance in his Accounts notifies the Committee, in writing, that he no
longer wants to have life insurance in his accounts, the Trustee shall surrender
the policies for their cash surrender value, if any, which shall be allocated
among the accounts of the Participant.
9.4. REALLOCATION OF FUNDS. Any allocation from the separate insurance
account to a Participant's accounts in accordance with 9.2 and 9.3 shall be pro
rata based upon the ratio that the amount set aside from an Account to purchase
the insurance bears to the total amount set aside from all the Accounts to
purchase the insurance.
9.5. INSURANCE COMPANY. An insurer shall not be liable for any action
taken by, or directions issued by any of the Company, the Plan Administrator,
the Committee, or the Trustee under this Plan. In addition, an insurer may
assume that the Trustee is as shown in the most recent correspondence with the
Company and, until notified, may assume that the Plan has not been amended or
terminated.
10. AMENDMENT AND TERMINATION OF THE PLAN
10.1. AMENDMENTS.
(a) Subject to (b) below, the Sponsoring Employers shall have the
authority to amend this Plan and the Trust at any time and from time to time. An
amendment to the Trust shall be executed by the Trustee and an authorized
officer of the Sponsoring Employers adopting the amendment to be effective. If
this Plan is part of a Volume Submitter or Prototype Program, then the Employer
may (1) change the choice of options in the adoption agreement, (2) add
overriding language in the adoption agreement when such language is necessary to
satisfy Code ss.ss. 415 or 416 because of the required aggregation of multiple
plans, and (3) add certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause the Plan
to be treated as individually designed; but if the Employer amends the Plan for
any other reason including a waiver of the minimum funding requirements under
Code ss.412(d), will not longer participate under the Volume Submitter or
Prototype program and will be considered to have an individually designed Plan.
(b) The amendment shall be subject to the following:
(1) No amendment may increase the duties or liabilities of the
Trustee without its written consent.
(2) Except as permitted by law, no amendment may provide for the
use of funds or assets under this Plan and the Trust Agreement other
than for the exclusive benefit of Participants or their Beneficiaries,
and no amendment may allow Trust Fund assets to revert to, or be used
or enjoyed by any Company or any Affiliate.
(3) Early retirement benefits or other optional retirement
benefits accrued on the date of the amendment and attributable to
service before any Plan amendment may not be eliminated or reduced by
such amendment; provided such Participant, at any time before or after
the amendment, satisfies the conditions for such benefit, in which
situation such benefits will be computed and administered under the
Plan without regard to the amendment.
(4) Except as provided by law, no amendment may add restrictions
to previously unrestricted benefits accrued on or before the effective
date of such amendment.
(5) No amendment to the plan shall be effective to the extent
that it has the effect of decreasing a participant's accrued benefit.
Notwithstanding the preceding sentence, a Participant's account
balance may be reduced to the extent permitted under Code
ss.412(c)(8). For purposes of this paragraph, a plan amendment which
has the effect of decreasing a Participant's account balance or
accrued benefit or eliminating an optional form of benefit, with
respect to benefits attributable to service before the amendment shall
be treated as reducing an accrued benefit. Furthermore, if the vesting
schedule of a plan is amended (including an automatic shift from or to
a top-heavy vesting schedule), in the case of an Employee who is a
Participant as of the later of the date such amendment is adopted or
the date it becomes effective, the nonforfeitable percentage
(determined as of such date) of such Employee's right to his Employer
derived accrued benefit will not be less than his percentage computed
under the Plan without regard to such amendment.
10.2. AMENDMENTS REQUIRED BY LAW. Regardless of the provisions of 10.1,
the Sponsoring Employer(s) shall have the authority to adopt whatever amendments
are necessary to this Plan or the Trust to bring it into conformity with
applicable law.
10.3. TERMINATION OR PARTIAL TERMINATION OF PLAN. The Sponsoring
Employers shall have the authority to terminate the Plan or Trust at any time.
In the event that the Plan is terminated, partially terminated or contributions
are discontinued, all distributions shall be made in accordance with the
provisions of Article 7. Each account shall continue to share in the gains of
the Trust Fund on each Valuation Date as provided in 8.1 until total
distribution of that account has been made.
10.4. MERGER OR CONSOLIDATION. If the Plan and Trust are merged or
consolidated with, or the assets or liabilities are transferred to, any other
plan and trust, the benefits receivable by each Participant immediately after
such action shall be equal to or greater than the benefits which he would have
been entitled to receive if the Plan had terminated immediately before such
transfer.
11. CLAIMS PROCEDURE
11.1. CLAIM FOR BENEFITS. A Participant or Beneficiary may make a claim
for Plan benefits by filing a written request with the Committee.
11.2. DENIAL OF CLAIM. If a claim is wholly or partially denied, the
Committee shall furnish the Participant or Beneficiary with written notice of
the denial within ninety (90) days of the date the original claim was filed.
This notice of denial shall specify: (1) the reason for denial; (2) specific
reference to pertinent Plan provisions on which the denial is based; (3) a
description of any additional information or requirements needed to be eligible
to obtain the defined benefit and an explanation of why such information or
requirements are necessary; and (4) an explanation of this claims and review
procedure.
11.3. APPLICATION FOR REVIEW. The Participant or Beneficiary will have
sixty (60) days from receipt of the notice of denial in which to make written
application for review by the Committee. In the written application, the
Participant or Beneficiary may also request a hearing prior to the completion of
the review. The Participant or Beneficiary shall have a right to representation,
to review pertinent documents, and to submit comments in writing.
11.4. DECISION ON REVIEW. The Committee shall issue a decision on such
review within sixty (60) days after the later of: (a) the date of submission of
the application, or (b) the date of the hearing.
11.5. ADDITIONAL TIME. The Committee may take additional time, as
permitted by Department of Labor Regulation ss.2560.503-1, if time is needed to
gather data, perform calculations, or reach its decisions in the processing of a
claim or review. Prior to the last date action must be taken, the Committee
shall inform the Participant or Beneficiary, in writing, of the need for an
extension of time.
12. DESIGNATION OF BENEFICIARY
12.1. DESIGNATION. By written designation on a form supplied by the
Committee, each Participant may name, or change the name of, a Beneficiary or
Beneficiaries who shall receive the value of the Vested interest of his accounts
which has not been paid out before the Participant's death. A Beneficiary
designation form shall be effective if it is on file with the Committee on the
Participant's date of death. A Participant may name multiple beneficiaries,
contingent beneficiaries or separate beneficiaries for each separate account or
for a specific portion of a specific account.
12.2. ABSENCE OF DESIGNATION. If there is no Beneficiary designation
form on file, or if the designated Beneficiary or Beneficiaries predecease the
Participant, benefit payments required under this Plan payable on death will be
distributed to the following Beneficiaries in order of priority: (1) to the
Participant's surviving spouse, or, if none, (2) to the surviving issue (per
stirpes and not per capita), or, if none, (3) to surviving parents of the
Participant equally, or, if one is deceased, to the survivor of them, or, if
none, (4) to the estate of the Participant.
12.3. SIMULTANEOUS DEATH. The beneficiary designation may prescribe
that if the primary and/or secondary beneficiaries named therein do not survive
the Participant for a specified period of time (not in excess of six months)
that such beneficiary shall be deemed to have predeceased the Participant.
12.4 NON-SPOUSE DESIGNATED AS BENEFICIARY. The Participant may
designate someone other than his spouse as his beneficiary only to the extent
otherwise permitted under Article 7. A new marriage shall render prior
beneficiary designations invalid except to the extent provided under a Qualified
Domestic Relations Order.
13. MISCELLANEOUS PROVISIONS
13.1. SPENDTHRIFT PROVISION.
(a) Except as provided in (b) or as otherwise provided by law, benefits
payable hereunder and any interest of a Participant, former Participant or
Beneficiary in the Trust shall not be subject to assignment, transfer or
anticipation or otherwise alienable either by voluntary or involuntary act or by
operation of law, nor subject to attachment, execution, garnishment,
sequestration or other seizure, under any legal or equitable process.
(b) Nothing in this Plan shall prohibit the Committee from distributing
a portion of a Participant's accounts to an alternate payee if the distribution
is pursuant to and in accordance with the terms of a qualified domestic
relations order determined in accordance with Code ss.414(p). The Committee
shall adopt reasonable rules to determine that a domestic relations order is a
qualified domestic relations order.
13.2. PRESUMPTION OF COMPETENCY. Every person receiving or claiming
benefits under this Plan shall be presumed to be mentally competent until the
date on which the Committee receives a written notice, in form and manner
acceptable to it, that such person is incompetent and that a guardian,
conservator, or other person charged with his care or the care of his estate has
been appointed. If the Committee receives acceptable notice that a person to
whom a benefit is payable under this Plan is unable to care for his affairs
because of incompetency, any payment due (unless a prior claim for it has been
made by duly appointed legal representative) may be paid to the spouse, a child,
a parent, a brother or sister or to any person determined by the Committee to
have incurred expenses for the incompetent person. Any such payment shall be a
complete discharge of the obligation of the Company, Committee, Plan
Administrator, and the Trustee to provide benefits under this Plan.
13.3. NO GUARANTY OF EMPLOYMENT. This Plan shall not be construed as
creating or modifying any contract of employment between the Employer and the
Employee.
13.4. MISTAKES.
(a) The Company may make retroactive equitable adjustments to correct
for mathematical, accounting, or factual errors made in good faith during the
administration of the Plan. Such adjustments shall be final and binding on all
Participants and other parties in interest.
(b) Regardless of any statement to the contrary in this Plan, any
portion of a contribution previously made by the Company may be returned to the
Company provided that the right to the return of the contribution arises from a
mistake of fact within the meaning of ERISA ss.403(c)(2)(A) and that the portion
returnable due to a mistake in fact is returned within one year of the date of
contribution. The amount which shall be returned to the Employer shall be the
total of: (1) the amount contributed, less (2) the amount that would have been
contributed had there not occurred a mistake of fact. Earnings attributable to
the excess contribution credited to individual accounts may not be returned to
the Company. Losses attributable to the excess contribution shall reduce the
amount returned.
13.5. INDEMNIFICATION. To the extent permitted by law, the Company
shall indemnify each member of the Committee and any others to whom the Company
has delegated fiduciary duties, except corporate trustees, insurers, or
investment advisors, against any and all claims, loss, damages, expense, and
liability arising from his responsibilities in connection with the Plan, unless
the same are determined to be due to gross negligence or willful misconduct.
13.6. LIMITATION OF LIABILITY. Neither the Trustee, the Plan
Administrator, the Committee, nor the Employer guarantee the Trust Fund in any
way against loss or depreciation. The liability of any of these persons, groups
of persons, or entities to make any payment under this Plan is limited to the
available assets of the Trust Fund.
13.7. REGULATIONS. Any person acting in a specified capacity under this
Plan or Trust, such as the Trustee, Committee, Plan Administrator or investment
advisor, if any, may institute, in his discretion, rules and procedures not
inconsistent with the terms of the Plan or Trust.
13.8. DELEGATION OF FIDUCIARY DUTIES. A Fiduciary may employ agents,
investment advisors, or counsel to assist him in his duties under this Plan, and
may serve in more than one fiduciary capacity under the Plan.
13.9. ADJUSTMENT FOR REASONABLE COMPENSATION. If, for any Plan Year,
the Internal Revenue Service determines that the compensation of a Participant
exceeds the amount which can be considered "reasonable" for purposes of the
federal income tax return of the Company, then the Committee shall readjust the
accounts of all Participants under this Plan to reflect only the reasonable
Compensation of such Participant.
13.10. CROSS-REFERENCES AND HEADINGS. Unless otherwise specified, any
reference to an Article, section, subsection or paragraph will be a reference to
that Article, section, subsection or paragraph in this Plan. Headings are for
the convenience of reference, are not a part of the Plan, and will not influence
its construction.
13.11. CONSTRUCTION. The provisions of the Plan shall be construed as a
whole in such manner as to carry out all of the provisions of the Plan. Any
interpretations required or discretionary powers granted in connection with this
Plan shall be made and exercised in a nondiscriminatory manner, so that all
Employees in similar circumstances will be treated alike.
13.12. SAVINGS PROVISIONS. Whenever possible, the provisions of this
Plan shall be construed to comply with Internal Revenue Service, Department of
Labor, and other federal or state administrative rules and regulations. If the
Department of Labor or the Internal Revenue Service determines at any time that
this Plan does not meet these requirements or that it is being administered or
interpreted in a manner inconsistent with these requirements, the Company may
make the appropriate amendments and/or adjustments, which may be retroactive, to
bring the Plan and Trust into compliance with current rules and regulations.
13.13. COPIES. This Agreement may be executed in any number of copies,
each of which will be considered an original.
13.14. FORFEITURES BEFORE 1985. Notwithstanding Plan sections 4.4 and
7.7, an employee who has a One Year Break in Service prior to the first day of
the Plan Year beginning in 1985 shall forfeit all non-vested amounts as of the
completion of said One Year Break in Service. The Company shall not reimburse
the employee's accounts for any such forfeited amounts unless the employee
repays the amounts paid to him on or before he incurs a One Year Break in
Service.
13.15. RETURN TO EMPLOYMENT. If a Participant who retires again becomes
a Participant, such renewed Participation shall not result in duplication of
benefits. Accordingly, if he has received a distribution of a Vested Accrued
Benefit under the Plan by reason of prior participation (and such distribution
has not been repaid to the Plan pursuant to section 4.4), then his subsequent
benefit payments shall be reduced by the Actuarial Equivalent of the prior
benefit payments received or to be received. Benefit payments shall cease if
this is administratively feasible, but only to the extent consistent with
Article 7, upon such reemployment.
13.16. FAILURE OF QUALIFICATION.
(a) Notwithstanding anything herein to the contrary, contributions to
this Plan are conditioned upon the initial qualification of the Plan under Code
ss.401. If the Plan receives an adverse determination with respect to its
initial qualification, then the Plan may return such contributions to the
Employer within one year after such determination, provided the application for
the determination is made by the time prescribed by law for filing the
Employer's return for the taxable year in which the Plan was adopted, or such
later date as the Secretary of the Treasury may prescribe.
(b) Notwithstanding any provisions to the contrary, except Sections
3.5, 3.6 and 4.1(d), any contribution by the Employer to the Trust Fund is
conditioned upon the deductibility of the contribution by the Employer under the
Code and, to the extent any such deduction is disallowed, the Employer may,
within one (1) year following the disallowance of the deduction, demand
repayment of such disallowed contribution and the Trustee shall return such
contribution within one (1) year following the disallowance. Earnings of the
Plan attributable to the excess contribution may not be returned to the
Employer, but any losses attributable thereto must reduce the amount so
returned.
(c) If this Plan is part of a Volume Submitter or Prototype program,
and this Plan fails to attain or retain qualification, such plan will no longer
participate in such program and will be considered as an individually designed
plan.
14. LOANS
14.1. ELIGIBILITY. If permitted under the adoption agreement, all
Participants and Beneficiaries shall be eligible to apply for a loan from the
Vested portion of the Participant's accounts. No loans will be made to any
shareholder-employee or Owner Employee. For purposes of this requirement, a
shareholder-employee means an Employee or officer of an electing small business
(subchapter S) corporation who owns (or is considered as owning within the
meaning of Code ss.318(a)(1), on any day during the taxable year of such
corporation, more than 5% of the outstanding stock of the corporation, unless an
exemption for such loan is obtained pursuant to ERISA ss.408 or through
amendment of such Act and further provided that such loan would not be subject
to tax under Code ss.4975.
14.2. ADMINISTRATION OF LOANS.
(a) The Committee in its sole discretion, is authorized, upon written
request by an eligible Participant or Beneficiary, to approve a loan or loans to
the Participant or Beneficiary from a Separate Investment Fund established by
the Participant in accordance with Plan section 5.3. The Committee shall
exercise its discretion in a uniform and nondiscriminatory manner together with
any requirements or restrictions set forth in the adoption agreement or in any
formal written loan procedure currently in operation for this Plan, and subject
to the following restrictions:
(1) Loans must be available to all eligible Participants and
Beneficiaries on a reasonable equivalent basis;
(2) Loans must not be made available to Highly Compensated
Employees in an amount greater than the amount available to other
Employees (for years beginning prior to January 1, 1989 this
restriction shall apply to highly compensated individuals, officers and
shareholders);
(3) Loans must be adequately secured and bear a reasonable
interest rate;
(4) Effective for Loans granted or renewed after October 18,
1989 no more than 50% of the present value of the Participant's vested Account
balances or accrued benefit may be considered by the Plan as security for the
outstanding balance of all Plan loans made to that Participant or beneficiary.
(b) Upon approval of such loan application, the Committee shall direct
the Trustee to make such loan upon such reasonable and non-discriminatory terms
as may be set from time to time by the Committee or as may be set forth in the
Adoption Agreement. Such loans shall constitute an investment of the Trust, but
interest on the loan and any expense or loss from the loan shall be credited
solely to the Separate Investment Fund of the Participant's accounts from which
the loan was made.
14.3. AMOUNTS OF LOANS. The amount available to a Participant and
Beneficiary for loans from this Plan and from Plans maintained by the Employer
and any Affiliates shall not exceed the lesser of: (1) $50,000 reduced by the
highest outstanding balance of such loans during the one year period ending on
the day before the date on which such new loan is made, or (2) the greater of
one-half of the vested portion of the Participant's Accounts or $10,000. The
Vested portion of the Participant's Accounts shall not include the amount of
Deductible Voluntary Employee Contributions, in his accounts.
For purposes of this limit, all plans of the Employer shall be
considered one plan. Additionally, with respect to any loan made prior to
January 1, 1987, the $50,000 limit specified in (1) above shall be unreduced.
14.4 PAYMENTS AND AMORTIZATION. Loans shall provide for level
amortization of principal and interest with payments to be made not less
frequently than quarterly over a period not to exceed five (5) years. However,
loans used to acquire any dwelling unit which, within a reasonable time, is to
be used (determined at the time the loan is made) as a principal residence of
the Participant shall provide for periodic repayment over a reasonable period of
time that may exceed five (5) years. Notwithstanding the foregoing, loans made
prior to January 1, 1987 which are used to acquire, construct, reconstruct or
substantially rehabilitate any dwelling unit which, within a reasonable period
of time is to be used (determined at the time the loan is made) as a principal
residence of the Participant or a member of his family (within the meaning of
Code ss.267(c)(4)) may provide for periodic repayment over a reasonable period
of time that may exceed five (5) years. Additionally, loans made prior to
January 1, 1987, may provide for periodic payments which are made less
frequently than quarterly and which do not necessarily result in level
amortization.
14.5. SPOUSAL CONSENT. If a Preretirement Survivor Annuity or Joint and
Survivor Annuity is required, then the spouse (as defined in section 7.2) of the
Participant, if any, must consent to the utilization of the Participant's
Accounts or Accrued Benefit, if so utilized, as security for the repayment of
such loan. The consent must be made in writing during (but no earlier than) the
90-day period ending on the date on which the loan is to be secured and the
consent must meet the requirements of a Qualified Election under section 7.2.
Such consent shall thereafter be binding with respect to the consenting spouse
or any subsequent spouse with respect to that loan. A new consent shall be
required if the account balance or accrued benefit is used for renegotiation,
extension, renewal or other revision of the loan. If these requirements are not
satisfied, then for loans made after August 18, l985, no portion of the
Participant's Accounts or Accrued Benefit may be used as security for such loan.
Notwithstanding the foregoing, in the event that pursuant to law these spousal
consents are not required for this particular type of Plan or for a particular
Participant, then the Spousal Consents need not be obtained.
14.6. DEFAULT. In the event of default, foreclosure on the note and
attachment of security will not occur until a distributable event occurs in the
Plan.
14.7. LOANS GRANTED OR RENEWED ON OR AFTER THE LAST DAY OF THE FIRST
PLAN YEAR BEGINNING IN 1989. Participant loans granted or renewed on or after
the last day of the first Play Year beginning on or after January 1, 1989, the
Participant loan program shall be made in accordance with specific Plan
provisions contained either in the adoption agreement or in a formal written
loan procedure adopted by the Fiduciary administering the loan program. Any such
written loan procedure shall be considered a part of this plan, and shall be
binding on successor Fiduciaries who have responsibility for administering this
loan program until superceded by a different formal written loan procedure. The
Plan provisions in the adoption agreement or the formal written loan procedure
must contain the following information:
(a) The identity of the person or positions authorized to
administer the Participant loan program;
(b) A procedure for applying for loans;
(c) The basis on which loans will be approved or denied;
(d) Limitations (if any) on the types of loans offered;
(e) The procedure under the program for determining a reasonable rate
of interest;
(f) The types of collateral which may secure a Participant loan, a
Beneficiary loan or a former Participant's;
(g) The events constituting default and the steps that will be taken to
preserve Plan assets in the event of such default.
15. TOP HEAVY RULES
15.1. MINIMUM EMPLOYER CONTRIBUTION.
(a) If this Plan is a Top Heavy Plan in any Plan Year beginning after
December 31, l983, Company Contributions under all qualified plans maintained by
the Company (including allocated Forfeiture Amounts by excluding Company
Contributions under FICA) for Non-Key Employees who are Participants and who
have not separated from service by the end of the Plan Year to which such
Company Contribution relates, shall be set at a guaranteed minimum rate of Total
Compensation of such Non-Key Employees. The guaranteed minimum rate shall be
equal to the lesser of three percent (3%) or the highest Company Contribution
rate for Key Employees. For purposes of this section, a Non-Key Employee
Participant includes any Employee otherwise eligible to participate in the Plan
but who is not a Participant because his or her Compensation does not exceed a
specified level. Also, for purposes of this section, Non-Key Employees who have
become Participants but who during the Plan Year have failed to accumulate 1000
hours of service must receive the guaranteed minimum rate provided they have not
separated from service before the end of such Plan Year. To determine the
contribution rate, the Plan Administrator shall consider all qualified Defined
Contribution Plans maintained by the Employer as a single plan. Elective
deferrals under ss.401(k) may not be utilized to satisfy this minimum
contribution requirement, although they must be counted in determining whether a
top-heavy minimum contribution is required for non-key employees.
(b) Additional Contribution. If the contribution rate for the Plan Year
with respect to a Non-Key employee described in section 15.1 is less than the
minimum contribution, the Company will increase its contributions for such
Participant to the extent necessary so his or her contribution rate for the Plan
Year will equal the guaranteed minimum contribution. The Plan Administrator
shall allocate the additional contribution to the Accounts of the Non-Key
Employees for whom the Employer makes the contribution.
(c) Notwithstanding the foregoing, if a Defined Benefit Plan is part of
the Aggregation Group, and this Plan enables such Defined Benefit Plan to meet
the discrimination tests and minimum participation standards of Code ss.ss.
401(a)(4) and 410, respectively, then the guaranteed minimum rate hereunder
shall equal 3%.
(d) Solely for the purpose of determining if the plan, or any other
plan included in a required Aggregation Group of which this plan is a part, is
top-heavy (within the meaning of Code ss.416(g)) the accrued benefit of an
Employee other than a Key Employee (within the meaning of Code ss.416(i)(1))
shall be determined under (a) the method, if any, that uniformly applies for
accrual purposes under all defined benefit plans maintained by the Employer or
Affiliates, or (b) if there is no such method, as if such benefit accrued not
more rapidly than the slowest accrual rate permitted under the fractional
accrual rate of Code ss.411(b)(1)(C).
(e) If any Non-Key Employee under this Plan is also covered under a
Defined Benefit Plan of the Employer and this Plan and such Defined Benefit Plan
are both Top-Heavy during the Plan Year then the top-heavy minimum contribution
under (a) shall be the amount specified in the adoption agreement.
(f) Nothing in this section shall be interpreted as requiring duplicate
benefits or contributions to any Non-key Employee.
EXHIBIT 11.1
MODERN CONTROLS, INC.
Computation of Per Share Earnings
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 4,298,134 4,527,560 4,722,188
Net effect of dilutive stock options-based
on the treasury stock method 28,991 20,843 3,422
- ---------------------------------------------------------------------------------------------------------------------------------
Total 4,327,125 4,548,403 4,725,610
=================================================================================================================================
Net income $ 3,081,862 2,570,308 1,852,977
=================================================================================================================================
Primary per share amounts $ 0.71 $ 0.57 $ 0.39
=================================================================================================================================
FULLY DILUTED
Average shares outstanding 4,298,134 4,527,560 4,722,188
Net effect of dilutive stock options-based
on the treasury stock method 28,991 25,640 3,422
- ---------------------------------------------------------------------------------------------------------------------------------
Total 4,327,125 4,553,200 4,725,610
=================================================================================================================================
Net income $ 3,081,862 2,570,308 1,852,977
=================================================================================================================================
Fully diluted per share amounts $ 0.71 $ 0.56 $ 0.39
=================================================================================================================================
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------------------------------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations Data:
Sales $14,768 12,844 10,613 10,405 12,679 13,556 11,522 9,798 8,551 7,130
Net income 3,082 2,570 1,853 1,889 2,693 2,903 2,451 2,137 1,676 1,304
Net income per share .71 .57 .39 .39 .55 .59 .51 .44 .35 .27
Dividends declared per share .24 .21 .20 .70 .16 .13 .11 .09 .09 .04
Balance Sheet Data:
Total Assets 14,881 14,770 13,128 14,077 16,273 14,817 12,158 10,431 8,937 7,400
Long-term liabilities 92 168 29 18 23 3 11 17 30 48
</TABLE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------
1996 SALES GROSS PROFIT NET INCOME NET INCOME PER SHARE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1ST QUARTER $ 3,564,165 $2,364,509 $ 700,247 $ .16
2ND QUARTER 3,647,332 2,507,883 768,061 .18
3RD QUARTER 3,751,347 2,541,569 804,674 .19
4TH QUARTER 3,804,929 2,597,870 808,880 .19
- --------------------------------------------------------------------------------------------------------------------
TOTAL $14,767,773 $10,011,831 $ 3,081,862 $ .71
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------------------------------------------
1st Quarter $ 2,828,521 $1,820,132 $ 512,705 $ .11
2nd Quarter 3,069,162 2,020,481 630,772 .14
3rd Quarter 3,465,229 2,300,049 719,994 .16
4th Quarter 3,480,593 2,322,548 706,837 .16
- --------------------------------------------------------------------------------------------------------------------
Total $12,843,505 $8,463,210 $ 2,570,308 $ .57
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
1996-1995 COMPARISON
Sales increased 15 percent in 1996 to $14,767,773, compared with $12,843,505 in
1995. The increase in 1996 sales was due primarily to strong increases in the
domestic and foreign volume of the Company's permeation products and packaging
products and to general price increases.
The Company's permeation product group sales totaled $10,737,789, up 18 percent
from $9,079,635 in 1995. The group accounted for 73 percent of the Company's
total 1996 sales, compared to 71 percent in 1995.
The gross profit margin was $10,011,831 in 1996 or 67.8 percent of sales,
compared to $8,463,210 in 1995 or 65.9 percent of sales. Over the past several
years the Company's gross profit percentage has been in a range of about 62 to
65 percent of sales. The 1996 profit margin was at the high end of the
historical range due to reduced warranty expenses and to the increased sales
volume which resulted in manufacturing efficiencies.
Selling, general and administrative expenses increased $590,736 or 15 percent
during 1996. As a percentage of sales, selling, general and administrative
expenses were 30.6 percent in both 1996 and 1995. The increase in the dollar
amount of selling, general and administrative expenses is due primarily to an
increase in commission expenses as a result of increased sales.
Research and development expenses increased $156,480 or 15 percent during 1996,
reflecting the Company's continued commitment to growth through new products. As
a percentage of sales, research and development expenses were 8 percent in both
1996 and 1995. For the foreseeable future, the Company expects to allocate on an
annual basis approximately 7 to 9 percent of sales to research and development.
Investment income decreased to approximately $390,000 in 1996 from $405,000 in
1995. The decrease in 1996 is the result of lower average investment balances
due to stock repurchases made in the first quarter of 1996, offset by a gain
realized on the sale of land and an increase in the average interest rate earned
on investments in 1996 as compared to 1995.
The Company's provision for income taxes was 34 percent of income before income
taxes in 1996, compared with 33.8 percent in 1995. Based on current operating
conditions and income tax laws the Company expects the tax rate for 1997 to be
in the range of 33 to 35 percent.
Net income was $3,081,862, or $.71 per share, in 1996. This compares with
$2,570,308, or $.57 per share, in 1995.
1995-1994 COMPARISON
Sales increased 21 percent in 1995 to $12,843,505, compared with $10,612,752 in
1994. The increase in 1995 sales was due primarily to strong increases in the
domestic and foreign volume of the Company's permeation products and weighing
products and to general price increases.
The Company's permeation product group sales totaled $9,079,635 up 20 percent
from $7,565,384 in 1994. The group accounted for 71 percent of the Company's
total sales in both 1995 and 1994.
The gross profit margin was $8,463,210 in 1995 or 65.9 percent of sales,
compared to $6,670,819 in 1994 or 62.9 percent of sales. Over the past several
years the Company's gross profit percentage has been in a range of about 62 to
65 percent of sales. The 1995 profit margin was at the high end of the
PAGE 10
historical range due to reduced warranty expenses and to the increased sales
volume which resulted in manufacturing efficiencies.
Selling, general and administrative expenses increased $572,856 or 17 percent
during 1995. As a percentage of sales, selling, general and administrative
expenses were 30.6 percent in 1995 compared with 31.6 percent for 1994. The
increase in the dollar amount of selling, general and administrative expenses is
due primarily to an increase in commission expenses caused by the increase in
sales, particularly domestic sales. The decrease in selling, general and
administrative expenses as a percentage of sales is primarily the result of the
increased sales volume in 1995 being accommodated without an increase in general
and administrative staffing levels.
Research and development expenses increased $162,284 or 18 percent during 1995,
reflecting the Company's continued commitment to growth through new products. As
a percentage of sales, research and development expenses were 8 percent in both
1995 and 1994.
Investment income increased to approximately $405,000 in 1995 from $366,000 in
1994. The increase in 1995 is the result of an increase in the average interest
rate earned on investments and higher average investment balances in 1995 as
compared to 1994.
Net income was $2,570,308, or $.57 per share, in 1995. This compares with
$1,852,977, or $.39 per share, in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Total cash, temporary cash investments and marketable securities decreased
$198,969 during 1996 to $9,617,014. The primary reasons for the decrease are
stock repurchases in 1996 totaling $1,873,590 and the payment of regular
dividends totaling $1,035,022, offset by the 1996 net income.
Cash flow from operations has historically been sufficient to meet liquidity
requirements, capital expenditures and research and development costs. Cash flow
from operations totaled $3,606,969, $3,174,571 and $2,044,960 in 1996, 1995 and
1994, respectively.
The Company has no long-term debt and has no material commitments for capital
expenditures as of December 31, 1996. The Company's plant and equipment does not
require any major expenditures to accommodate a significant increase in
operating demands. The Company anticipates that a combination of its existing
cash, temporary cash investments and marketable securities, plus an expected
continuation of cash flow from operations, will continue to be adequate to fund
operations, capital expenditures and dividend payments in the foreseeable
future.
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
The Company adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 (SFAS 123), ACCOUNTING FOR STOCK-BASED
COMPENSATION. The adoption did not impact the Company's financial condition or
results of operations.
PAGE 11
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
MODERN CONTROLS, INC.
Years ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $14,767,773 12,843,505 10,612,752
Cost of Sales 4,755,942 4,380,295 3,941,933
- --------------------------------------------------------------------------------------------------------------------
Gross Profit 10,011,831 8,463,210 6,670,819
- --------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative
Expenses 4,516,883 3,926,147 3,353,291
Research and Development Expenses 1,216,493 1,060,013 897,729
Investment Income (390,407) (405,258) (366,178)
- --------------------------------------------------------------------------------------------------------------------
5,342,969 4,580,902 3,884,842
- --------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 4,668,862 3,882,308 2,785,977
Income Taxes 1,587,000 1,312,000 933,000
- --------------------------------------------------------------------------------------------------------------------
Net Income $ 3,081,862 2,570,308 1,852,977
====================================================================================================================
Net Income Per Common Share $ .71 .57 .39
====================================================================================================================
Weighted Average Shares Outstanding 4,327,125 4,548,403 4,725,610
====================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
PAGE 12
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
MODERN CONTROLS, INC.
December 31,
- --------------------------------------------------------------------------------------------------------------------
ASSETS 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $ 1,352,991 1,396,718
Marketable securities, current 4,186,066 4,133,397
Trade accounts receivable, less allowance
for doubtful accounts of $155,000
in 1996 and $132,000 in 1995 1,632,960 1,777,521
Other receivables 118,469 116,210
Inventories 1,572,329 1,560,360
Prepaid expenses 190,198 250,968
Deferred income taxes 310,000 320,000
- --------------------------------------------------------------------------------------------------------------------
Total current assets 9,363,013 9,555,174
- --------------------------------------------------------------------------------------------------------------------
Marketable securities, noncurrent 4,077,957 4,285,868
Property and equipment 2,635,521 1,947,060
Less accumulated depreciation and amortization 1,645,365 1,492,224
- --------------------------------------------------------------------------------------------------------------------
990,156 454,836
- --------------------------------------------------------------------------------------------------------------------
Other assets 450,118 474,533
====================================================================================================================
$14,881,244 14,770,411
====================================================================================================================
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 563,953 591,982
Accrued compensation 483,876 405,467
Other accrued expenses 320,973 275,083
Estimated product warranties 190,405 163,000
Accrued income taxes 379,931 397,423
Dividends payable 256,440 272,543
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,195,578 2,105,498
- --------------------------------------------------------------------------------------------------------------------
Deferred income taxes 92,000 168,000
- --------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock - $.10 par value;
authorized 10,000,000 shares;
issued and outstanding 4,273,976 shares
in 1996 and 4,441,080 shares in 1995 427,398 444,108
Capital in excess of par value 5,457 -
Retained earnings 11,965,811 11,757,805
Net unrealized gain on noncurrent marketable
equity securities 195,000 295,000
Total stockholders' equity 12,593,666 12,496,913
- --------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (note 5)
$14,881,244 14,770,411
====================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
PAGE 13
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
MODERN CONTROLS, INC.
December 31,
- ------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 3,081,862 2,570,308 1,852,977
Adjustments to reconcile net income to net cash provided by operating
activities:
(Gain) loss on disposition of fixed assets (16,874) 27,530 (712)
Depreciation and amortization 255,695 214,255 268,303
Deferred income taxes (11,000) 12,000 109,000
Changes in operating assets and liabilities:
Trade accounts receivable 144,561 (265,821) (575,780)
Other receivables (2,259) 35,270 19,835
Inventories (11,969) 173,400 78,976
Prepaid expenses 60,770 (73,907) (57,810)
Accounts payable (28,029) 244,861 162,010
Accrued compensation 78,409 39,869 154,810
Other accrued expenses 45,890 28,626 3,487
Estimated product warranties 27,405 23,000 (21,000)
Accrued income taxes (17,492) 145,180 50,864
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,606,969 3,174,571 2,044,960
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
- ------------------------------------------------------------------------------------------------------------------------
Purchases of marketable securities (5,888,298) (9,919,771) (8,335,064)
Proceeds from sales of marketable securities at maturity 5,888,540 10,102,358 8,885,858
Proceeds from sale of land 59,181 -- --
Purchases of property and equipment (776,096) (163,353) (97,605)
Purchases of patents and trademarks (26,471) (83,036) (38,410)
Other (6,340) (6,512) (6,756)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (749,484) (70,314) 408,023
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
- ------------------------------------------------------------------------------------------------------------------------
Proceeds from the exercise of stock options 7,400 60,135 1,815
Purchase and retirement of common stock (1,873,590) (1,107,363) (2,104,401)
Dividends paid (1,035,022) (906,576) (950,211)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (2,901,212) (1,953,804) (3,052,797)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary
cash investments (43,727) 1,150,453 (599,814)
Cash and temporary cash investments:
Beginning of year 1,396,718 246,265 846,079
- ------------------------------------------------------------------------------------------------------------------------
End of year $ 1,352,991 1,396,718 246,265
========================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $ 1,615,492 1,156,652 773,590
- ------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of noncash investing and
financing activities:
Noncash purchase and retirement of common stock $ 3,452 313,323 24,891
Noncash exercise of stock options 3,452 313,323 24,891
Dividends accrued 256,440 272,543 233,905
</TABLE>
As of December 31, 1995, the Company recorded an unrealized gain on available
for sale marketable securities of $460,000. As of December 31, 1996, the Company
has an unrealized gain of $305,000 on available for sale marketable securities
which results in a $155,000 decrease in long-term marketable securities with a
corresponding $55,000 decrease in deferred income taxes payable.
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MODERN CONTROLS, INC.
DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Modern Controls, Inc. (the Company) operates in one business segment, the
design, manufacture and marketing of precision testing instrumentation, advanced
process sensing, and control equipment to customers in the barrier packaging,
food, and pharmaceutical industries throughout the world. The following is a
summary of the significant accounting policies used in the preparation of the
Company's financial statements:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiary, a Foreign Sales Corporation (FSC). All material intercompany
balances and transactions have been eliminated in consolidation.
STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Temporary cash investments consist of short-term investments which are readily
convertible to cash.
MARKETABLE SECURITIES
Marketable securities at December 31, 1996 consist of United States government
securities, municipal bonds and equity securities. The Company classifies its
debt and marketable equity securities in one of three categories: trading,
available-for-sale, or held-to-maturity. Trading securities are bought and held
principally for the purpose of selling them in the near term. Held-to-maturity
securities are those securities in which the Company has the ability and intent
to hold until maturity. All other securities not included in trading or
held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on available-for-sale securities are excluded from income and are
reported as a separate component of stockholders' equity until realized.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to income
resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield. Dividend and interest
income are recognized when earned. Realized gains and losses for securities
classified as available-for-sale and held-to-maturity are included in income and
are derived using the specific identification method for determining the cost of
securities sold.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation and amortization are
computed using the straight-line method. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts, and any resulting gain or loss is recognized in income for the period.
The cost of maintenance and repairs is charged to income as incurred;
significant renewals and betterments are capitalized.
INTANGIBLE ASSETS
Intangible assets are carried at cost less accumulated amortization and consist
of patents and trademarks. Costs incurred in connection with applications for
new patents are deferred until a final determination with respect to the
application is made by appropriate regulatory agencies. Costs of patents
abandoned are charged to income in the period of abandonment. Patent costs are
amortized over the lesser of 17 years or their estimated useful life, using the
straight-line method. Trademarks are amortized over five years.
INCOME TAXES
The Company uses the asset and liability method for computing its deferred
taxes. Under the asset and liability method, deferred taxes are based on the
difference between the financial statement and tax basis of assets and
liabilities and the enacted tax rates that will be in effect when these
differences reverse. Deferred tax expense represents the change in deferred tax
assets and liabilities during the year.
PAGE 15
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.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are recorded in its consolidated balance
sheet. The carrying amount for cash and temporary cash investments, accounts
receivable, accounts payable, and accrued liabilities approximates fair value
due to the immediate or short-term maturity of these financial instruments. The
fair values of investments in marketable securities are based on quoted market
prices and are summarized in Note 2.
REVENUE RECOGNITION
Revenue is recognized upon shipment of product or upon completion of services.
NET INCOME PER COMMON SHARE
Primary and fully diluted net income per common share are computed by dividing
net income by the weighted average of common and common equivalent shares
outstanding during the year. Stock options, when they have a dilutive effect,
are considered common stock equivalents for purposes of this computation.
STOCK-BASED EMPLOYEE COMPENSATION
The Company uses the intrinsic-value method for employee stock-based
compensation pursuant to APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. Under the guidelines of Opinion 25, compensation cost for stock-based
employee compensation plans is recognized based on the difference, if any,
between the quoted market price of the stock on the date of grant and the amount
an employee must pay to acquire the stock. The Company adopted the disclosure
provisions for employee stock-based compensation and the fair-value method for
nonemployee stock-based compensation of SFAS No. 123 ACCOUNTING FOR STOCK-BASED
COMPENSATION in 1996.
2. MARKETABLE SECURITIES
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses, and fair value for available-for-sale and held-to-maturity securities by
major security type at December 31, 1996 and 1995 were as follows:
1996
---------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
Available-for-sale:
Equity securities $ 220,000 305,000 - 525,000
- --------------------------------------------------------------------------------
$ 220,000 305,000 - 525,000
================================================================================
Held-to-maturity:
Municipal bonds $6,070,878 36,113 (1,065) 6,105,926
Other securities 1,668,145 3,644 (307) 1,671,482
- --------------------------------------------------------------------------------
$7,739,023 39,757 (1,372) 7,777,408
================================================================================
1995
Gross Gross
--------------------------------------------------------
unrealized unrealized
Amortized holding holding Fair
cost gains losses value
- --------------------------------------------------------------------------------
Available-for-sale:
Equity securities $ 220,000 460,000 - 680,000
- --------------------------------------------------------------------------------
$ 220,000 460,000 - 680,000
================================================================================
Held-to-maturity:
Municipal bond $6,542,922 26,255 (3,269) 6,565,908
Other securities 1,196,343 5,307 - 1,201,650
- --------------------------------------------------------------------------------
$7,739,265 31,562 (3,269) 7,767,558
================================================================================
Other securities consist primarily of U.S. government obligations and marketable
certificates of deposit.
Maturities of investment securities classified as available-for-sale and
held-to-maturity were as follows at December 31, 1996 and 1995:
1996 1995
-------------------------------------------------------
AMORTIZED FAIR Amortized Fair
COST VALUE cost value
- --------------------------------------------------------------------------------
Available-for-sale:
Equity securities $ 220,000 525,000 220,000 680,000
- --------------------------------------------------------------------------------
$ 220,000 525,000 220,000 680,000
================================================================================
Held-to-maturity:
Due within
one year $4,186,066 4,209,228 4,133,397 4,144,187
Due after one
through
five years 3,552,957 3,568,180 3,605,868 3,623,371
- --------------------------------------------------------------------------------
$7,739,023 7,777,408 7,739,265 7,767,558
================================================================================
PAGE 16
3. INVENTORIES
The major components of inventories are as follows:
1996 1995
- --------------------------------------------------------------------------------
Finished products $ 169,921 176,910
Work-in-process 653,300 699,070
Raw materials 749,108 684,380
- --------------------------------------------------------------------------------
$1,572,329 1,560,360
- --------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Estimated
1996 1995 useful lives
- --------------------------------------------------------------------------------
Machinery and equipment $1,708,395 1,281,907 3 to 10 years
Office equipment 600,067 438,788 2 to 15 years
Leasehold improvements 271,206 206,502 1 to 5 years
Vehicles 55,853 19,863 3 to 5 years
- --------------------------------------------------------------------------------
$2,635,521 1,947,060
- --------------------------------------------------------------------------------
Depreciation and amortization of property and equipment charged to income was
$232,075, $197,587, and $256,007 for the years ended December 31, 1996, 1995 and
1994, respectively.
5. LEASES
The Company leases its facilities and certain equipment pursuant to operating
leases. The term of the facility lease which has been renewed for five years
beginning July 1, 1995, expires in 2000. The facility lease requires the Company
to pay operating costs including real estate taxes.
Rental expense, including charges for operating costs, was as follows:
1996 1995 1994
- --------------------------------------------------------------------------------
$295,124 254,002 220,724
The following is a schedule of future minimum lease payments, excluding charges
for operating costs, for operating leases as of December 31, 1996:
Year ending December 31
- --------------------------------------------------------------------------------
1997 $ 206,678
1998 213,633
1999 224,238
2000 112,119
- --------------------------------------------------------------------------------
$ 756,668
- --------------------------------------------------------------------------------
6. INCOME TAXES
The provision for income taxes consists of the following:
1996 1995 1994
- --------------------------------------------------------------------------------
Current tax expense:
Federal $ 1,421,000 1,150,000 733,000
State 177,000 150,000 91,000
- --------------------------------------------------------------------------------
Total current expense 1,598,000 1,300,000 824,000
Deferred (11,000) 12,000 109,000
- --------------------------------------------------------------------------------
Provision for income taxes $ 1,587,000 1,312,000 933,000
- --------------------------------------------------------------------------------
The effective income tax rate varies from the federal statutory
tax rate for the following reasons:
Years ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
PERCENTAGE Percentage Percentage
OF PRETAX of pretax of pretax
INCOME income income
- --------------------------------------------------------------------------------
Tax at statutory federal
income tax rate 34.0% 34.0% 34.0%
Increases (reductions) in
taxes resulting from:
State income taxes, net
of federal benefit 2.5 2.6 2.2
Tax-exempt earnings of FSC (2.9) (1.7) (1.8)
Tax-exempt investment
earnings (1.5) (1.7) (1.9)
Other 1.9 .6 1.0
- --------------------------------------------------------------------------------
Effective income tax rate 34.0% 33.8% 33.5%
- --------------------------------------------------------------------------------
The tax effect of significant temporary differences representing deferred tax
assets and liabilities are as follows:
1996 1995
- --------------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts
not currently deductible $ 56,000 48,000
Inventory costs not currently
deductible 68,000 110,000
Inventory reserves 99,000 87,000
Warranty reserves 69,000 59,000
Other accruals 18,000 16,000
- --------------------------------------------------------------------------------
Total deferred tax assets 310,000 320,000
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Excess of tax over book depreciation 18,000 (3,000)
Unrealized gain on noncurrent
marketable equity securities (110,000) (165,000)
- --------------------------------------------------------------------------------
Total deferred tax liabilities (92,000) (168,000)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 218,000 152,000
- --------------------------------------------------------------------------------
The Company has determined that establishing a valuation allowance for the
deferred tax assets is not required since it is more likely than not that the
deferred tax assets will be realized through future taxable income.
PAGE 17
7. STOCK OPTIONS
As of December 31, 1996, the Company has reserved 161,577 shares of common stock
for options that are still available for grant under the Company's stock option
plans, and 177,935 shares for options that have been granted but have not yet
been exercised.
Under the plans, option exercise prices are 100% of the market value of the
common stock at the date of grant, except for incentive options granted under
the 1992 Plan to persons owning more than 10% of the Company's stock, in which
case the option price is 110% of the market value, and nonqualified options
granted under the 1992 Plan, which may be granted at option prices no less than
25% of the market value. Exercise periods are generally for five to ten years.
Certain of the plans allow for the granting of nonqualified stock options. Upon
the exercise of these nonqualified options, the Company may realize a
compensation deduction allowable for income tax purposes. The after-tax effect
of these tax deductions is included in the accompanying consolidated financial
statements as an addition to capital in excess of par value.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 (SFAS 123), ACCOUNTING FOR STOCK-BASED
COMPENSATION. Accordingly, no compensation cost has been recognized with respect
to the Company's stock option plans. Had compensation cost for these plans been
determined based on the fair value methodology prescribed by SFAS 123, the
Company's net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below:
1996 1995
- --------------------------------------------------------------------------------
Net earnings - as reported $ 3,081,862 2,570,308
Net earnings - pro forma 3,020,719 2,520,352
Earnings per share - as reported .71 .57
Earnings per share - pro forma .70 .55
The above pro forma amounts may not be representative of the effects on reported
net earnings for future years. The fair value of each option grant is estimated
on the date of grant using the binomial option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995:
1996 1995
- --------------------------------------------------------------------------------
Dividend yield 2.25% 2.25%
Expected volatility 37% 43%
Risk-free interest rate 6.1% 6.4%
Expected lives 8.1 years 4.5 years
Information regarding the Company's stock option plans for 1996, 1995, and 1994
is as follows:
Weighted
average
Shares exercise price
- --------------------------------------------------------------------------------
Options outstanding, December 31, 1993 144,400 $ 9.46
Granted 32,300 7.27
Exercised (4,234) 6.31
Canceled or expired (2,190) 8.37
- --------------------------------------------------------------------------------
Options outstanding, December 31, 1994 170,276 9.14
Granted 57,720 7.47
Exercised (48,651) 7.67
Canceled or expired (26,692) 9.37
- --------------------------------------------------------------------------------
Options outstanding, December 31, 1995 152,653 8.93
Granted 36,170 10.46
Exercised (1,638) 6.63
Canceled or expired (9,250) 10.67
- --------------------------------------------------------------------------------
Options outstanding, December 31, 1996 177,935 $ 9.17
================================================================================
1996 1995
- --------------------------------------------------------------------------------
Weighted-average fair value of options,
granted during the year $ 4.16 2.75
Weighted-average exercise price of options,
exercisable at end of year 9.35 9.97
PAGE 18
8. CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock
------------ Capital in
Number excess of
of shares Amount par value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1993 4,819,925 $ 481,992 1,398,629
Stock options exercised 4,234 423 26,284
Purchase and retirement
of common stock (297,928) (29,792) (1,424,913)
Dividends declared
($.20 per share) - - -
Net unrealized loss on noncurrent
marketable equity securities - - -
Net Income - - -
- -----------------------------------------------------------------------------------
Balance, December 31, 1994 4,526,231 452,623 -
Stock options exercised 48,651 4,865 368,593
Purchase and retirement of
common stock (133,802) (13,380) (368,593)
Dividends declared
($.21 per share) - - -
Net unrealized gain on noncurrent
marketable equity securities, net of
income taxes - - -
Net Income - - -
- -----------------------------------------------------------------------------------
Balance, December 31, 1995 4,441,080 444,108 -
Stock options exercised 1,638 164 10,688
Purchase and retirement
of common stock (168,742) (16,874) (5,231)
Dividends declared
($.24 per share) - - -
Net unrealized loss on noncurrent
marketable equity securities, net of
income taxes - - -
Net Income - - -
- -----------------------------------------------------------------------------------
Balance, December 31, 1996 4,273,976 $ 427,398 5,457
===================================================================================
</TABLE>
(WIDE TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Net
unrealized
gain(loss) on
noncurrent
marketable
Retained equity
earnings securities Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1993 10,935,222 - 12,815,843
Stock options exercised - - 26,707
Purchase and retirement
of common stock (674,588) - (2,129,293)
Dividends declared
($.20 per share) (942,187) - (942,187)
Net unrealized loss on noncurrent
marketable equity securities - (110,000) (110,000)
Net Income 1,852,977 - 1,852,977
- ----------------------------------------------------------------------------------
Balance, December 31, 1994 11,171,424 (110,000) 11,514,047
Stock options exercised - - 373,458
Purchase and retirement of
common stock (1,038,713) - (1,420,686)
Dividends declared
($.21 per share) (945,214) - (945,214)
Net unrealized gain on noncurrent
marketable equity securities, net of
income taxes - 405,000 405,000
Net Income 2,570,308 - 2,570,308
- ----------------------------------------------------------------------------------
Balance, December 31, 1995 11,757,805 295,000 12,496,913
Stock options exercised - - 10,852
Purchase and retirement
of common stock (1,854,937) - (1,877,042)
Dividends declared
($.24 per share) (1,018,919) - (1,018,919)
Net unrealized loss on noncurrent
marketable equity securities, net of
income taxes - (100,000) (100,000)
Net Income 3,081,862 - 3,081,862
- ----------------------------------------------------------------------------------
Balance, December 31, 1996 11,965,811 195,000 12,593,666
================================================================================
</TABLE>
PAGE 19
9. SALES
Export sales were $5,460,339, $4,679,913 and $3,804,511 in 1996, 1995 and 1994,
respectively. Of the export sales, $1,910,265, $1,794,371, and $1,273,816 in
1996, 1995 and 1994, respectively, were to customers in Western Europe. Sales to
customers in Japan were $1,619,542, $889,343, and $1,200,119 for 1996, 1995 and
1994, respectively. The Company's products are marketed outside of North America
through various independent representatives. One independent representative
accounted for approximately 16%, 14% and 13% of sales in 1996, 1995 and 1994,
respectively. Another independent representative accounted for approximately
12%, 7%, and 11% of sales in 1996, 1995, and 1994, respectively.
10. SAVINGS AND RETIREMENT PLAN
The Company has a 401(k) Savings and Retirement Plan covering substantially all
of its employees. The Company provides matching contributions in accordance with
the plan. The Company's contributions to this plan in 1996, 1995 and 1994 were
$25,608, $19,110, and $15,293, respectively.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Modern Controls, Inc.:
We have audited the accompanying consolidated balance sheets of Modern Controls,
Inc. and subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, and cash flows for each of the years in the
three-year period ended December 31, 1996. 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 Modern Controls,
Inc. and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 14 , 1997
COMMON STOCK INFORMATION
Market for Company's Common Stock and Related Stockholder Matters
As of March 14, 1997 there were 607 record holders of the Company's Common
Stock. The Company's Common Stock is traded on the national over-the-counter
market, with prices quoted on the National Association of Securities Dealers
Automated Quotation (Nasdaq) National Market System. The following table sets
forth, for the fiscal periods indicated, the high and low quotations for the
Company's Common Stock as reported by the Nasdaq National Market System.
Common Stock Trading Prices
- --------------------------------------------------------------------------------
Low High Dividends declared
- --------------------------------------------------------------------------------
1996
1st Quarter $ 9 7/8 11 7/8 .06
2nd Quarter 9 1/8 11 3/8 .06
3rd Quarter 9 7/8 12 .06
4th Quarter 9 5/8 10 3/4 .06
- --------------------------------------------------------------------------------
1995
1st Quarter $ 6 3/16 8 .05
2nd Quarter 6 3/8 9 1/4 .05
3rd Quarter 8 3/4 10 5/8 .05
4th Quarter 9 3/4 11 1/8 .06
- --------------------------------------------------------------------------------
PAGE 20
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Modern Controls, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
33-27730, 33-42255 and 33-49752) on Form S-8 of Modern Controls, Inc. of our
reports dated February 14, 1997, relating to the consolidated balance sheets of
Modern Controls, Inc. and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of income and cash flows and related financial
statement schedule for each of the years in the three-year period ended December
31, 1996, which reports appear in or are incorporated by reference in the
December 31, 1996 annual report on Form 10-K of Modern Controls, Inc.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND THE CONDENSED BALANCE SHEETS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,352,991
<SECURITIES> 4,186,066
<RECEIVABLES> 1,787,960
<ALLOWANCES> 155,000
<INVENTORY> 1,572,329
<CURRENT-ASSETS> 9,363,013
<PP&E> 2,635,521
<DEPRECIATION> 1,645,365
<TOTAL-ASSETS> 14,881,244
<CURRENT-LIABILITIES> 2,195,578
<BONDS> 0
0
0
<COMMON> 427,398
<OTHER-SE> 12,166,268
<TOTAL-LIABILITY-AND-EQUITY> 14,881,244
<SALES> 14,767,773
<TOTAL-REVENUES> 14,767,773
<CGS> 4,755,942
<TOTAL-COSTS> 4,755,942
<OTHER-EXPENSES> 5,342,969
<LOSS-PROVISION> 25,312
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,668,862
<INCOME-TAX> 1,587,000
<INCOME-CONTINUING> 3,081,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,081,862
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
</TABLE>
