<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended: November 30, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number: 0-14779
MEDIA 100 INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 04-2532613
(State or other (I.R.S. Employer
jurisdiction of Identification
organization or Number)
incorporation)
</TABLE>
290 DONALD LYNCH BOULEVARD
MARLBOROUGH, MASSACHUSETTS 01752-4748
(Address of principal executive offices, including zip code)
(508) 460-1600
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(NONE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 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 Registration S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Parts III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of voting stock held by non-affiliates of the
registrant was $27,745,151 as of February 13, 1998. The number of shares of
Common Stock outstanding, $0.01 par value, as of February 13, 1998 was
8,251,095.
DOCUMENTS INCORPORATED BY REFERENCE
The information required in response to certain portions of Part III of Form
10-K is hereby incorporated by reference to the specified portions of the
registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
on April 15, 1998.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
Media 100 Inc. (the "Company"), a Delaware corporation founded in 1973 as
Data Translation, Inc., a Massachusetts corporation, changed its state of
incorporation from Massachusetts to Delaware in September 1996 and adopted its
present name on December 2, 1996. The Company is a technology and market leader
in the market for personal computer-based digital video systems. The Media
100-Registered Trademark- family of products are digital video systems that
allow users to create complete, broadcast-quality video programs without the use
of traditional video tape equipment.
On July 30, 1996, the Company announced its intention to separate its Media
100 digital video business from its data acquisition and imaging, commercial
products and U.K.-based networking distribution businesses. The Company
announced that it would contribute its data acquisition and imaging and
commercial products businesses to a newly-formed subsidiary, Data Translation
II, Inc. ("DTI"), the stock of which would then be distributed as a dividend to
the Company's stockholders. The Company further announced that it planned to
dispose of its networking distribution business within twelve months. On
November 11, 1996, the Company sold substantially all of the assets associated
with its networking distribution business in connection with the winding up of
that business. On December 2, 1996, the Company distributed all of the shares of
DTI, to which it had contributed its data acquisition and imaging and commercial
products businesses and the remaining assets and liabilities of the networking
distribution business, as a dividend to the Company's stockholders (the
"Spin-Off"), in a ratio of one share of DTI common stock for every four shares
of Company common stock. In connection with the Spin-Off, DTI changed its name
to Data Translation, Inc. and the Company changed its name to Media 100 Inc.
In connection with the Spin-Off and the disposal of the networking
distribution business, the Company's historical financial statements and other
financial information set forth herein and in the Consolidated Financial
Statements on pages F-1 to F-19 of this Annual Report on Form 10-K, reflect the
financial position, results of operations and cash flows of the Company as
continuing operations; the related financial information of the businesses
contributed to DTI and the networking distribution business has been segregated
and reclassified as discontinued operations.
The Company reports its operations within one principal industry segment:
computer peripheral equipment. The amounts of net sales, operating profit or
loss and identifiable assets attributable to each of the Company's geographic
areas for the last three fiscal years are shown in Note 8 to the Consolidated
Financial Statements included in this Annual Report on Form 10-K.
COMPANY OVERVIEW
Media 100 products are fundamentally analog and digital conversion systems
that enable users to capture video and audio into a personal computer, perform
random-access ("nonlinear") video editing and audio mixing, and directly produce
a finished program with broadcast-quality picture and compact disc-quality
sound. By combining high output quality with simple user operation, the
Company's products are targeted to the corporate and institutional market
consisting of video program producers, including nonbroadcast users, such as
advertising agencies, independent producers, businesses, law firms,
universities, governments and hospitals. In addition to targeting existing users
of video production equipment, the Company is targeting new users who currently
out-source their video production requirements. By eliminating the need to use
comparatively complex and expensive mechanical videotape equipment to make a
video, the Company believes that Media 100 products empower these individuals to
compose finished videos largely on their own at relatively low cost.
The Company introduced its first Media 100 product in August 1993. In August
1995 the Company began shipments of version 2.5 of its Media 100 application
software which incorporated hardware that is compatible with the Peripheral
Component Interconnect (PCI) standard. In April 1996, the Company
2
<PAGE>
introduced Media 100 qx, a lower cost digital video system based on the
Company's hardware that enables users of Apple QuickTime to create
broadcast-quality video programs using Adobe Premiere editing software. In
December 1996, the Company began shipments of version 3.0 of its Media 100
application software, and introduced a Media 100 product family consisting of
six models which are intended to provide full video program authoring
capabilities over a broad price/performance spectrum. In August 1997, the
Company began shipments of version 4.0 of its Media 100 software application,
and introduced Media 100 xr, its most advanced digital video system, with the
capability of processing two streams of video data each running at high data
rates, enabling real-time transitions without loss of image quality.
MARKET
New digital video and audio technologies are changing how video and
multimedia programs are created and disseminated. Much as the desktop publishing
revolution changed the technology and economics of offset printing, and made it
possible for individuals to create easily and affordably their own publications,
new personal computer-based digital video systems are allowing an increasing
number of individuals to create complete, broadcast-quality video programs
themselves. The Company believes that, as the prices of digital video systems,
computers and hard disk memory decrease, increasing numbers of small companies
and individuals will adopt digital video technology, and digital video authoring
will become a core personal computer application much as desktop publishing is
today.
The Company believes that there are three general types of end-users of
digital media production systems, professional, corporate and institutional, and
mass market users, as described below. Within this market, the Company primarily
targets the corporate and institutional users. The Company believes that more
customers using costly, proprietary systems will eventually migrate to open
personal computer-based systems providing the same or better quality results,
such as the Media 100 product family. The Company also believes that users of
non-integrated digital video components, providing inferior output quality and
reliability, will want to upgrade to the Company's systems.
- Professional users are broadcast, television and film producers, larger
professional video post-production facilities and cable television
stations that create video programs for others or for broadcast. These
users typically spend $50,000 or more on a fully integrated video editing
system.
- Corporate and institutional users include businesses, hospitals,
advertising agencies, law firms, government agencies, colleges,
universities and smaller independent post-production facilities. These are
users who are creating videos themselves. The average cost of a fully
integrated system for a corporate or institutional user ranges between
$10,000 and $50,000.
- Mass market users are early stage users who desire to use video for
informal presentations, for consumer-type video needs or for in-house
communication within corporations or institutions. They typically are
using non-integrated components with an aggregate purchase price of
$10,000 or less.
Media 100 products are targeted primarily at the corporate and institutional
market. Many of these corporate and institutional users currently rely on analog
video tape editing processes. Digital editing alternatives are relatively new
and currently account for a small portion of this market of current users. The
Company also believes that the corporate and institutional market includes a
potential market of new users who currently out-source their video production
requirements. The Company's future growth will depend, in part, on the rate at
which existing users convert to digital editing processes and the rate at which
new users adopt digital video systems as a communications resource. For a
further discussion of the risks and uncertainties associated with the emerging
corporate and institutional market for digital video products, see "Certain
Factors That May Affect Future Results" included in Part II, Item 7 of this
Annual Report on Form 10-K.
3
<PAGE>
PRODUCTS
The Company's Media 100 products have been developed and marketed as open
systems, which means that they adhere to open systems standards such as Apple
QuickTime and the PCI bus architecture, thereby facilitating use of Media 100
products with complementary and competitive software applications, computer
peripherals and video equipment. The Company's adherence to an open system
strategy is intended to facilitate the sales of its products by allowing
customers to select off-the-shelf peripheral equipment to suit their particular
needs and to avail themselves of third party software applications in
conjunction with their Media 100 system.
The Company's digital video systems consist of hardware printed circuit
boards and related software that, when integrated with a desktop computer and
related peripherals, enable the user to capture and compress source video and
audio media and store it digitally in disk storage, perform nonlinear editing
and related effects on the digital media, and then play the edited material back
for preview, display or final recording. The Company's family of products is
intended to offer full video program authoring capabilities over a broad
price/performance spectrum. Each of these digital video systems is based on the
Company's Vincent-TM- digital video hardware engine, and is differentiated by
the related application software, which, with the exception of the Company's
most advanced product offering, enables a software-only upgrade path from the
entry systems to the advanced features and functionality of the Company's high
data rate systems.
The Company's current product offering is summarized below.
- Media 100 qx and Media 100 qx with Component enable users of Apple
QuickTime to create broadcast-quality programs using Adobe Premiere
editing software. Media 100 qx with Component delivers the additional
functionality of processing video signals in the broadcast industry
standard YUV color space, 4:2:2 digital component.
- Media 100 le offers users a complete digital video system using Media 100
application software. Media 100 le features JPEG 4:1 compression (150
kb/frame NTSC video format; 180 kb/frame PAL video format), real-time
preview dissolve, real-time preview motion effects and real-time color
effects and an integrated character generator.
- Media 100 lx offers all the features of the Media 100 le, with additional
features and functionality, including processing video signals in the
broadcast industry standard YUV color space, 4:2:2 digital component,
batch redigitizing, real-time waveform monitor/vectorscope and a
rack-mountable junction box.
- Media 100 xe offers all the features of the Media 100 lx with additional
features and functionality, including JPEG 3:1 compression (200 kb/frame
NTSC; 240 kb/frame PAL), real-time static titling, real-time keying of
graphics with alpha channel, real-time 6-track compact disc-quality audio
mixing and import/export industry-standard edit decision lists.
- Media 100 xs offers all the features of the Media 100 xe with additional
features and functionality, including JPEG 2:1 compression (300 kb/frame
NTSC; 360 kb/frame PAL), real-time preview transitions and real-time
8-track compact disc-quality audio mixing.
- Media 100 xr is the Company's most advanced digital video system. Media
100 xr includes the Vincent digital video engine and an additional
HDRfx-TM-card, which enables the system to perform all the features of the
Media 100 xs with two streams of video data each running at the highest
data rate (300 kb/frame NTSC; 360 kb/frame PAL), enabling real-time
transitions without loss of image quality.
- Platinum Support Services are a variety of technical support and service
packages offered to Media 100 users. For an annual fee, users purchase
packages with options such as toll-free telephonic technical support
(either during business hours, five days a week, or 24 hours a day, seven
days a
4
<PAGE>
week), automatic, free software updates, temporary replacement hardware,
extended warranty and a quarterly newsletter. In addition, the Company has
from time to time offered hardware upgrades, replacement hardware and new
products to Platinum subscribers at preferred prices. The Company has also
introduced the Platinum One-Stop service, in which subscribers can obtain
telephonic technical support relating to compatible third-party components
integrated with the user's Media 100 system.
The markets for the Company's products are characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions.
The Company's future success will depend in part upon its ability to enhance its
existing products and to introduce new products and features in a timely manner
to address customer requirements, respond to competitive offerings, adapt to new
emerging industry standards and take advantage of new enabling technologies that
could render the Company's existing products obsolete. In particular, the
Company is developing new products that will operate on Microsoft's Windows NT
operating system. For a further discussion of the risks and uncertainties
associated with new product development and product introductions and
transitions, see "Certain Factors That May Affect Future Results" included in
Part II, Item 7 of this Annual Report on Form 10-K.
TECHNOLOGY AND PRODUCT FEATURES
The Company has designed its products as integrated hardware and software
systems which offer high performance on a personal computer. The Company
believes the basic performance of its hardware and software produces
broadcast-quality picture and compact disc-quality sound, with an open system
design. The Company's control of the development, design and manufacturing of
both the hardware and the software of its products allows it to conform one to
the other, specifically and solely to support the user requirements of the
target market.
The Media 100 product family's core hardware includes broadcast-quality
video input and output decoder/encoder subsystems, a proprietary,
dynamically-variable JPEG compression subsystem, a 16-bit eight-track compact
disc-quality digital audio subsystem, and two high-speed 32-bit microprocessors
responsible for transferring digital audio and video data, at throughput rates
of up to 30 megabytes per second, inside the host computer's central processing
unit ("CPU"). The Company's Vincent digital video hardware engine is the primary
technical facilitator of real-time, nonlinear performance with output which
provides broadcast-quality video and compact disc-quality audio. The Company's
HDRfx card, when used in conjunction with the Vincent digital video engine,
enables the processing of a second stream of video of similar quality. The
output video is 30 frames per second, 60 fields per second (NTSC) or 25 frames
per second, 50 fields per second (PAL) and synchronized with up to eight tracks
of audio.
The software features a proprietary operating system which is unseen by
users and is integrated with the standard Apple Mac OS operating system. This
software governs base level hardware operations to ensure real-time performance,
particularly by controlling the two onboard microprocessors in concert with the
host CPU. Layered on top of this base level of software, Media 100 products
incorporate a higher level of software called application software, through
which the user controls every function of the digital video system.
The Company's products currently operate only on Apple Macintosh computers,
and the Company plans to continue its development efforts to enhance its
existing products for the Macintosh platform. For a further discussion of the
risks and uncertainties associated with the Company's current dependence on the
Apple Macintosh platform, see "Certain Factors That May Affect Future Results"
included in Part II, Item 7 of this Annual Report on Form 10-K.
SALES AND DISTRIBUTION
The Company sells its products primarily through a worldwide network of
approximately 400 independent value added resellers ("VARs") in over 50
countries. The Company also markets and sells
5
<PAGE>
software upgrades and its Platinum technical support services directly to
end-users. In the United States, the Company sells through a network of
specialized VARs who integrate and support Media 100 systems sales. For a
further discussion of the risks and uncertainties associated with the Company's
dependence on an indirect sales channel of independent VAR's, see "Certain
Factors That May Affect Future Results" included in Part II, Item 7 of this
Annual Report on Form 10-K.
Internationally, the Company has adopted the same indirect sales channel. In
the United Kingdom, France, Germany and Italy, the Company has subsidiaries
which establish VAR networks or contract with distributors who in turn establish
VAR networks of their own. Elsewhere, the Company sells through distributors,
which act as VARs or establish VAR networks in their respective territories.
Sales of Media 100 products outside of North America represented approximately
44%, 38% and 39% of the Company's net sales from continuing operations for
fiscal years 1997, 1996 and 1995, respectively. For a further discussion of the
risks and uncertainties associated with international operations, see "Certain
Factors That May Affect Future Results" included in Part II, Item 7 of this
Annual Report on Form 10-K.
COMPETITION
The digital video systems market is highly competitive with a large number
of suppliers providing different types of products, both analog-based linear
systems and digital, nonlinear systems such as the Company's products, to
different segments of the market, and is characterized by continuous pressure to
reduce prices, incorporate new features and improve functionality.
The Company encounters competition primarily from Avid Technology, Inc.,
Discreet Logic Inc., Pinnacle Systems, Inc., Scitex Corporation Ltd. and
Truevision, Inc. in both the market of professional users and the emerging
market of corporate and institutional users. In the market of professional
users, competition also comes from comparatively sized or smaller competitors,
such as Matrox Electronic Systems Ltd. and FAST Electronic GmbH, as well as from
much larger vendors, such as Matsushita Electric Industrial Company Ltd.
("Matsushita"), Sony Corporation ("Sony") and Microsoft Corporation
("Microsoft"), which have either introduced or announced plans to introduce
digital, nonlinear systems. Because the market of corporate and institutional
users is new and still evolving, it is difficult to predict future sources of
competition; however, competitors are likely to include larger vendors, such as
Matsushita, Sony and Microsoft. Many of these competitors have substantially
greater financial, technical and marketing resources than the Company. For a
further discussion of the risks and uncertainties associated with the
competitive landscape for the Company's products, see "Certain Factors That May
Affect Future Results" included in Part II, Item 7 of this Annual Report on Form
10-K.
RESEARCH AND DEVELOPMENT
The Company invests in research and development for new products and for
enhancements to its existing products. The Company employed, as of February 13,
1998, 57 full-time employees whose primary duties relate to product development.
Outside firms and consultants are selectively engaged to develop or assist with
development of products when favorable opportunities exist. In order to compete
successfully, the Company must attract and retain qualified personnel and
maintain a program of improvement of existing products, as well as the
development of new products. For a further discussion of the risks and
uncertainties associated with new product development, see "Certain Factors That
May Affect Future Results" included in Part II, Item 7 of this Annual Report on
Form 10-K.
For the fiscal years ended November 30, 1997, 1996 and 1995, the Company
invested approximately $8,508,000, $6,227,000 and $4,806,000 on the development
of enhancements to its Media 100 products and the development of new Media 100
products.
6
<PAGE>
MANUFACTURING
The Company's manufacturing operations consist primarily of manufacturing
and testing of printed circuit assemblies, final product assembly, quality
assurance and shipping, and are conducted at its facility located in Marlboro,
Massachusetts. The Company believes that its control of manufacturing
significantly contributes to hardware design improvements, allows for quicker
development of products for shipment to market, and results in superior product
quality. The Company periodically assesses its production efficiencies against
the benefits of out-sourcing certain hardware production.
Components used in the assembly of the Company's hardware products are
generally available from several distributors and manufacturers. However, the
Company is dependent on single or limited source suppliers for several key
components used in its products that have no ready substitutes, including
various audio and video signal processing integrated circuits manufactured in
each case only by Crystal Semiconductor Corp., Raytheon Company, LSI Logic
Corp., Philips Semiconductors or Zoran Corp. The availability of many of these
components is dependent on the Company's ability to provide suppliers with
accurate forecasts of its future requirements, and certain components used by
the Company have been subject to industry-wide shortages. For a further
discussion of the risks and uncertainties associated with the Company's
dependence on single or limited source suppliers, see "Certain Factors That May
Affect Future Results" included in Part II, Item 7 of this Annual Report on Form
10-K.
PROPRIETARY RIGHTS
The Company's ability to compete successfully and achieve future revenue
growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing the rights of others. The Company
relies on a combination of patent, copyright, trademark and trade secret laws
and other intellectual property protection methods to protect its proprietary
technology. In addition, the Company generally enters into confidentiality
agreements with its employees and with third parties with whom it shares its
proprietary information, and limits access to and distribution of such
information. The Company owns four United States patents, expiring in 2013, and
has five pending patent applications in the United States, none of which the
Company believes is material. Although the Company pursues a policy of obtaining
patents for appropriate inventions, the Company believes that its success
depends primarily on the proprietary know-how, innovative skills, technical
competence and marketing abilities of its employees, rather than upon the
ownership of patents.
Certain technology used in the Company's products is licensed from third
parties on a royalty-bearing basis. Such royalties have not been, and are not
expected to be, material. Generally, such agreements grant to the Company
non-exclusive, worldwide rights to the subject technology and are either
renewable on a periodic basis or provide for fully paid-up non-cancellable
rights upon the receipt of certain aggregate payments. In certain cases the
licensor may terminate the license for convenience, although the Company
believes that the effect of any such termination would not be material.
For a further discussion of the risks and uncertainties associated with
proprietary rights in the Company's industry and certain pending litigation, see
Item 3 and "Certain Factors That May Affect Future Results" included in Part II,
Item 7 of this Annual Report on Form 10-K.
BACKLOG
Most customers order products on an as-needed basis relying, in the case of
most products, on the Company's five-day delivery capability. As a result, the
Company believes that its backlog at any point in time is not indicative of its
future sales.
7
<PAGE>
EMPLOYEES
As of February 13, 1998, the Company employed approximately 180 persons
worldwide. None of the employees is represented by a labor union. The Company
believes it has good relations with its employees.
Competition for employees with the skills required by the Company is intense
in the geographic areas in which the Company's operations are located. The
Company believes that its future success will depend on its continued ability to
attract and retain qualified employees, especially in research and development.
OTHER
Media 100, Vincent, Gaudi, HDRfx and Platinum are trademarks of Media 100
Inc. and may be registered in certain jurisdictions. All other trademarks and
registered trademarks are the property of their respective holders, and are
hereby acknowledged.
ITEM 2. PROPERTIES
The Company's principal executive, engineering, manufacturing and sales
operations occupy approximately 56,500 square feet in a leased facility located
at 290 Donald Lynch Boulevard, Marlboro, Massachusetts. The lease for this
facility terminates on March 31, 2002. Prior to moving into its current facility
on May 2, 1997, the Company's operations occupied approximately 31,000 square
feet in a facility which it shared with DTI located in Marlboro, Massachusetts.
Total rental expense charged to continuing operations with respect to the
Company's current Marlboro facility for fiscal year 1997 was $320,000, and with
respect to its former Marlboro facility was $527,000, $546,000 and $459,000 for
each of the fiscal years 1997, 1996 and 1995, respectively. Rental expense with
respect to the former Marlboro facility for fiscal 1997 reflected the Company's
pro rata portion of the rental charges and operating expenses associated with
that facility and the use by the Company of certain manufacturing equipment
belonging to DTI. The Company also occupies sales and customer support
facilities in or near Paris, France; Bracknell, England; Munich, Germany; and
Brescia, Italy.
ITEM 3. LEGAL PROCEEDINGS
On June 7, 1995, a lawsuit was filed against the Company by Avid Technology,
Inc. ("Avid") in the United States District Court for the District of
Massachusetts. The complaint generally alleges patent infringement by the
Company arising from the manufacture, sale, and use of the Company's Media 100
products. The complaint includes requests for injunctive relief, treble damages,
interest, costs and fees. In July 1995, the Company filed an answer and
counterclaim denying any infringement and asserting that the Avid patent in
question is invalid. The Company intends to vigorously defend the lawsuit. In
addition, Avid is seeking reissue of the patent, including claims that it
asserts are broader than in the existing patent, and these reissue proceedings
remain pending before the U.S. Patent and Trademark Office. On January 16, 1998,
the court dismissed the lawsuit without prejudice to either party moving to
restore it to the docket upon completion of all matters pending before the U.S.
Patent and Trademark Office. There can be no assurance that the Company will
prevail in the lawsuit asserted by Avid or that the expense or other effects of
the lawsuit, whether or not the Company prevails, will not have a material
adverse effect on the Company's business, operating results and financial
condition.
From time to time the Company is involved in other disputes and/or
litigation encountered in its normal course of business. The Company does not
believe that the ultimate impact of the resolution of such other outstanding
matters will have a material effect on the Company's business, operating results
or financial condition.
8
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders during the fourth
quarter of fiscal year 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of the Company trades on the National Market tier of The
Nasdaq Stock Market under the symbol "MDEA." The following table sets forth, for
the periods indicated, the high and low sales prices per share of the Company's
common stock as reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal year ended November 30,
1996:
First Quarter................................................................................... $ 21 10 3/4
Second Quarter.................................................................................. $ 28 3/4 13 1/4
Third Quarter................................................................................... $ 28 1/4 7 3/4
Fourth Quarter.................................................................................. $ 12 1/2 7 7/8
1997:
First Quarter................................................................................... $ 11 5/8 7
Second Quarter.................................................................................. $ 7 5/8 5 1/8
Third Quarter................................................................................... $ 6 7/8 4 1/8
Fourth Quarter.................................................................................. $ 6 7/8 4 1/2
</TABLE>
The last reported sale price per share of the Company's common stock as
reported on the Nasdaq National Market on February 13, 1998 was $3.438. As of
February 13, 1998, there were 293 stockholders of record, and the Company
believes that as of such date there were approximately 2,600 beneficial owners
of the Company's common stock, based upon information provided by the Company's
transfer agent. The Company has never paid a cash dividend on its common stock,
and the Board of Directors does not anticipate paying cash dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with, and are
qualified in their entirety by, the Company's consolidated financial statements,
related notes and other financial information included herein.
9
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NOVEMBER 30,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Total net sales............................................ $ 46,660 $ 50,826 $ 30,278 $ 12,415 $ 1,118
Cost of sales.............................................. 18,238 20,046 12,711 5,127 536
--------- --------- --------- --------- ---------
Gross profit............................................. 28,422 30,780 17,567 7,288 582
Operating expenses:
Research and development................................. 8,508 6,227 4,806 3,780 3,227
Sales and marketing...................................... 16,061 15,066 9,088 4,657 1,832
General and administrative............................... 4,330 5,034 2,024 997 112
Restructuring expense.................................... 526 -- -- -- --
--------- --------- --------- --------- ---------
Total operating expenses............................... 29,425 26,327 15,918 9,434 5,171
--------- --------- --------- --------- ---------
Income (loss) from operations.......................... (1,003) 4,453 1,649 (2,146) (4,589)
Interest income............................................ 1,781 1,588 771 151 228
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before tax
provision.............................................. 778 6,041 2,420 (1,995) (4,361)
Tax provision (benefit).................................... 161 1,208 75 36 (33)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations................... 617 4,833 2,345 (2,031) (4,328)
--------- --------- --------- --------- ---------
Discontinued operations:
Income (loss) from discontinued operations of Data
Translation II, Inc.................................... 0 (6,672) 2,426 2,351 30
--------- --------- --------- --------- ---------
Net income (loss)...................................... $ 617 $ (1,839) $ 4,771 $ 320 $ (4,298)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income (loss) per common and common equivalent share from
continuing operations.................................... $ 0.07 $ 0.57 $ 0.35 $ (0.43) $ (1.02)
Income (loss) per common and common equivalent share from
discontinued operations.................................. $ 0.00 $ (0.79) $ 0.36 $ 0.49 $ 0.01
--------- --------- --------- --------- ---------
Net income (loss) per common and common equivalent share... $ 0.07 $ (0.22) $ 0.71 $ 0.07 $ (1.01)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of common and common equivalent
shares outstanding....................................... 8,247 8,470 6,701 4,764 4,256
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NOVEMBER 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash, cash equivalents and marketable securities................................. $ 32,934 $ 30,716 $ 35,161
Working capital.................................................................. 29,146 34,496 39,143
Total assets..................................................................... 50,759 59,990 51,123
Total stockholders' equity....................................................... 37,843 50,065 46,741
</TABLE>
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Media 100 Inc. (the "Company") is a technology and market leader in the
market for personal computer-based digital video systems. The Media 100 family
of products are analog and digital conversion systems that enable users to
capture video and audio into a personal computer, perform random access
("nonlinear") video editing and audio mixing, and directly produce a finished
program with broadcast-quality picture and compact disc-quality sound, all
without the use of traditional video tape equipment.
On July 30, 1996, the Company announced its intention to separate its Media
100 digital video business from its data acquisition and imaging, commercial
products and U.K.-based networking distribution businesses. The Company
announced that it would contribute its data acquisition and imaging and
commercial products businesses to a newly-formed subsidiary, Data Translation
II, Inc. ("DTI"), the stock of which would then be distributed as a dividend to
the Company's stockholders. The Company further announced that it planned to
dispose of its networking distribution business within twelve months. On
November 11, 1996, the Company sold substantially all of the assets associated
with its networking distribution business in connection with the winding up of
that business. On December 2, 1996, the Company distributed all of the shares of
DTI, to which it had contributed its data acquisition and imaging and commercial
products businesses and the remaining assets and liabilities of the networking
distribution business, as a dividend to the Company's stockholders (the
"Spin-Off"), in a ratio of one share of DTI common stock for every four shares
of Company common stock. In connection with the Spin-Off, DTI changed its name
to Data Translation, Inc. and the Company changed its name to Media 100 Inc.
In connection with the Spin-Off and the disposal of the networking
distribution business, the Company's historical financial statements and other
financial information reflect the financial position, results of operations and
cash flows of the Company as continuing operations; the related financial
information of the businesses contributed to DTI and the networking distribution
business has been segregated and reclassified as discontinued operations.
The Company believes that there are three general types of end-users of
digital media production systems, professional, corporate and institutional, and
mass market users. Within this market, the Company primarily targets the
corporate and institutional users. Many of these corporate and institutional
users currently rely on analog video tape editing processes. Digital editing
alternatives are relatively new and currently account for a small portion of
this market of current users. The Company also believes that the corporate and
institutional market includes a potential market of new users who currently
out-source their video production requirements.
In December 1996, the Company began shipments of six new Media 100 products,
each of which is based on the Company's Vincent digital video hardware engine,
and is differentiated by the related software, which, with the exception of the
Company's most advanced product offering, enables a software-only upgrade path
from the entry systems to the advanced features and functionality of the
Company's high data rate systems. Prior to the introduction of these new
products, the Company sold its hardware and software products separately, with
options for the customer to bundle them in various configurations. With the
introduction of the new products, the Company now sells its hardware and
software as a family of integrated systems that is intended to provide full
video program authoring capabilities over a broad price/ performance spectrum.
In August 1997, the Company began shipments of version 4.0 of its Media 100
software application, and introduced Media 100 xr, its most advanced digital
video system. Media 100 xr includes the Company's Vincent digital video engine
and an additional HDRfx card, which enables the system to process two streams of
video data each running at high data rates, enabling real-time transitions
without loss of image quality.
The Company sells its products primarily through a worldwide network of
approximately 400 independent value added resellers ("VARs") who integrate and
support Media 100 systems sales. The
11
<PAGE>
Company also markets and sells software upgrades and its Platinum technical
support services directly to end-users.
RESULTS OF OPERATIONS
The following table sets forth for the years indicated certain consolidated
statements of operations data as a percentage of net sales.
FISCAL YEARS ENDED NOVEMBER 30,
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CONTINUING OPERATIONS
Net sales.......................................................................... 100.0% 100.0% 100.0%
Cost of sales...................................................................... 39.1 39.4 42.0
--------- --------- ---------
Gross profit..................................................................... 60.9 60.6 58.0
--------- --------- ---------
Operating expenses:
Research and development expenses................................................ 18.2 12.3 15.9
Selling and marketing expenses................................................... 34.4 29.6 30.0
General and administrative expenses.............................................. 9.3 9.9 6.7
Restructuring expenses........................................................... 1.1 0.0 0.0
--------- --------- ---------
Total operating expenses..................................................... 63.0 51.8 52.6
Operating income (loss)............................................................ (2.1) 8.8 5.4
Interest income (expense) and other, net........................................... 3.8 3.1 2.5
--------- --------- ---------
Income (loss) before income taxes.................................................. 1.7 11.9 7.9
Provision for income taxes......................................................... 0.4 2.4 0.2
--------- --------- ---------
Income (loss) from continuing operations........................................... 1.3% 9.5% 7.7%
--------- --------- ---------
--------- --------- ---------
</TABLE>
COMPARISON OF FISCAL 1997 TO FISCAL 1996
NET SALES. The Company's net sales for fiscal 1997 decreased 8.2% to $46.7
million from $50.8 million for fiscal 1996. The decline is due primarily to
lower average selling prices for the Company's Media 100 products and a higher
percentage of the Company's units sales coming from its entry-level systems. The
Company derived a substantial portion of its fiscal 1997 net sales from the
introduction of several new products to the market and discontinued the sales of
several other of its Media 100 products, as described above under "Overview".
In response to competitive pressures, the Company reduced the selling price
of several of its products including Media 100 qx by $2,000 to $1,995, Media 100
qx with component by $2,000 to $3,995, Media 100 xe by $2,000 to $12,995 and
Media 100 xs by $7,000 to $14,995. These pricing actions resulted in lower
average selling prices for the Company's products and resulted in lower total
net sales for fiscal 1997; however, the lower selling prices allowed the Company
to increase the total number of systems sold over fiscal 1996.
The Company currently anticipates that sequential growth in quarterly
revenues of the Company will not occur until new products based on the Windows
NT platform have been introduced by the Company and have gained market
acceptance. The Company has announced that it plans to significantly increase
research and development expenditures in fiscal 1998 over fiscal 1997 to support
the development of products running on the Windows NT platform. The Company
currently anticipates that the first of these products will become commercially
available during the latter half of fiscal 1998; however, there can be no
12
<PAGE>
assurance these products will ship and if they do that they will generate
significant net sales for the Company.
Net sales from customers outside of North America accounted for
approximately 44% of net sales in fiscal 1997 compared to approximately 38% in
fiscal 1996. The Company is continuing to develop its indirect distribution
channels in North America, Europe and Asia and currently anticipates that
customers outside North America will continue to account for a substantial
portion of its net sales, and as a percentage of net sales, to remain
approximately the same. No customer accounted for more than 10% of the Company's
total net sales in fiscal 1997.
GROSS PROFIT. The Company's gross profit decreased 7.7% to $28.4 million in
fiscal 1997 from $30.8 million in fiscal 1996. The decrease is due to the lower
net sales mentioned above. The gross profit as a percentage of net sales
increased to 60.9% in fiscal 1997 from 60.6% in fiscal 1996. The increase in the
gross profit as a percentage of total net sales is due to reductions in the cost
of key component parts used in the manufacture of the Media 100 hardware which
more than offset the lower average selling prices of the Company's products.
The Company currently anticipates continued pressure to reduce prices for
the Company's Media 100 products which may negatively impact the gross profit as
a percentage of net sales of the Company. If these price reductions are not
offset with lower component costs or if the Company is unable to sell a higher
percentage of its higher margin products there can be no assurance the Company
will be able to maintain these gross profit levels as a percentage of net sales.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 36.6%
to $8.5 million in fiscal 1997 from $6.2 million in fiscal 1996. Research and
development expenses consist primarily of the cost of research and development
personnel, depreciation on research and development capital equipment, occupancy
and outside consulting services. The Company capitalizes certain computer
software development costs. Capitalization of costs commences upon establishing
technological feasibility. Capitalized costs as of November 30, 1997 and 1996
were approximately $89,000 and $104,000, respectively. These costs are amortized
on a straight-line basis over two years, which approximates the economic life of
the product. The remainder of the research and development expenses are expensed
as incurred. Certain research and development expenditures for new products are
incurred considerably in advance of anticipated net sales related to these
products and in some cases do not generate any net sales. The Company has
announced that it plans to significantly increase its research and development
spending in fiscal 1998 over fiscal 1997 to support the development of products
running on the Windows NT platform. This increase relates to additional research
and development personnel, outside services, consultants and depreciation on
capital equipment in support of these research and development projects.
SALES AND MARKETING. Sales and marketing expenses increased 6.6% to $16.1
million in fiscal 1997 from $15.1 million in fiscal 1996. Sales expenses consist
primarily of salaries and related benefits, commissions, travel, occupancy and
depreciation on capital equipment. Marketing expenses consist primarily of
salaries and related benefits, trade shows, seminars, advertising, sales
literature and lead generation activities. The increase in sales and marketing
expenses relate primarily to expansion of the Company's support for its indirect
distribution channel in Europe. The Company currently anticipates that its sales
and marketing expenses will remain relatively flat in fiscal 1998 compared to
fiscal 1997 and are not currently planned to increase significantly until the
Company begins shipping new products on the Windows NT platform. The Company
will continue to attend industry trade shows to market and promote its products,
however the Company has no plans to significantly increase the number or trade
shows it attends or the amount of money it spends on the trade shows it will
attend.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
14.0% to $4.3 million in fiscal 1997 from $5.0 million in fiscal 1996. General
and administrative expenses include the cost of human resources, finance,
information technology, legal and other administrative functions of the Company.
The
13
<PAGE>
decrease in general and administrative expenses resulted primarily from lower
legal expenses for the defense of patent infringement litigation, as discussed
in Note 6 to the Consolidated Financial Statements. The Company currently
anticipates that its general and administrative expenses will remain relatively
flat in fiscal 1998 compared to fiscal 1997.
RESTRUCTURING EXPENSE. The Company incurred restructuring expenses of
$526,000 in its third quarter of fiscal 1997 for severance and related costs
associated with a reduction of the Company's workforce. Substantially all of
these expenses have been paid out as of the end of the Company's first quarter
of fiscal 1998 and the Company anticipates that any further expenses associated
with this reduction in its workforce will be insignificant.
INTEREST INCOME. Interest income increased 12.2% to $1.8 million in fiscal
1997 from $1.6 million in fiscal 1996. The increase in interest income is due to
higher cash balances in fiscal 1997 versus 1996 due to the generation of
positive cash flow from operations in fiscal 1997. The Company currently
anticipates interest income will decline in fiscal 1998 as a portion of its cash
balance is used to fund the increase in research and development expenditures
mentioned previously.
TAX PROVISION. The tax provision decreased 86.7% to $0.2 million in fiscal
1997 from $1.2 million in fiscal 1996. The lower tax provision reflects
utilization of research and development tax credit carryforwards and lower
income from operations in fiscal 1997. The Company anticipates that its tax
provision in fiscal 1998 will be minimal due to the significant planned increase
in research and development expenditures and the Company's belief that fiscal
1998 sales will remain relatively flat compared to fiscal 1997.
NET INCOME (LOSS). Income for fiscal 1997 was $617,000, or $0.07 per share,
compared to income from continuing operations for fiscal 1996 of $4,833,000, or
$0.57 per share. Income from discontinued operations for fiscal 1997 was $0,
compared to a loss from discontinued operations for fiscal 1996 of $6,672,000,
or $0.79 per share. Of the $6,672,000 loss from discontinued operations,
expenses related to the Spin-Off accounted for $1,500,000 and the loss on
disposal of the networking distribution business was approximately $2,513,000.
COMPARISON OF FISCAL 1996 TO FISCAL 1995
NET SALES. The Company's net sales for fiscal 1996 increased 67.9% to $50.8
million from $30.3 million for fiscal 1995. The increase was due to higher unit
sales of Media 100, the introduction of a new lower cost product, Media 100 qx,
and initial shipments of Gaudi, the Company's advanced digital video effects
product. Shipments of Media 100 qx began in April 1996 and Gaudi in November
1996.
Net sales from customers outside of North America accounted for
approximately 38% of net sales in fiscal 1996 compared to approximately 39% in
fiscal 1995. No customer accounted for more than 10% of the Company's net sales
in fiscal 1996.
GROSS PROFIT. The Company's gross profit increased 75.2% to $30.8 million
in fiscal 1996 from $17.6 million in fiscal 1995. The increase was due primarily
to the higher net sales mentioned above. The gross profit as a percentage of net
sales increased to 60.6% in fiscal 1996 from 58.0% in fiscal 1995. The increase
in the gross profit as a percentage of net sales was due to reductions in the
cost of key component parts used in the manufacture of the Media 100 hardware
and a favorable mix of software sales relative to hardware sales.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 29.6%
to $6.2 million in fiscal 1996 from $4.8 million in fiscal 1995. Research and
development expenses consist primarily of the cost of research and development
personnel, depreciation on research and development capital equipment, occupancy
and outside consulting services. The Company capitalizes certain computer
software development costs. Capitalization of costs commences upon establishing
technological feasibility. Capitalized costs as of November 30, 1996 and 1995
were approximately $104,000 and $84,000, respectively. These
14
<PAGE>
costs are amortized on a straight-line basis over two years, which approximates
the economic life of the product. The remainder of the research and development
expenses are expensed as incurred. Certain research and development expenditures
for new products are incurred considerably in advance of anticipated net sales
related to these products and in some cases do not generate any net sales.
SALES AND MARKETING. Sales and marketing expenses increased 65.8% to $15.1
million in fiscal 1996 from $9.1 million in fiscal 1995. Sales expenses consist
primarily of salaries and related benefits, commissions, travel, occupancy and
depreciation on capital equipment. Marketing expenses consist primarily of
salaries and related benefits, trade shows, seminars, advertising, sales
literature and lead generation activities. The increase in sales and marketing
expenses relate primarily to expansion of the Company's support for its indirect
distribution channel and increased lead generation activities such as seminars
and direct mail and increased advertising expenses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
148.7% to $5.0 million in fiscal 1996 from $2.0 million in fiscal 1995. General
and administrative expenses include the cost of human resources, finance,
information technology, legal and other administrative functions of the Company.
The increase in general and administrative expenses resulted primarily from
higher legal expenses for the defense of patent infringement litigation, as
discussed in Note 6 to the Consolidated Financial Statements, and increased
administrative expenses to support significantly higher net sales.
INTEREST INCOME. Interest income increased 106.0% to $1.6 million in fiscal
1996 from $0.8 million in fiscal 1995. The increase in interest income was due
to higher cash balances in fiscal 1996 versus 1995 as a result of a public
offering of the Company's common stock in November 1995 and from positive cash
flow generated from operations in fiscal 1996.
TAX PROVISION. The tax provision increased 1,510.7% to $1.2 million in
fiscal 1996 from $0.1 million in fiscal 1995. The higher tax provision reflects
a significant increase in income from operations in fiscal 1996 from fiscal
1995. The Company utilized available research and development tax credit
carryforwards and other business tax credits available for use against taxable
income which reduced its tax rate below the statutory rate.
NET INCOME (LOSS). Income from continuing operations for fiscal 1996 was
$4,833,000, or $0.57 per share, compared to $2,345,000, or $0.35 per share, for
the prior fiscal year. Loss from discontinued operations for fiscal year 1996
was $6,672,000, or $0.79 per share, compared to net income of $2,426,000, or
$0.36 per share, for the prior fiscal year. Of the $6,672,000 loss from
discontinued operations, expenses related to the Spin-Off accounted for
$1,500,000 and the loss on disposal of the networking distribution business was
estimated at $2,513,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily from public
offerings of equity securities and cash flows from operations. As of November
30, 1997 the Company's principal sources of liquidity included cash and cash
equivalents and marketable securities totaling approximately $32,934,000.
During fiscal 1997, cash provided by continuing operating activities was
approximately $9,819,000 compared to cash provided by continuing operating
activities of approximately $5,897,000 for the same period a year ago. Cash was
generated during fiscal 1997 from reductions in accounts receivable of
$3,976,000 and inventory of $777,000 and increases in deferred revenue of
$1,852,000 and accounts payable, accrued and prepaid expenses of $964,000. In
addition, net income provided $617,000 and depreciation and amortization
provided $1,614,000. Net cash used in investing activities was approximately
$8,742,000 in fiscal 1997 compared to approximately $23,314,000 (primarily for
purchases of marketable securities) for the same period a year ago. Cash used in
investing activities during 1997 was primarily for purchases of capital
equipment and leasehold improvements associated with the Company's move to its
new facility in May 1997 of approximately $7,251,000 and net purchases of
marketable securities of
15
<PAGE>
approximately $1,010,000. Cash provided by financing activities during 1997 was
approximately $442,000 compared to $4,812,000 for the same period a year ago.
All of the cash provided by financing activities in fiscal 1997 came from
proceeds from the Company's stock plans.
The Company believes its existing cash balance, including cash equivalents
and marketable securities, will be sufficient to meet the Company's cash
requirements for at least the next twelve months.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Except for the historical information contained herein, the matters
discussed in this Annual Report on Form 10-K are forward-looking statements, and
are based on current expectations, and involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from those expressed in such forward-looking statements. The risks and
uncertainties associated with such statements include the following:
The Company's quarterly operating results may vary significantly for a
number of reasons, including new product announcements and introductions by the
Company or its competitors, changes in pricing, and the volume and timing of
orders received during the quarter. Historically one-half or more of each
quarter's revenue has resulted from orders booked and shipped during the third
month, a substantial portion of which occur in the latter half of that month.
The Company has also in the past experienced delays in the development of new
products and enhancements, and such delays may occur in the future. These
factors make the forecasting of revenue inherently uncertain. Additionally, a
significant portion of the Company's operating expenses is relatively fixed,
and operating expense levels are based primarily on internal expectations of
future revenue. As a consequence, quarterly operating expense levels cannot be
reduced rapidly in the event that quarterly revenue levels fail to meet internal
expectations. Therefore, if quarterly revenue levels fail to meet internal
expectations, the Company's operating results would be adversely affected.
All of the Company's sales relate to a single family of products, Media 100
digital video systems. A decline in demand for Media 100 systems, or a failure
of such systems to maintain market acceptance, as a result of competition,
technological change or other factors, would have a material adverse effect on
the Company's business and operating results.
The Company's products currently operate only on Apple Macintosh computers.
Apple Computer Inc. has suffered business and financial difficulties during the
past several years. In addition, the Company believes that the market of users
of the Company's products increasingly views Microsoft's Windows NT operating
system as an alternative platform for new digital video products. As a result of
the foregoing, there can be no assurance that resellers and customers will not
delay purchases of Apple-based products or purchase substitute products based on
non-Macintosh operating systems, the occurrence of any of which could have a
material adverse effect on the Company's business and operating results. The
Company currently anticipates sequential growth in quarterly revenues of the
Company will not occur until new products based on the Windows NT platform have
been introduced by the Company and have gained market acceptance.
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions.
The Company's future success will depend in part upon its ability to enhance its
existing products and to introduce new products and features in a timely manner
to address customer requirements, respond to competitive offerings, adapt to new
emerging industry standards and take advantage of new enabling technologies that
could render the Company's existing products obsolete. In this regard, the
Company is developing new products that will operate on the Windows NT platform.
The Company currently anticipates that the first of these new products will
become commercially available during the latter half of the Company's current
fiscal year. The Company also plans in fiscal 1998 to significantly increase its
investment in research and development over prior levels,
16
<PAGE>
primarily in connection with the development of new Windows NT-based hardware
and software products. As a result of this increased investment, the Company
currently expects that it will generate a net loss from operations for fiscal
year 1998. Any delay or failure of the Company in developing such additional new
products or any delay or failure of such new products to achieve market
acceptance, as a result of competition, blocking proprietary rights of third
parties or other factors, could have a material adverse effect on the Company's
business and operating results.
New product announcements by the Company's competitors and by the Company
itself could have the effect of reducing customer demand for the Company's
existing products. The introduction of new or enhanced products by the Company
also requires the Company to manage the transitions from existing products. New
product introductions require the Company to devote time and resources to the
training of its sales channel in the features and target customers for such new
products, which efforts could result in less selling efforts being made by the
sales channel during such training period. New product announcements or
introductions could contribute to significant quarterly fluctuations in
operating results as orders for new products commence and orders for existing
products decline.
The Company's ability to compete successfully and achieve future revenue
growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing the rights of others. The Company has
in the past received, and may in the future continue to receive, communications
suggesting that its products may infringe patents or other intellectual property
rights of third parties. The Company's policy is to investigate the factual
basis of such communications and negotiate licenses where appropriate. While it
may be necessary or desirable in the future to obtain licenses relating to one
or more products, or relating to current or future technologies, there can be no
assurance that the Company will be able to do so on commercially reasonable
terms or at all. There can be no assurance that these or other future
communications can be settled on commercially reasonable terms or that they will
not result in protracted and costly litigation.
There has been substantial industry litigation regarding patent, trademark
and other intellectual property rights involving technology companies. In the
future, litigation may be necessary to enforce any patents issued to the Company
or to enforce trade secrets, trademarks and other intellectual property rights
owned by the Company, to defend the Company against claimed infringement of the
rights of others and to determine the scope and validity of the proprietary
rights of others. For a description of certain pending litigation instituted
against the Company, see Note 6 to the Consolidated Financial Statements. Any
such litigation could be costly and a diversion of management's attention, which
could adversely affect the Company's business, operating results and financial
condition. Adverse determinations in any such litigation could result in the
loss of the Company's proprietary rights, subject the Company to significant
liabilities, require the Company to seek licenses from third parties or prevent
the Company from manufacturing or selling its products, any of which could
adversely affect the Company's business, operating results and financial
condition.
The corporate and institutional market to which the Company is targeting its
products is an emerging market. Many of the current users in this market rely on
analog video tape processes. Digital editing alternatives are relatively new and
currently account for a small portion of this market of current users. The
Company also believes that this market includes a potential market of new users
who currently out-source their video production requirements. The Company's
future growth will depend, in part, on the rate at which existing users convert
to digital editing processes and the rate at which new users adopt digital video
systems as a communications resource. There can be no assurance that the use of
digital video products like Media 100 will expand among existing users of
alternative video production processes or the market for new users, and any
failure of the Company's products to achieve market acceptance in these markets,
as a result of competition, technological change or other factors, could have a
material adverse effect on the Company's business and operating results.
17
<PAGE>
The market for the Company's products is highly competitive and
characterized by pressure to reduce prices, incorporate new features and
accelerate the release of new products. A number of companies currently offer
products that compete directly or indirectly with the Company's products,
including Avid Technology, Inc., Discreet Logic Inc., Pinnacle Systems, Inc.,
Scitex Corporation Ltd., Truevision, Inc., Matrox Electronic Systems Ltd. and
FAST Electronic GmbH. In addition, the Company expects much larger vendors, such
as Matsushita Electric Industrial Company Ltd., Sony Corporation and Microsoft
Corporation, to develop and introduce digital editing systems that may compete
with the Company's products. Many of these current and potential competitors
have greater financial, technical and marketing resources than the Company. As a
result, such competitors may be able to develop products comparable to or
superior to the Company's products, adapt more quickly than the Company to new
technologies, evolving industry standards or customer requirements, or lower
their product costs and thus be able to lower prices to levels at which the
Company could not operate profitably, the occurrence of any of which could have
a material adverse effect on the Company's business and operating results. In
this regard, the Company believes that it will continue to experience
competitive pressure to reduce prices, particularly for its high data rate
systems. The Company has historically realized higher gross profit on the sale
of its high data rate systems than its entry-level systems, and such continued
competitive pricing pressure could result in lower sales and gross margin, which
in turn could adversely affect the Company's operating results.
The Company is dependent on single or limited source suppliers for several
key components used in its products. The availability of many of these
components is dependent on the Company's ability to provide suppliers with
accurate forecasts of its future requirements, and certain components used by
the Company have been subject to industry-wide shortages. The Company does not
carry significant inventories of these components and has no guaranteed supply
arrangements with such suppliers. There can be no assurance that the Company's
inventories would be adequate to meet the Company's production needs during any
interruption of supply. The Company's inability to develop alternative supply
sources, if required, or a reduction or stoppage in supply, could delay product
shipments until new sources of supply become available, and any such delay could
adversely affect the Company's business and operating results in any given
period.
The Company relies primarily on its worldwide network of independent VARs to
distribute and sell its products to end users. The Company's resellers generally
offer products of several different companies, including in some cases products
which are competitive with the Company's products. In addition, many of these
VARs are small organizations with limited capital resources. There can be no
assurance that the Company's resellers will continue to purchase the Company's
products or provide them with adequate levels of support, or that the Company's
efforts to expand its VAR network will be successful, any significant failure of
which could have a material adverse effect on the Company's business and
operating results.
Sales of Media 100 products outside of North America represented
approximately 44% of the Company's net sales for the fiscal year ended November
30, 1997. International sales and operations may be subject to risks such as the
imposition of government controls, export license requirements, restrictions on
the export of critical technology, less effective enforcement of proprietary
rights; currency exchange fluctuations, generally longer collection periods,
political instability, trade restrictions, changes in tariffs, difficulties in
staffing and managing international operations, potential insolvency of
international resellers and difficulty in collecting accounts receivable. The
Company's international sales are also subject to more seasonal fluctuation than
domestic sales. In this regard, the traditional summer vacation period, which
occurs during the Company's third fiscal quarter, may result in a decrease in
sales, particularly in Europe. There can be no assurance that these factors will
not have an adverse effect on the Company's future international operations and
consequently, on the Company's business and operating results.
As a result of the Spin-Off, the Company currently obtains certain
information systems support from DTI, and currently anticipates that it will
continue to rely on DTI for such support into the latter half of fiscal 1998
while it implements new information systems of its own. Any delay in
implementing the
18
<PAGE>
Company's new information systems, or any delay or failure of DTI to provide
adequate information systems support prior to the time that the Company's new
systems become fully implemented, if significant, could have an adverse effect
on the Company's business and operating results, particularly during any period
that the transition from DTI's systems to the Company's new systems occurs.
Competition for employees with the skills required by the Company is intense
in the geographic areas in which the Company's operations are located. The
Company believes that its future success will depend on its continued ability to
attract and retain qualified employees, especially in research and development.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements, together with the auditors' report
thereon, appear on pages F-1 through F-19 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The Company will furnish to the Securities and Exchange Commission not later
than 120 days after the close of its fiscal year ended November 30, 1997 a
definitive Proxy Statement (the "Proxy Statement") for the Annual Meeting of
Stockholders to be held on April 15, 1998. The information required by this Item
is incorporated herein by reference to "Election of Directors," "Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to
"Election of Directors" and "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to
"Certain Relationships and Related Transactions" in the Proxy Statement.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) (1) Consolidated Financial Statements.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
MEDIA 100 INC. AND SUBSIDIARIES
Report of Independent Public Accountants............................................... F-2
Consolidated Balance Sheets as of November 30, 1997 and 1996........................... F-3
Consolidated Statements of Operations for the Fiscal Years Ended
November 30, 1997, 1996 and 1995..................................................... F-4
Consolidated Statement of Stockholders' Equity for the Fiscal Years Ended November 30,
1997, 1996 and 1995.................................................................. F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended
November 30, 1997, 1996 and 1995..................................................... F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
(a) (2) Financial Statement Schedules.
Not applicable.
(a) (3) List of Exhibits.
Exhibits required as part of this Annual Report on Form 10-K are listed
in the exhibit index on page X-1.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Media 100 Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on February 27, 1998.
MEDIA 100 INC.
BY: /S/ JOHN A. MOLINARI
-----------------------------------------
John A. Molinari
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned officers and
directors of Media 100 Inc., a Delaware corporation (the "Company"), hereby
constitutes and appoints John A. Molinari and Steven D. Shea, and each of them,
with full power to act without the other, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities (until revoked in writing)
to sign the Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1997, and any and all amendments thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, thereby ratifying and confirming
all that said attorneys-in-fact and agents or either of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President and Chief
/s/ JOHN A. MOLINARI Executive Officer and
- ------------------------------ Director (Principal February 27, 1998
John A. Molinari Executive Officer)
Corporate Controller and
/s/ STEVEN D. SHEA Chief Accounting Officer
- ------------------------------ (Principal Financial February 27, 1998
Steven D. Shea Officer and Principal
Accounting Officer)
/s/ MAURICE L. CASTONGUAY Director
- ------------------------------ February 27, 1998
Maurice L. Castonguay
/s/ ROGER W. REDMOND Director
- ------------------------------ February 27, 1998
Roger W. Redmond
/s/ BRUCE I. SACHS Director
- ------------------------------ February 27, 1998
Bruce I. Sachs
/s/ PAUL J. SEVERINO Director
- ------------------------------ February 27, 1998
Paul J. Severino
21
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
MEDIA 100 INC. AND SUBSIDIARIES
Report of Independent Public Accountants................................................................. F-2
Consolidated Balance Sheets as of November 30, 1997 and 1996............................................. F-3
Consolidated Statements of Operations for the Fiscal Years Ended November 30, 1997, 1996 and 1995........ F-4
Consolidated Statement of Stockholders' Equity for the Fiscal Years Ended November 30, 1997, 1996 and
1995................................................................................................... F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended November 30, 1997, 1996 and 1995........ F-6
Notes to Consolidated Financial Statements............................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Media 100 Inc.:
We have audited the accompanying consolidated balance sheets of Media 100
Inc. (a Delaware corporation) and subsidiaries as of November 30, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended November 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Media 100 Inc. and
subsidiaries as of November 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
November 30, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 15, 1998 (except with respect
to the matters discussed in Note 6(b)
and the last paragraph of Note 3(b), as to
which the dates are January 16 and 26, 1998,
respectively)
F-2
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30, NOVEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
IN THOUSANDS, EXCEPT SHARE
AMOUNTS
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 4,042 $ 2,733
Marketable securities.............................................................. 28,892 27,983
Accounts receivable, net of reserves of $411 in 1997 and $328 in 1996.............. 7,689 11,665
Inventories........................................................................ 696 1,473
Prepaid expenses................................................................... 743 567
------------ ------------
Total current assets............................................................... 42,062 44,421
Equipment, net....................................................................... 8,104 2,467
Other assets, net.................................................................... 593 112
Net assets of discontinued operations (Note 12)...................................... -- 12,990
------------ ------------
Total assets................................................................... $ 50,759 $ 59,990
------------ ------------
------------ ------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable................................................................... $ 1,953 $ 1,981
Accrued expenses................................................................... 6,958 5,791
Deferred revenue................................................................... 4,005 2,153
------------ ------------
Total current liabilities.......................................................... 12,916 9,925
Commitments and contingencies(Note 6)
Stockholders' equity:
Preferred stock, $.01 par value, Authorized--1,000,000 shares, none issued......... -- --
Common stock, $.01 par value, Authorized--25,000,000 shares, Issued and
outstanding--8,192,354 in 1997 and 8,087,884 in 1996............................. 82 81
Capital in excess of par value..................................................... 40,477 40,035
Retained earnings (deficit)........................................................ (2,547) 9,826
Cumulative translation adjustment.................................................. (87) 123
Unrealized holding loss on available for sale securities........................... (82) --
------------ ------------
Total stockholders' equity..................................................... 37,843 50,065
Total liabilities and stockholders' equity..................................... $ 50,759 $ 59,990
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED NOVEMBER 30,
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
Net sales........................................................................ $ 46,660 $ 50,826 $ 30,278
Cost of sales.................................................................... 18,238 20,046 12,711
--------- --------- ---------
Gross profit................................................................... 28,422 30,780 17,567
--------- --------- ---------
Operating expenses:
Research and development....................................................... 8,508 6,227 4,806
Selling and marketing.......................................................... 16,061 15,066 9,088
General and administrative..................................................... 4,330 5,034 2,024
Restructuring expense.......................................................... 526 -- --
--------- --------- ---------
Total operating expenses................................................... 29,425 26,327 15,918
--------- --------- ---------
Operating income (loss).......................................................... (1,003) 4,453 1,649
--------- --------- ---------
Interest income.................................................................. 1,781 1,588 771
--------- --------- ---------
Income from continuing operations before tax provision......................... 778 6,041 2,420
Tax provision.................................................................... 161 1,208 75
--------- --------- ---------
Income from continuing operations.............................................. 617 4,833 2,345
Discontinued operations:
Income (loss) from discontinued operations..................................... -- (6,672) 2,426
--------- --------- ---------
Net income (loss).............................................................. $ 617 $ (1,839) $ 4,771
--------- --------- ---------
--------- --------- ---------
Income per common and common equivalent share from continuing operations......... $ 0.07 $ 0.57 $ 0.35
Income (loss) per common and common equivalent share from discontinued
operations..................................................................... $ 0.00 $ (0.79) $ 0.36
--------- --------- ---------
Net income (loss) per common and common equivalent share......................... $ 0.07 $ (0.22) $ 0.71
--------- --------- ---------
--------- --------- ---------
Weighted average number of common and common equivalent shares outstanding....... 8,247 8,470 6,701
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
GAIN
COMMON STOCK (LOSS) ON
$.01 PAR VALUE CAPITAL IN CUMULATIVE AVAILABLE
----------------- EXCESS OF PAR RETAINED TRANSLATION TREASURY FOR SALE
SHARES AMOUNT VALUE EARNINGS ADJUSTMENT STOCK SECURITIES
--------- ------ ------------- -------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT SHARE AMOUNTS
Balance, November 30, 1994.............. 6,765,472 $68 $ 8,739 $ 6,894 $ 37 $ (4,781) -$-
Proceeds from issuance of common stock
under
stock plans........................... 325,736 3 1,166 -- -- -- --
Public sale of treasury stock, net of
issuance costs of $375................ -- -- 5,864 -- -- 2,938 --
Public sale of common stock, net of
issuance costs of $400................ 1,400,000 14 21,293 -- -- -- --
Translation adjustment.................. -- -- -- -- (210) -- --
Net income.............................. -- -- -- 4,771 -- -- --
Unrealized holding loss on available for
sales securities...................... -- -- -- -- -- -- (55)
--------- ------ ------------- -------- ----- -------- ---
Balance, November 30, 1995.............. 8,491,208 $85 $37,062 $ 11,665 $(173) $ (1,843) $(55)
Proceeds from issuance of common stock
under
stock plans........................... 242,272 3 1,359 -- -- -- --
Retirement of treasury stock............ (869,096) (9) (1,834) -- -- 1,843 --
Issuance of common stock................ 223,500 2 3,448 -- -- -- --
Translation adjustment.................. -- -- -- -- 296 -- --
Net loss................................ -- -- -- (1,839) -- -- --
Unrealized holding gain on available for
sale securities....................... -- -- -- -- -- -- 55
--------- ------ ------------- -------- ----- -------- ---
Balance, November 30, 1996.............. 8,087,884 $81 $40,035 $ 9,826 $ 123 $ -- -$-
Proceeds from issuance of common stock
under
stock plans........................... 104,470 1 442 -- -- -- --
Dividend of Data Translation II, Inc.
stock to stockholders................. -- -- -- (12,990) -- -- --
Translation adjustment.................. -- -- -- -- (210) -- --
Net income.............................. -- -- -- 617 -- -- --
Unrealized holding loss on available for
sale securities....................... -- -- -- -- -- -- (82)
--------- ------ ------------- -------- ----- -------- ---
Balance, November 30, 1997.............. 8,192,354 $82 $40,477 $ (2,547) $ (87) $ -- $(82)
--------- ------ ------------- -------- ----- -------- ---
--------- ------ ------------- -------- ----- -------- ---
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NOVEMBER 30,
<S> <C> <C> <C>
IN THOUSANDS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................................... $ 617 $ (1,839) $ 4,771
(Income) loss from discontinued operations.......................................... -- 6,672 (2,426)
---------- ---------- ----------
Income from continuing operations................................................... 617 4,833 2,345
Adjustments to reconcile income from operations to net cash provided by (used in)
operating activities:
Depreciation and amortization..................................................... 1,614 898 878
Deferred income taxes............................................................. -- (3) 1
Loss on sale of equipment......................................................... -- -- 2
(Gain) loss on sale of marketable securities...................................... 19 (33) 35
Changes in assets and liabilities:
Accounts receivable............................................................... 3,976 (5,603) (3,035)
Inventories....................................................................... 777 427 (1,248)
Prepaid income taxes.............................................................. -- (61) 1
Accounts payable, accrued and prepaid expenses.................................... 964 4,296 1,383
Deferred revenue.................................................................. 1,852 1,143 785
---------- ---------- ----------
Net cash provided by continuing operating activities................................ 9,819 5,897 1,147
Net cash (used in) provided by discontinued operating activities.................... -- (13,560) 1,274
---------- ---------- ----------
Net cash provided by (used in) operating activities................................. $ 9,819 $ (7,663) $ 2,421
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchase of equipment........................................................... (7,251) (1,951) (1,425)
Increase in other assets............................................................ (481) (27) (68)
Purchases of marketable securities.................................................. (65,716) (78,620) (13,270)
Proceeds from sales of marketable securities........................................ 64,706 57,284 9,108
---------- ---------- ----------
Net cash used in investing activities............................................... $ (8,742) $ (23,314) $ (5,655)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock plans........................................................... 442 1,362 1,169
Net proceeds from public sale of treasury stock..................................... -- -- 8,802
Net proceeds from public sale of common stock....................................... -- 3,450 21,307
---------- ---------- ----------
Net cash provided byfinancing activities............................................ $ 442 $ 4,812 $ 31,278
---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................................. (210) 296 (220)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ 1,309 (25,869) 27,824
CASH AND CASH EQUIVALENTS, beginning of period...................................... 2,733 28,602 778
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period............................................ $ 4,042 $ 2,733 $ 28,602
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes.......................................................... $ 92 $ 743 $ 46
---------- ---------- ----------
---------- ---------- ----------
OTHER TRANSACTIONS NOT PROVIDING (USING) CASH:
Dividend of Data Translation II, Inc. stock to stockholders......................... $ (12,990) $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
Retirement of treasury stock........................................................ $ -- $ 1,843 $ --
---------- ---------- ----------
---------- ---------- ----------
Change in value of marketable securities............................................ $ (82) $ (55) $ 55
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) OPERATIONS
On July 30, 1996, Media 100 Inc. (the "Company") announced its intention to
separate its Media 100 digital video business from its data acquisition and
imaging, commercial products and U.K.-based networking distribution businesses.
The Company announced that it would contribute its data acquisition and imaging
and commercial products businesses to a newly-formed subsidiary, Data
Translation II, Inc. ("DTI"), the stock of which would then be distributed as a
dividend to the Company's stockholders. The Company further announced that it
planned to dispose of its networking distribution business within twelve months.
On November 11, 1996, the Company sold substantially all of the assets
associated with its networking distribution business in connection with the
winding up of that business. On December 2, 1996, the Company distributed all of
the shares of DTI, to which it had contributed its data acquisition and imaging
and commercial products businesses and the remaining assets and liabilities of
the networking distribution business, as a dividend to the Company's
stockholders (the "Spin-Off"), in the ratio of one share of DTI common stock for
every four shares of Company common stock. The dividend reduced retained
earnings in an amount equal to $12,990,000. In connection with the Spin-Off, the
Company retained only its Media 100 related business and changed its name to
Media 100 Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries after elimination of significant
intercompany transactions and balances. These consolidated financial statements
reflect the utilization of the following significant accounting policies, as
described below and elsewhere in the notes to consolidated financial statements.
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles.
(A) CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash equivalents are carried at cost, which approximates market value, and
have original maturities of less than three months. Cash equivalents include
money market accounts and repurchase agreements with overnight maturities.
The Company accounts for marketable securities in accordance with Statement
of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES (SFAS No. 115). Under this standard, the Company is
required to classify all investments in debt and equity securities into one or
more of the following three categories: held-to-maturity, available-for-sale or
trading. Available-for-sale securities are recorded at fair market value with
unrealized gains and losses excluded from earnings and included as a component
of to stockholders' equity. All of the Company's marketable securities are
classified as available-for-sale.
F-7
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Marketable securities held as of November 30, 1997, consist of the following
(in thousands):
<TABLE>
<CAPTION>
MATURITY MARKET VALUE
------------------- ------------
<S> <C> <C>
Investments available for sale:
U.S. Treasury Notes......................................................... less than 1 year $ 3,031
U.S. Treasury Notes......................................................... 1-5 years 4,306
------------
Total U.S. Treasury Notes................................................. 7,337
Municipal Bonds............................................................. less than 1 year 2,021
Municipal Bonds............................................................. 1-2 years 514
------------
Total Municipal Bonds..................................................... 2,535
U.S. Agency Bonds........................................................... less than 1 year 605
U.S. Agency Bonds........................................................... more than 1 year 2,535
------------
Total U.S. Agency Bonds................................................... 3,140
Money Market Instruments.................................................... 9,402
Corporate Obligations....................................................... less than 1 year 3,956
Corporate Obligations....................................................... 1-2 years 2,522
------------
Total Corporate Obligations............................................... 6,478
Total investments available for sale.......................................... $ 28,892
------------
------------
</TABLE>
Marketable securities had a cost of $28,974 and $27,983 at November 30, 1997
and 1996, respectively, and a market value of $28,892 and $27,983, respectively.
To reduce the carrying amount of the November 30, 1997 marketable securities
portfolio to market value, an unrealized loss has been reflected as a separate
component of stockholders' equity on November 30, 1997 pursuant to the
provisions of SFAS No. 115.
(B) INVENTORIES
Inventories at November 30, 1997 and 1996 are stated at the lower of
first-in, first-out (FIFO) cost or market and consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Raw Materials................................................................ $ 305 $ 780
Work-in-Process.............................................................. 252 302
Finished Goods............................................................... 139 391
--------- ---------
$ 696 $ 1,473
--------- ---------
--------- ---------
</TABLE>
Work-in-process and finished goods inventories include material, labor and
manufacturing overhead. Management performs periodic reviews of inventory and
disposes of items not required by their manufacturing plan.
F-8
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(C) DEPRECIATION AND AMORTIZATION
The Company provides for depreciation and amortization, using the
straight-line and declining balance methods by charges to operating expenses in
amounts that allocate the cost of the equipment over the following estimated
useful lives:
<TABLE>
<CAPTION>
DESCRIPTION USEFUL LIVES
- ------------------------------------------------------------------------------- -------------
<S> <C>
Machinery and equipment........................................................ 3 to 7 years
Furniture and fixtures......................................................... 7 years
Vehicles....................................................................... 3 years
</TABLE>
(D) PROPERTY AND EQUIPMENT, NET
Equipment, net at November 30, 1997 and 1996 is stated at cost, less
accumulated depreciation and amortization, and consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Machinery and equipment.................................................. $ 10,428 $ 4,251
Furniture and fixtures................................................... 1,288 480
Vehicles................................................................. 12 14
--------- ---------
$ 11,728 $ 4,745
Less accumulated depreciation and amortization........................... 3,624 2,278
--------- ---------
$ 8,104 $ 2,467
--------- ---------
--------- ---------
</TABLE>
(E) FOREIGN CURRENCY
The accounts of the Company and its subsidiaries are translated in
accordance with Statement of Financial Accounting Standards No. 52, FOREIGN
CURRENCY TRANSLATION. The financial statements of the Company's subsidiaries are
translated from their functional currency into U.S. dollars utilizing the
current rate method. Accordingly, assets and liabilities of the Company's
foreign subsidiaries are translated at the rates of exchange in effect at
year-end. Revenues and expenses are translated using exchange rates in effect
during the year. Gains and losses from foreign currency translation are credited
or charged to "Cumulative translation adjustment" included in stockholders'
equity in the accompanying consolidated balance sheets. Net realized foreign
currency transaction losses for the year ended November 30, 1997 were $215,000
and are classified in general and administrative expenses. For fiscal year ended
November 30, 1996 the Company had net realized foreign currency transaction
gains of $144,000 and for the fiscal year ended November 30, 1995 these gains
and losses were not significant.
(F) REVENUE RECOGNITION
In accordance with Statement of Position (SOP) 91-1, the Company recognizes
revenue when products are shipped or, for postcontract support agreements,
ratably over the terms of the agreements. The Company's policy is to defer the
revenue associated with any vendor and postcontract support obligations
remaining at the time of shipment until the related obligations are satisfied.
Costs of service and warranty are not significant and are charged to operations
as incurred. Revenues from hardware systems with other than incidental software
components and stand alone software sales are recognized upon shipment, provided
that no significant vendor or postcontract support obligations remain
outstanding
F-9
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and collection of the resulting receivable is deemed probable. Effective in
fiscal year 1998, the Company will apply the provisions of SOP 97-2, which
supercedes SOP 91-1. The Company does not expect the adoption of SOP 97-2 to
have a material effect on its consolidated financial statements.
(G) NET INCOME (LOSS) PER COMMON SHARE
Net income per common share is determined by dividing net income by the
weighted average number of common and common equivalent shares outstanding
during the period. Net loss per common share is determined by dividing net loss
by the weighted average number of common shares outstanding during the period.
Common equivalent shares have been calculated in accordance with the treasury
stock method and are included for all periods where their effect is dilutive.
Fully diluted net income (loss) per common and common equivalent share has not
been separately presented, as the amounts would not be materially different from
net income (loss) per common and common equivalent share for all periods
presented.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS No. 128).
The new standard simplifies the computation of earnings per share and increased
comparability to international standards. Under SFAS No. 128, primary earnings
per share is replaced by "Basic" earnings per share, which excludes potentially
dilutive equity instruments and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. "Diluted" earnings per share, which is computed similarly to
fully diluted earnings per share, reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock. The Company will be required to disclose both basic
and diluted earnings per share.
The Company is required to adopt the new standard in its first fiscal 1998
quarter. All prior-period earnings per share information will be restated at
that time. Early adoption of this standard is not permitted.
(H) CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain computer software development costs.
Capitalization of costs commences upon establishing technological feasibility.
Capitalized costs, net of accumulated amortization, were approximately $89,000
and $104,000 as of November 30, 1997 and 1996, respectively, and are included in
other assets. These costs are amortized on a straight-line basis over two years,
which approximates the economic life of the product. Amortization expense,
included in cost of sales in the accompanying consolidated statements of
operations, was $80,000 and $40,000 in 1997 and 1996, respectively.
(I) RESTRUCTURING EXPENSE
The Company incurred restructuring expenses of $526,000 in its third quarter
of fiscal 1997 for severance and related costs associated with a reduction of
the Company's workforce. Substantially all of these expenses have been paid out
as of the end of the Company's first quarter of fiscal 1998 and the Company
anticipates that any further expenses associated with this reduction in its
workforce will be insignificant.
(J) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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
F-10
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
(3) STOCKHOLDERS' EQUITY
(A) STOCK SPLIT
On June 28, 1995, the Board of Directors approved a 2-for-1 stock split
effected in the form of a dividend for all shareholders of record as of July 17,
1995. All share and per share data included in these financial statements have
been retroactively restated to reflect the stock split.
(B) STOCK OPTIONS
Prior to April 1992, options were granted under the Company's 1982 Key
Employee Inventive Plan (the "1982 Plan"). Subject to certain limitations
imposed by the 1982 Plan, options were granted at a price determined by the
Board. The Board resolved to issue options under the 1982 Plan at not less than
100% of fair market value. The options expire six years from the date of grant
and become exercisable at the rate of 20% per year beginning one year from the
date of grant. No further options may be granted under the 1982 Plan.
In 1992, the Company adopted the 1992 Key Employee Incentive Plan (the "1992
Plan"), and 1,000,000 shares of common stock were reserved for issuance. At the
Company's Annual Meeting on April 10, 1996, the Company's stockholders approved
an increase in the number of options available for grant from 1,000,000 to
2,000,000. Options granted pursuant to the 1992 Plan may, at the discretion of
the Board, be incentive stock options as defined by the Internal Revenue Code.
Subject to the provisions of the 1992 Plan, options granted are at a price as
specified by the Board. The Board has, to date, issued options under the 1992
Plan at not less than 100% of fair market value. The options become exercisable
at a rate of 20% per year beginning one year from the date of grant unless
otherwise specified by the Board. The Board will determine when the options will
expire, but in no event will the option period exceed ten years. No options may
be granted under the 1992 Plan on or after February 29, 2002.
F-11
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) STOCKHOLDERS' EQUITY (CONTINUED)
Information concerning stock options for each of the three years ended
November 30, 1997 follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF OPTION PRICE
OPTIONS PRICE RANGES PER SHARE
---------- ------------- -----------------
<S> <C> <C> <C>
Outstanding at November 30, 1994.................................... 1,029,976 $ 1.32-7.03 $ 4.03
Granted........................................................... 338,000 7.15-16.20 11.33
Exercised......................................................... (305,806) 1.32-7.03 3.33
Expired/canceled.................................................. (15,290) 1.43-10.48 5.50
---------- ------------- ------
Outstanding at November 30, 1995.................................... 1,046,880 $ 1.32-16.20 $ 6.53
Granted........................................................... 595,000 7.75-16.91 13.65
Exercised......................................................... (215,310) 1.32-10.66 4.39
Expired/canceled.................................................. (210,740) 1.43-16.91 9.96
---------- ------------- ------
Outstanding at November 30, 1996.................................... 1,215,830 $ 1.73-16.91 $ 10.20
Granted........................................................... 474,225 4.19-10.00 8.48
Exercised......................................................... (37,940) 1.73-4.72 3.72
Expired/canceled.................................................. (504,189) 1.73-16.91 9.93
---------- ------------- ------
Outstanding at November 30, 1997.................................... 1,147,926 $ 1.73-16.91 $ 9.80
---------- ------------- ------
---------- ------------- ------
Exercisable at November 30, 1997.................................... 315,204 $ 1.73-16.91 $ 5.31
---------- ------------- ------
---------- ------------- ------
Available for grant at November 30, 1997............................ 648,924
----------
----------
</TABLE>
In connection with the Spin-Off, all stock options that were outstanding at
December 2, 1996 were adjusted by multiplying the exercise price thereof by
.95238 (rounding up to the nearest whole cent). Information in the above table
for November 30, 1996 and prior periods has been restated to reflect this
adjustment.
In 1994, the Company amended the 1986 Employee Stock Purchase Plan (the
"Plan") pursuant to which an additional 200,000 shares of common stock were
reserved for issuance for a total of 600,000 shares. Effective July 1, 1995,
employees who have worked for the Company for at least one month are eligible to
participate in the Plan. The Plan allows participants to purchase common stock
of the Company at 85% of the fair market value as defined. Under the Plan, the
Company issued 67,311, 26,962 and 22,930 shares in fiscal years 1997, 1996 and
1995, respectively. At November 30, 1997, there were 99,331 shares available for
issuance under the Plan.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION (SFAS No. 123), which requires the measurement of the fair market
value of stock options or warrants to be included in the statement of operations
or disclosed in the notes to the financial statements. As permitted by SFAS No.
123, the Company will continue to account for stock-based compensation for
employees under Accounting Principles Board Opinion No. 25 and has elected the
disclosure-only alternative under SFAS No. 123 for options
F-12
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) STOCKHOLDERS' EQUITY (CONTINUED)
granted using the Black-Scholes option pricing model prescribed by SFAS No. 123.
The weighted average assumptions are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ------------
<S> <C> <C>
Risk-free interest rate....................................... 6.07%-6.12% 6.3%-6.6%
Expected dividend yield....................................... -- --
Expected lives................................................ 6 years 6 years
Expected volatility........................................... 75.92% 77.3%
</TABLE>
The table below presents pro forma net income (loss) and earnings per share,
had compensation cost for the Company's stock-based employee compensation plans
been determined using the provisions of SFAS No. 123 (in thousands, except per
share amounts).
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Income (loss) from continuing operations
As Reported.............................................................. $ 617 $ 4,833
Pro Forma................................................................ $ (153) $ 4,600
Income (loss) per share from continuing operations
As Reported.............................................................. $ 0.07 $ 0.57
Pro Forma................................................................ $ (0.02) $ 0.54
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
may not be representative of that to be expected in future years.
The following table summarizes information about options outstanding at
November 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING EXERCISE PRICE NUMBER EXERCISE PRICE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE PER SHARE OUTSTANDING PER SHARE
- -------------- ----------- --------------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$ 1.73- 6.08 285,834 3.2 $ 4.17 127,142 $ 3.31
6.42-10.00 404,906 4.7 8.79 56,800 7.04
10.48-16.91 457,186 3.9 14.37 131,262 13.83
----------- -----------
1,147,926 315,204
----------- -----------
----------- -----------
</TABLE>
In January 1998, the Company offered employees the opportunity to
participate in an option repricing program, pursuant to which each employee
could elect to replace his or her then outstanding options with new options on a
one-for-one basis. The per share exercise price of the replacement options is
$3.94. The replacement options are exercisable as follows: replacement options
that were granted in exchange for exercisable old options become exercisable six
months following the new grant date; replacement options that were granted in
exchange for unexercisable old options become exercisable over four years from
the new grant date, 12.5% six months following the new grant date and 6.25%
quarterly thereafter; and all replacement options expire ten years after the new
grant date. An aggregate of 694,810 options were cancelled and replaced in
connection with this program. The option repricing program resulted in a new
measurement date for all options replaced. Since the new exercise price was
equal to the fair market value of the Company's common stock on the new
measurement date, the Company will not record any compensation cost in
connection with this program.
F-13
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RETIREMENT PLAN
In November 1985, the Company adopted an employee savings plan (the "Savings
Plan") in compliance with Section 401(k) of the Internal Revenue Code. Effective
April 1, 1995, the Savings Plan provides for annual Company contributions of up
to 15% of the first 6% of total compensation per participant. Effective January
1, 1998, these contributions vest in full after a three-year period of service.
The Company's contributions to the Savings Plan were $98,000, $50,000 and
$16,000 in 1997, 1996 and 1995, respectively.
The Company does not provide postretirement benefits to any employees as
defined under Statement of Financial Accounting Standards No. 106, EMPLOYERS'
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS.
5. BANK FACILITIES
The Company entered into an irrevocable standby letter of credit agreement
for a sum not to exceed $300,000 effective January 16, 1997 and terminating
March 31, 1998. This facility was entered into in connection with the lease of
Company's new office and manufacturing facility (Note 6(a)). This letter of
credit is automatically extended without amendment annually from the termination
date, unless written notice is provided electing not to renew for any such
additional period. Notwithstanding the above, this letter of credit expires on
March 31, 2002.
The Company's obligation is secured by a pledge of cash in the amount of
$350,000. The Company has informed the bank it intends to allow this letter of
credit to automatically renew.
6. LEASE COMMITMENTS AND CONTINGENCIES
(A) LEASE COMMITMENTS
The Company's principal executive, engineering, manufacturing and sales
operations occupy approximately 56,500 square feet in a leased facility located
at 290 Donald Lynch Boulevard, Marlboro, Massachusetts. The lease for this
facility terminates on March 31, 2002. Prior to moving into its current facility
on May 2, 1997, the Company's operations occupied approximately 31,000 square
feet in a facility which it shared with DTI located in Marlboro, Massachusetts.
Total rental expense charged to continuing operations with respect to the
Company's current Marlboro facility for fiscal year 1997 was $320,000, and with
respect to its former Marlboro facility was $527,000, $546,000 and $459,000 for
each of the fiscal years 1997, 1996 and 1995, respectively. Rental expense with
respect to the former Marlboro facility for fiscal 1997 reflected the Company's
pro rata portion of the rental charges and operating expenses associated with
that facility and the use by the Company of certain manufacturing equipment
belonging to DTI.
F-14
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LEASE COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments, excluding operating costs, under all
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDING NOVEMBER 30, AMOUNT
- ------------------------------------------------------------------------------------- ---------
<S> <C>
1998................................................................................. $ 656
1999................................................................................. 660
2000................................................................................. 670
2001................................................................................. 592
2002................................................................................. 188
---------
Total minimum lease payments......................................................... $ 2,766
</TABLE>
(B) CONTINGENCIES
On June 7, 1995, a lawsuit was filed against the Company by Avid Technology,
Inc. ("Avid") in the United States District Court for the District of
Massachusetts. The complaint generally alleges patent infringement by the
Company arising from the manufacture, sale, and use of the Company's Media 100
products. The complaint includes requests for injunctive relief, treble damages,
interest, costs and fees. In July 1995, the Company filed an answer and
counterclaim denying any infringement and asserting that the Avid patent in
question is invalid. The Company intends to vigorously defend the lawsuit. In
addition, Avid is seeking reissue of the patent, including claims that it
asserts are broader than in the existing patent, and these reissue proceedings
remain pending before the U.S. Patent and Trademark Office. On January 16, 1998,
the court dismissed the lawsuit without prejudice to either party moving to
restore it to the docket upon completion of all matters pending before the U.S.
Patent and Trademark Office. There can be no assurance that the Company will
prevail in the lawsuit asserted by Avid or that the expense or other effects of
the lawsuit, whether or not the Company prevails, will not have a material
adverse effect on the Company's business, operating results and financial
condition.
From time to time the Company is involved in other disputes and/or
litigation encountered in its normal course of business. The Company does not
believe that the ultimate impact of the resolution of such other outstanding
matters will have a material effect on the Company's business, operating results
or financial condition.
7. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES. The components of the net deferred tax liability recognized in the
accompanying consolidated balance sheets are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NOVEMBER 30, 1997 1996
- --------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Deferred tax assets.......................................................................... $ 2,304 $ 1,595
Deferred tax liabilities..................................................................... (32) (27)
--------- ---------
Subtotal................................................................................... 2,272 1,568
--------- ---------
Valuation allowance.......................................................................... (1,768) (1,568)
--------- ---------
Net deferred tax assets...................................................................... $ 504 $ --
--------- ---------
--------- ---------
</TABLE>
F-15
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Due to the uncertainty surrounding the realization of the benefits of its
favorable tax attributes in future income tax returns, the Company has placed a
valuation allowance against its deferred tax assets, except for previously paid
taxes that the Company believes are refundable. These deferred tax assets are
included as a component of other assets, net on the accompanying consolidated
balance sheets.
The approximate tax effect of each type of temporary difference and
carryforward before allocation of the valuation allowance is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NOVEMBER 30, 1997 1996
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Other temporary differences, principally nondeductible reserves................................ $ 1,562 $ 1,096
Research and development credits............................................................... 685 447
Alternative minimum tax credits................................................................ 25 25
--------- ---------
$ 2,272 $ 1,568
--------- ---------
--------- ---------
</TABLE>
The tax credit carryforwards expire at various dates through 2009. The Tax
Reform Act of 1986 contains provisions that may limit the tax credit
carryforwards available to be used in any given year in the event of significant
changes in ownership, as defined.
The income (loss) from continuing operations before tax provision in the
accompanying consolidated statements of operations consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
United States.......................................................................... $ 792 $ 6,819 $ 2,761
Foreign................................................................................ (14) (778) (341)
--------- --------- ---------
$ 778 $ 6,041 $ 2,420
--------- --------- ---------
--------- --------- ---------
</TABLE>
The income tax provision shown in the accompanying consolidated statements
of operations consists of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NOVEMBER 30, 1997 1996 1995
- ----------------------------------------------------------------------------------------- --------- --------- -----
<S> <C> <C> <C>
Federal:
Current................................................................................ $ 581 $ 1,008 $ 70
Deferred............................................................................... (504) -- --
--------- --------- ---
77 1,008 70
--------- --------- ---
State:
Current................................................................................ 24 100 1
Deferred............................................................................... -- -- --
--------- --------- ---
24 100 1
--------- --------- ---
Foreign--Current......................................................................... 60 100 4
--------- --------- ---
$ 161 $ 1,208 $ 75
--------- --------- ---
--------- --------- ---
</TABLE>
F-16
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The effective income tax rate varies from the amount computed using the
statutory U.S. income tax rate as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NOVEMBER 30, 1997 1996 1995
- ------------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Tax provision (benefit) at statutory rate................................................. 34.0% 34.0% 34.0%
Federal benefit from loss carryforward.................................................... -- (5.6) (33.0)
Utilization of research and development credits........................................... (30.5) (14.8) --
State taxes............................................................................... 3.1 1.6 --
Foreign taxes............................................................................. 7.7 1.6 0.2
Tax credits............................................................................... 1.8 3.2 1.9
Other permanent differences............................................................... 4.5 -- --
--------- --------- ---------
20.6% 20.0% 3.1%
--------- --------- ---------
--------- --------- ---------
</TABLE>
8. GEOGRAPHIC INFORMATION
Operations in various geographic areas for the three years ended November
30, 1997 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
UNITED
STATES EUROPE ELIMINATIONS CONSOLIDATED
------------ --------- ------------ ------------
<S> <C> <C> <C> <C>
FISCAL 1995
Sales to unaffiliated customers (1)......................... $ 26,651 $ 3,627 $ -- $ 30,278
Sales or transfers between geographic areas................. 2,507 -- (2,507) --
------------ --------- ------------ ------------
Net sales................................................... $ 29,158 $ 3,627 $ (2,507) $ 30,278
------------ --------- ------------ ------------
Income (loss) from continuing operations.................... $ 1,983 $ (341) $ 7 $ 1,649
Identifiable assets of continuing operations................ $ 44,892 $ 1,876 $ (1,747) $ 45,021
------------ --------- ------------ ------------
------------ --------- ------------ ------------
FISCAL 1996
Sales to unaffiliated customers (1)......................... $ 44,677 $ 6,149 $ -- $ 50,826
Sales or transfers between geographic areas................. 4,780 -- (4,780) --
------------ --------- ------------ ------------
Net sales................................................... $ 49,457 $ 6,149 $ (4,780) $ 50,826
------------ --------- ------------ ------------
Income (loss) from continuing operations.................... $ 5,314 $ (778) $ (83) $ 4,453
Identifiable assets of continuing operations................ $ 46,601 $ 3,647 $ (3,248) $ 47,000
------------ --------- ------------ ------------
------------ --------- ------------ ------------
FISCAL 1997
Sales to unaffiliated customers (1)......................... $ 37,398 $ 9,262 $ -- $ 46,660
Sales or transfers between geographic areas................. 4,516 -- (4,516) --
------------ --------- ------------ ------------
Net sales................................................... $ 41,914 $ 15,814 $ (4,516) $ 46,660
------------ --------- ------------ ------------
Income (loss) from continuing operations.................... $ 502 $ (20) $ 135 $ 617
Identifiable assets of continuing operations................ $ 49,529 $ 5,287 $ (4,561) $ 50,255
------------ --------- ------------ ------------
------------ --------- ------------ ------------
</TABLE>
- ------------------------
(1) Foreign sales from the United States to unaffiliated customers for the years
ended November 30, 1997, 1996 and 1995 were approximately $11,361, $13,317
and $8,243 respectively.
F-17
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACCRUED EXPENSES
Accrued expenses at November 30, 1997 and 1996 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accrued commissions............................................................................ $ 213 $ 133
Payroll and related taxes...................................................................... 1,552 1,190
Expenses relating to Spin-Off of Data Translation II, Inc...................................... -- 737
Accrued marketing, legal and other expense..................................................... 4,689 3,731
Deferred tax assets............................................................................ 504 --
--------- ---------
$ 6,958 $ 5,791
--------- ---------
--------- ---------
</TABLE>
10. VALUATION AND QUALIFYING ACCOUNTS
The following table sets forth activity in the Company's accounts receivable
reserve account (in thousands):
<TABLE>
<CAPTION>
BALANCE AT CHARGES TO COST BALANCE AT
BEGINNING OF YEAR AND EXPENSE DEDUCTIONS END OF YEAR
------------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
For the Year Ended November 30, 1995................... $ 123 $ 85 $ 5 $ 203
----- ----- ----- -----
----- ----- ----- -----
For the Year Ended November 30, 1996................... $ 203 $ 177 $ 52 $ 328
----- ----- ----- -----
----- ----- ----- -----
For the Year Ended November 30, 1997................... $ 328 $ 187 $ 104 $ 411
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
11. SELECTED QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30
- ---------------------------------------------------------------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales....................................................... $ 11,524 $ 12,102 $ 11,107 $ 11,927
Gross profit.................................................... $ 7,163 $ 7,372 $ 6,720 $ 7,167
Income (loss)................................................... $ 165 $ 336 $ (405) $ 521
----------- --------- ----------- ------------
----------- --------- ----------- ------------
Income (loss) per share......................................... $ 0.02 $ 0.04 $ (0.05) $ 0.06
----------- --------- ----------- ------------
----------- --------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FEBRUARY 29 MAY 31 AUGUST 31 NOVEMBER 30
- ---------------------------------------------------------------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales....................................................... $ 10,690 $ 12,921 $ 13,066 $ 14,149
Gross profit.................................................... $ 6,377 $ 7,673 $ 8,119 $ 8,611
Income from continuing operations............................... $ 1,001 $ 1,211 $ 1,232 $ 1,389
----------- --------- ----------- ------------
----------- --------- ----------- ------------
Income per share from continuing operations..................... $ 0.12 $ 0.13 $ 0.15 $ 0.17
----------- --------- ----------- ------------
----------- --------- ----------- ------------
</TABLE>
F-18
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. DISCONTINUED OPERATIONS
Pursuant to the Spin-Off described in Note 1, the Company did not retain any
assets of the discontinued operations. The components of net assets of
discontinued operations included in the accompanying consolidated balance sheets
at November 30, 1996 follow (in thousands):
<TABLE>
<S> <C>
Current assets..................................................................... $ 14,090
Net assets (liabilities) of networking distribution business....................... (1,424)
Equipment, net..................................................................... 2,351
Other assets, net.................................................................. 260
Current liabilities................................................................ (2,317)
Cumulative translation adjustment.................................................. 30
---------
---------
$ 12,990
---------
---------
</TABLE>
The Company's fiscal 1997 results do not include any results from
discontinued operations. The components of discontinued operations included in
the accompanying consolidated statements of operations for the fiscal years
ended November 30, 1996 and 1995 follow (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net sales................................................................................... $ 21,201 $ 21,826
Income(loss) from continuing operations..................................................... (1,617) 2,402
Income (loss) from networking distribution business......................................... (3,555) 24
Spin-off transaction costs.................................................................. (1,500) --
--------- ---------
Income (loss)............................................................................... $ (6,672) $ 2,426
--------- ---------
</TABLE>
The above income (loss) from networking distribution business includes an
estimated loss on disposal of approximately $2,500. The loss for the year ended
November 30, 1996 also reflects an allocation of $560 of interest income
relating to the $9,168 of cash contributed to DTI by the Company.
F-19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- --------------- -------------------------------------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Media 100 Inc. (filed as Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended November 30, 1996).
3.2 By-laws of Media 100 Inc. as amended through January 19, 1998; filed herewith.
10.1* Key Employee Incentive Plan (1982), as amended through November 15, 1996 (filed as Exhibit 10.1
to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996).
10.2* 1986 Employee Stock Purchase Plan, as amended through November 15, 1996 (filed as Exhibit 10.2 to
the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996).
10.3* Key Employee Incentive Plan (1992), as amended through January 19, 1998; filed herewith.
10.4* Media 100 Inc. 401(k) Savings Plan; filed herewith.
10.5.1 Lease dated January 31, 1997 relating to 290 Donald Lynch Boulevard, Marlboro, MA (filed as
Exhibit 10.5.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30,
1996).
10.5.2 License Agreement dated as of January 31, 1997 relating to 290 Donald Lynch Boulevard, Marlboro,
MA (filed as Exhibit 10.5.2 to the Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1996).
10.6.1 Distribution Agreement dated as of November 19, 1996 with Data Translation II, Inc. (DTI) (filed
as Exhibit 10.8.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November
30, 1996).
10.6.2 Intellectual Property Agreement dated as of December 2, 1996 with DTI (filed as Exhibit 10.8.2 to
the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996).
10.6.3 Corporate Services Agreement dated as of December 2, 1996 with DTI (filed as Exhibit 10.8.3 to
the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996).
10.6.4 Amendment to Corporate Services Agreement dated November 18, 1997; filed herewith.
21 Subsidiaries of Media 100 Inc.
23 Consent of Arthur Andersen LLP.
24 Power of Attorney (included in the signature page of this Annual Report on Form 10-K).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* Identifies a management contract or compensatory plan or arrangement in
which an executive officer or director of the Company participates.
X-1
<PAGE>
Exhibit 3.2
BY-LAWS
OF
MEDIA 100 INC.
(as amended through January 19, 1998)
Section 1. LAW, CERTIFICATE OF INCORPORATION AND BY-LAWS
1.1. These by-laws are subject to the certificate of incorporation of the
corporation. In these by-laws, references to law, the certificate of
incorporation and by-laws mean the law, the provisions of the certificate of
incorporation and the by-laws as from time to time in effect.
Section 2. STOCKHOLDERS
2.1. Annual Meeting. The annual meeting of stockholders shall be held at
10:00 a.m. on the third Wednesday in April in each year (or if that day is a
legal holiday at the place where the meeting is to be held, then at the same
hour on the next succeeding day that is not a legal holiday), or at such other
date and time as shall be designated from time to time by the board of directors
and stated in the notice of the meeting, at which they shall elect a board of
directors and transact such other business as may be required by law or these
by-laws or as may properly come before the meeting. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting as (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the board of directors, (b)
otherwise properly brought before the meeting by or at the direction of the
board of directors, or (c) otherwise properly brought before the meeting by a
stockholder by the stockholder's giving timely notice thereof in writing to the
secretary of the corporation. To be timely, a stockholder's notice must be
received at the principal executive offices of the corporation: (1) not less
than 60 days in advance of such meeting if such meeting is to be held on a day
which is within 30 days preceding the anniversary of the previous year's annual
meeting or 90 days in advance of such meeting if such meeting is to be held on
or after the anniversary of the previous year's annual meeting; and (2) with
respect to any other annual meeting of stockholders, on or before the close of
business on the 15th day following the earliest date of public disclosure of the
date of such meeting. For purposes of this section, the date of public
disclosure of a meeting shall include, but not be limited to, the date on which
disclosure of the date of the meeting is made in a press release reported by the
Dow Jones News Services, Associated Press or a comparable national news service,
or in a document publicly filed by the corporation with the Securities and
Exchange Commission pursuant to Sections 13, 14 or 15(d) (or the rules and
regulations thereunder) of the Securities Exchange Act of 1934, as amended. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the
<PAGE>
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name, age and business and residential address, as they appear
on the corporation's records, of the stockholder proposing such business, (c)
the class and number of shares of the corporation which are beneficially owned
by the stockholder, and (d) any material interest of the stockholder in such
business. Notwithstanding anything in the by-laws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth herein. The chairman of the annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the provisions hereof and if
the chairman should so determine, the chairman shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted.
2.2. Special Meetings. A special meeting of the stockholders may be called
at any time by the president or the board of directors. A special meeting of
the stockholders shall be called by the secretary, or, in the case of the death,
absence, incapacity or refusal of the secretary, by an assistant secretary or
some other officer, upon application of a majority of the directors. Any such
application shall state the purpose or purposes of the proposed meeting. Any
such call shall state the place, date, hour, and purposes of the meeting.
2.3. Place of Meeting. All meetings of the stockholders for the election
of directors or for any other purpose shall be held at such place within or
without the State of Delaware as may be determined from time to time by the
president or the board of directors. Any adjourned session of any meeting of
the stockholders shall be held at the place designated in the vote of
adjournment.
2.4. Notice of Meetings. Except as otherwise provided by law, a written
notice of each meeting of stockholders stating the place, day and hour thereof
and, in the case of a special meeting, the purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
meeting, to each stockholder entitled to vote thereat, and to each stockholder
who, by law, by the certificate of incorporation or by these by-laws, is
entitled to notice, by leaving such notice with him or at his residence or usual
place of business, or by depositing it in the United States mail, postage
prepaid, and addressed to such stockholder at his address as it appears in the
records of the corporation. Such notice shall be given by the secretary, or by
an officer or person designated by the board of directors, or in the case of a
special meeting by the officer calling the meeting. As to any adjourned session
of any meeting of stockholders, notice of the adjourned meeting need not be
given if the time and place thereof are announced at the meeting at which the
adjournment was taken except that if the adjournment is for more than thirty
days or if after the adjournment a new record date is set for the adjourned
session, notice of any such adjourned session of the meeting shall be given in
the manner heretofore described. No notice of any meeting of stockholders or
any adjourned session thereof need be given to a stockholder if a written waiver
of notice, executed before or after the meeting or such adjourned session by
such stockholder, is filed with the records of the meeting or if the stockholder
attends such meeting without objecting at the
2
<PAGE>
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any meeting of the stockholders or any adjourned session
thereof need be specified in any written waiver of notice.
2.5. Quorum of Stockholders. At any meeting of the stockholders a quorum
as to any matter shall consist of a majority of the votes entitled to be cast on
the matter, except where a larger quorum is required by law, by the certificate
of incorporation or by these by-laws. Any meeting may be adjourned from time to
time by a majority of the votes properly cast upon the question, whether or not
a quorum is present. If a quorum is present at an original meeting, a quorum
need not be present at an adjourned session of that meeting. Shares of its own
stock belonging to the corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of any corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
2.6. Action by Vote. When a quorum is present at any meeting, a plurality
of the votes properly cast for election to any office shall elect to such office
and a majority of the votes properly cast upon any question other than an
election to an office shall decide the question, except when a larger vote is
required by law, by the certificate of incorporation or by these by-laws. No
ballot shall be required for any election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
2.7. Proxy Representation. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, objecting to
or voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by his
attorney-in-fact. No proxy shall be voted or acted upon after three years from
its date unless such proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. The authorization of a proxy may but
need not be limited to specified action, provided, however, that, if a proxy
limits its authorization to a meeting or meetings of stockholders, unless
otherwise specifically provided such proxy shall entitle the holder thereof to
vote at any adjourned session but shall not be valid after the final adjournment
thereof.
2.8. Inspectors. The directors or the person presiding at the meeting may,
and shall if required by applicable law, appoint one or more inspectors of
election and any substitute inspectors to act at the meeting or any adjournment
thereof. Each inspector,
3
<PAGE>
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the person
presiding at the meeting, the inspectors shall make a report in writing of any
challenge, question or matter determined by them and execute a certificate of
any fact found by them.
2.9. List of Stockholders. The secretary shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at such meeting, arranged in alphabetical order
and showing the address of each stockholder and the number of shares registered
in his name. The stock ledger shall be the only evidence as to who are
stockholders entitled to examine such list or to vote in person or by proxy at
such meeting.
Section 3. BOARD OF DIRECTORS
3.1. Number. The corporation shall have one or more directors, the number
of directors to be determined from time to time by vote of a majority of the
directors then in office. Except in connection with the election of directors
at the annual meeting of stockholders, the number of directors may be decreased
only to eliminate vacancies by reason of death, resignation or removal of one or
more directors. No director need be a stockholder.
3.2. Tenure. Each director shall hold office until the next annual meeting
and until his successor is elected and qualified, or until he sooner dies,
resigns, is removed or becomes disqualified.
3.3. Powers. The business and affairs of the corporation shall be managed
by or under the direction of the board of directors who shall have and may
exercise all the powers of the corporation and do all such lawful acts and
things as are not by law, the certificate of incorporation or these by-laws
directed or required to be exercised or done by the stockholders.
3.4. Vacancies. Vacancies and any newly created directorships resulting
from any increase in the number of directors may be filled by vote of the
holders of the particular class or series of stock entitled to elect such
director at a meeting called for the purpose, or by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director, in
each case elected by the particular class or series of stock entitled to elect
such directors. When one or more directors shall resign from the board,
effective at a future date, a majority of the directors then in office,
including those who
4
<PAGE>
have resigned, who were elected by the particular class or series of stock
entitled to elect such resigning director or directors shall have power to fill
such vacancy or vacancies, the vote or action by writing thereon to take effect
when such resignation or resignations shall become effective. The directors
shall have and may exercise all their powers notwithstanding the existence of
one or more vacancies in their number, subject to any requirements of law or of
the certificate of incorporation or of these by-laws as to the number of
directors required for a quorum or for any vote or other actions.
3.5. Committees. The board of directors may, by vote of a majority of the
whole board, (a) designate, change the membership of or terminate the existence
of any committee or committees, each committee to consist of one or more of the
directors; (b) designate one or more directors as alternate members of any such
committee who may replace any absent or disqualified member at any meeting of
the committee; and (c) determine the extent to which each such committee shall
have and may exercise the powers of the board of directors in the management of
the business and affairs of the corporation, including the power to authorize
the seal of the corporation to be affixed to all papers which require it and the
power and authority to declare dividends or to authorize the issuance of stock;
excepting, however, such powers which by law, by the certificate of
incorporation or by these by-laws they are prohibited from so delegating. In
the absence or disqualification of any member of such committee and his
alternate, if any, the member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member. Except as the board of
directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the board or such rules, its
business shall be conducted as nearly as may be in the same manner as is
provided by these by-laws for the conduct of business by the board of directors.
Each committee shall keep regular minutes of its meetings and report the same to
the board of directors upon request.
3.6. Regular Meetings. Regular meetings of the board of directors may be
held without call or notice at such places within or without the State of
Delaware and at such times as the board may from time to time determine,
provided that notice of the first regular meeting following any such
determination shall be given to absent directors. A regular meeting of the
directors may be held without call or notice immediately after and at the same
place as the annual meeting of stockholders.
3.7. Special Meetings. Special meetings of the board of directors may be
held at any time and at any place within or without the State of Delaware
designated in the notice of the meeting, when called by the president, or by
one-third or more in number of the directors, reasonable notice thereof being
given to each director by the secretary the president or any one of the
directors calling the meeting.
3.8. Notice. It shall be reasonable and sufficient notice to a director to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before
5
<PAGE>
the meeting addressed to him at his usual or last known business or residence
address or to give notice to him in person or by telephone at least twenty-four
hours before the meeting. Notice of a meeting need not be given to any director
if a written waiver of notice, executed by him before or after the meeting, is
filed with the records of the meeting, or to any director who attends the
meeting without protesting prior thereto or at its commencement the lack of
notice to him. Neither notice of a meeting nor a waiver of a notice need
specify the purposes of the meeting.
3.9. Quorum. Except as may be otherwise provided by law, by the
certificate of incorporation or by these by-laws, at any meeting of the
directors a majority of the directors then in office shall constitute a quorum;
a quorum shall not in any case be less than one-third of the total number of
directors constituting the whole board. Any meeting may be adjourned from time
to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
3.10. Action by Vote. Except as may be otherwise provided by law, by
the certificate of incorporation or by these by-laws, when a quorum is present
at any meeting the vote of a majority of the directors present shall be the act
of the board of directors.
3.11. Action Without a Meeting. Any action required or permitted to be
taken at any meeting of the board of directors or a committee thereof may be
taken without a meeting if all the members of the board or of such committee, as
the case may be, consent thereto in writing, and such writing or writings are
filed with the records of the meetings of the board or of such committee. Such
consent shall be treated for all purposes as the act of the board or of such
committee, as the case may be.
3.12. Participation in Meetings by Conference Telephone. Members of
the board of directors, or any committee designated by such board, may
participate in a meeting of such board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other or by any other means permitted
by law. Such participation shall constitute presence in person at such meeting.
3.13. Compensation. In the discretion of the board of directors, each
director may be paid such fees for his services as director and be reimbursed
for his reasonable expenses incurred in the performance of his duties as
director as the board of directors from time to time may determine. Nothing
contained in this section shall be construed to preclude any director from
serving the corporation in any other capacity and receiving reasonable
compensation therefor.
3.14. Interested Directors and Officers.
(a) No contract or transaction between the corporation and one or more of
its directors or officers, or between the corporation and any other corporation,
partnership,
6
<PAGE>
association, or other organization in which one or more of the corporation's
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the board or
committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the board of directors
or the committee, and the board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the board of directors, a
committee thereof, or the stockholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.
Section 4. OFFICERS AND AGENTS
4.1. Enumeration; Qualification. The officers of the corporation shall be
a president, a treasurer, a secretary and such other officers, if any, as the
board of directors from time to time may in its discretion elect or appoint
including without limitation a chairman of the board, one or more vice
presidents and a controller. The corporation may also have such agents, if any,
as the board of directors from time to time may in its discretion choose. Any
officer may be but none need be a director or stockholder. Any two or more
offices may be held by the same person. Any officer may be required by the
board of directors to secure the faithful performance of his duties to the
corporation by giving bond in such amount and with sureties or otherwise as the
board of directors may determine.
4.2. Powers. Subject to law, to the certificate of incorporation and to
the other provisions of these by-laws, each officer shall have, in addition to
the duties and powers herein set forth, such duties and powers as are commonly
incident to his office and such additional duties and powers as the board of
directors may from time to time designate.
4.3. Election. The officers may be elected by the board of directors at
their first meeting following the annual meeting of the stockholders or at any
other time. At
7
<PAGE>
any time or from time to time the directors may delegate to any officer their
power to elect or appoint any other officer or any agents.
4.4. Tenure. Each officer shall hold office until the first meeting of the
board of directors following the next annual meeting of the stockholders and
until his respective successor is chosen and qualified unless a shorter period
shall have been specified by the terms of his election or appointment, or in
each case until he sooner dies, resigns, is removed or becomes disqualified.
Each agent shall retain his authority at the pleasure of the directors, or the
officer by whom he was appointed or by the officer who then holds agent
appointive power.
4.5. Chairman of the Board of Directors, President and Vice President. The
chairman of the board, if any, shall have such duties and powers as shall be
designated from time to time by the board of directors.
Unless the board of directors otherwise specifies, the president shall be
the chief executive officer and shall have direct charge of all business
operations of the corporation and, subject to the control of the directors,
shall have general charge and supervision of the business of the corporation.
Any vice presidents shall have such duties and powers as shall be set forth
in these by-laws or as shall be designated from time to time by the board of
directors or by the president.
4.6. Treasurer and Assistant Treasurers. Unless the board of directors
otherwise specifies, the treasurer shall be the chief financial officer of the
corporation and shall be in charge of its funds and valuable papers, and shall
have such other duties and powers as may be designated from time to time by the
board of directors or by the president. If no controller is elected, the
treasurer shall, unless the board of directors otherwise specifies, also have
the duties and powers of the controller.
Any assistant treasurers shall have such duties and powers as shall be
designated from time to time by the board of directors, the president or the
treasurer.
4.7. Controller and Assistant Controllers. If a controller is elected, he
shall, unless the board of directors otherwise specifies, be the chief
accounting officer of the corporation and be in charge of its books of account
and accounting records, and of its accounting procedures. He shall have such
other duties and powers as may be designated from time to time by the board of
directors, the president or the treasurer.
Any assistant controller shall have such duties and powers as shall be
designated from time to time by the board of directors, the president, the
treasurer or the controller.
4.8. Secretary and Assistant Secretaries. The secretary shall record all
proceedings of the stockholders, of the board of directors and of committees of
the board
8
<PAGE>
of directors in a book or series of books to be kept therefor and shall file
therein all actions by written consent of stockholders or directors. In the
absence of the secretary from any meeting, an assistant secretary, or, if there
be none or he is absent, a temporary secretary chosen at the meeting, shall
record the proceedings thereof. Unless a transfer agent has been appointed the
secretary shall keep or cause to be kept the stock and transfer records of the
corporation, which shall contain the names and record addresses of all
stockholders and the number of shares registered in the name of each
stockholder. He shall have such other duties and powers as may from time to
time be designated by the board of directors or the president.
Any assistant secretaries shall have such duties and powers as shall be
designated from time to time by the board of directors, the president or the
secretary.
Section 5. RESIGNATIONS AND REMOVALS
5.1. Any director or officer may resign at any time by delivering his
resignation in writing to the president, or the secretary or to a meeting of the
board of directors. Such resignation shall be effective upon receipt unless
specified to be effective at some other time, and without in either case the
necessity of its being accepted unless the resignation shall so state. A
director (including persons elected by stockholders or directors to fill
vacancies in the board) may be removed from office with or without cause by the
vote of the holders of a majority of the issued and outstanding shares of the
particular class or series entitled to vote in the election of such director.
The board of directors may at any time remove any officer either with or without
cause. The board of directors may at any time terminate or modify the authority
of any agent.
Section 6. VACANCIES
6.1. If the office of the president or the treasurer or the secretary
becomes vacant, the directors may elect a successor by vote of a majority of
the directors then in office. If the office of any other officer becomes
vacant, any person or body empowered to elect or appoint that officer may choose
a successor. Each such successor shall hold office for the unexpired term, and
in the case of the president, the treasurer and the secretary until his
successor is chosen and qualified or in each case until he sooner dies, resigns,
is removed or becomes disqualified. Any vacancy of a directorship shall be
filled as specified in Section 3.4 of these by-laws.
Section 7. CAPITAL STOCK
7.1. Stock Certificates. Each stockholder shall be entitled to a
certificate stating the number and the class and the designation of the series,
if any, of the shares held by him, in such form as shall, in conformity to law,
the certificate of incorporation and the by-laws, be prescribed from time to
time by the board of directors. Such certificate shall be signed by the
president or a vice president and by the treasurer or an assistant treasurer or
by the secretary or an assistant secretary. Any of or all the
9
<PAGE>
signatures on the certificate may be a facsimile. In case an officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
on such certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer, transfer agent, or registrar at
the time of its issue.
7.2. Loss of Certificates. In the case of the alleged theft, loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms, including receipt of a bond
sufficient to indemnify the corporation against any claim on account thereof, as
the board of directors may prescribe.
Section 8. TRANSFER OF SHARES OF STOCK
8.1. Transfer on Books. Subject to the restrictions, if any, stated or
noted on the stock certificate, shares of stock may be transferred on the books
of the corporation by the surrender to the corporation or its transfer agent of
the certificate therefor properly endorsed or accompanied by a written
assignment and power of attorney properly executed, with necessary transfer
stamps affixed, and with such proof of the authenticity of signature as the
board of directors or the transfer agent of the corporation may reasonably
require. Except as may be otherwise required by law, by the certificate of
incorporation or by these by-laws, the corporation shall be entitled to treat
the record holder of stock as shown on its books as the owner of such stock for
all purposes, including the payment of dividends and the right to receive notice
and to vote or to give any consent with respect thereto and to be held liable
for such calls and assessments, if any, as may lawfully be made thereon,
regardless of any transfer, pledge or other disposition of such stock until the
shares have been properly transferred on the books of the corporation.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
8.2. Record Date. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
If no such record date is fixed by the board of directors, the record date for
determining the stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
10
<PAGE>
In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
such record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
the General Corporation Law of the State of Delaware, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its registered office in
Delaware by hand or certified or registered mail, return receipt requested, to
its principal place of business or to an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. If no record date has been fixed by the board of directors and prior
action by the board of directors is required by the General Corporation Law of
the State of Delaware, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the board of directors adopts the resolution
taking such prior action.
In order that the corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or to exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the board of directors may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be not
more than sixty days prior to such payment, exercise or other action. If no
such record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
Section 9. CORPORATE SEAL
9.1. Subject to alteration by the directors, the seal of the corporation
shall consist of a flat-faced circular die with the word "Delaware" and the name
of the corporation cut or engraved thereon, together with such other words,
dates or images as may be approved from time to time by the directors.
Section 10. EXECUTION OF PAPERS
10.1. Except as the board of directors may generally or in particular
cases authorize the execution thereof in some other manner, all deeds, leases,
transfers, contracts, bonds, notes, checks, drafts or other obligations made,
accepted or endorsed by the corporation shall be signed by the president, a vice
president or the treasurer.
11
<PAGE>
Section 11. FISCAL YEAR
11.1. The fiscal year of the corporation shall end on November 30 of
each year.
Section 12. AMENDMENTS
12.1. These by-laws may be adopted, amended or repealed by vote of a
majority of the directors then in office or by vote of a majority of the voting
power of the stock outstanding and entitled to vote. Any by-law, whether
adopted, amended or repealed by the stockholders or directors, may be amended or
reinstated by the stockholders or the directors.
12
<PAGE>
Exhibit 10.3
MEDIA 100 INC.
Key Employee Incentive Plan (1992),
as amended through January 19, 1998
1. Plan; Purpose; General. The purpose of this Key Employee Incentive
Plan (1992) (the "Plan") is to advance the interests of Media 100 Inc.
(formerly Data Translation, Inc.) (the "Company") by enhancing the ability
of the Company and its subsidiaries to attract and retain selected
advisers, consultants, key employees and directors, by creating for such
persons incentives and rewards for their contributions to the success of
the Company, and by encouraging such persons to become owners of shares of
the Company's Common Stock, par value $0.01 per share (the "common stock"
or "stock"). Options granted pursuant to the Plan may be incentive stock
options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") (such options being referred to herein as "incentive
options") or non-incentive options. The proceeds received from the sale of
stock pursuant to the Plan shall be used for general corporate purposes.
Except as otherwise expressly provided with respect to an option grant, no
option granted pursuant to the Plan shall be an incentive option.
2. Effective Date of Plan. This Plan will become effective upon approval
by at least a majority of the votes cast at the next duly called Annual
Meeting of Stockholders of the Company at which a quorum representing a
majority of the voting power of all outstanding voting stock of the Company
is, either in person or by proxy, present and voting thereon or at any
adjournment thereof. Grants of awards under the Plan may be made prior to
that date (but after Board adoption of the Plan), subject to approval of
the Plan by such shareholders.(1)
3. Administration of the Plan. The Plan will be administered by the
Board of Directors (the "Board") of the Company. The Board will have
authority, to take all action necessary or appropriate thereunder, to
interpret its provisions, and to decide all questions and resolve all
disputes which may arise in connection therewith. Such determinations of
the Board shall be conclusive and shall bind all parties.
The Board may, in its discretion, delegate some or all of its powers
with respect to the Plan to the Executive Compensation and Stock Option
Committee or any other committee (the "Committee"), in which event all
references to the Board hereunder, except the references in Section 11
hereof, shall be deemed to refer to the Committee. The Committee, if one
is appointed, shall consist of not fewer than two members, and each member
of the Committee shall be, at the time
- ----------------
(1) The Plan was approved by the requisite vote of stockholders at the Annual
Meeting of Stockholders of the Company held on April 8, 1992.
<PAGE>
of his appointment and at any time he exercises discretion in administering
the Plan, a "non-employee director" as that term is defined in Rule 16b-3
adopted pursuant to the Securities Exchange Act of 1934, as amended. A
majority of the members of any such Committee shall constitute a quorum,
and all determinations of the Committee shall be made by a majority of its
members. Any determination of the Committee under the Plan may be made
without notice or meeting of the Committee by a writing signed by a
majority of the Committee members.
4. Eligibility. The "Participants" in the Plan will be such key
employees, including part-time employees, advisers, consultants and
directors whether or not they are employees, of the Company or of any of
its present or future subsidiaries (as defined in Section 10) as may be
selected from time to time by the Board in its discretion.
No incentive option shall be granted to a Participant who is not an
"employee" as defined in the provisions of the Code or regulations
thereunder applicable to incentive options. No incentive option shall be
granted to a Participant who at the time of grant owns, directly or
indirectly through application or the attribution rules of Section 424(d)
of the Code, stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of its subsidiaries (a
"Ten-Percent Shareholder") unless (i) the option price at the time it is
granted is at least 110% of the fair market value of the stock subject to
the option, and (ii) the period of the option does not exceed five years
from the date of grant.
5. Grant of Awards. Subject to the express provisions of the Plan, the
Board shall have the sole authority and discretion (a) to determine which
Participants will be granted awards; (b) to grant awards consisting of
options or stock appreciation rights ("SARs"), or both to Participants; (c)
to determine whether the options granted to any Participants shall be
incentive options or non-incentive options; (d) to determine the time or
times when awards will be granted and the number of shares of common stock
to be subject to each award; (e) to determine the option price of the
shares subject to each option in accordance with Section 6(a) hereof and
the value of the shares subject to each SAR on the exercise date of such
SAR in accordance with Section 6(d) hereof, and the method of payment of
such price; (f) to determine the time or times when each award becomes
exercisable and the duration of the exercise period; (g) to impose
additional conditions or restrictions on any award, such conditions or
restrictions, if any, to be set forth in the award form or other instrument
evidencing the award; (h) to prescribe the form or forms of any instruments
evidencing any awards granted under the Plan and of any other instruments
required under the Plan and to make changes in such forms from time to
time; (i) to determine the price, vesting schedule and other attributes of
awards granted to Participants working abroad; and (j) to adopt, amend and
rescind rules and regulations for the administration of the Plan and the
awards and for its own acts and proceedings. Subject to Section
2
<PAGE>
12 hereof, the Board shall also have the authority, in its sole discretion,
both generally and in particular instances, to waive compliance by a
Participant with any obligation to be performed by him under an award, to
waive any condition or provision of an award, and to amend or cancel any
award (and if an award is cancelled, to grant a new award on such terms as
the Board shall specify) except that the Board may not take any action with
respect to an outstanding award that would adversely affect the rights of
the Participant under such award without such Participant's consent.
Nothing in the preceding sentence shall be construed as limiting the power
of the Board to make adjustments required by Section 8(c) hereof.
No award shall be granted on or after February 20, 2002 but awards
previously granted may extend beyond that date.
6. Terms and Conditions of Awards.
a. Exercise Price of Options. The purchase price per share for
shares issuable upon exercise of options shall be determined by
the Board but in the case of incentive options shall not be less
than 100% (110% in the case of an incentive option granted to a
Ten-Percent Shareholder) of the fair market value of the stock on
the date of grant; nor shall the option price be less, in the
case of an original issue of authorized stock, than par value per
share. For this purpose, "fair market value" will be determined
as set forth in Section 10 hereof.
b. Period of Options. An option shall be exercisable during such
period or periods as the Board may specify. The latest date on
which an option may be exercised (the "Final Exercise Date")
shall be the date which is ten years (five years, in the case of
an incentive option granted to a Ten-Percent Shareholder) from
the date the option was granted or such earlier date as may be
specified by the Board at the time the option is granted.
c. Exercise of Options.
(i) Unless the Board at the time of grant or at any other time
otherwise specifies in the case of a particular option or
options, each option shall first become exercisable with
respect to one-fifth of the shares covered by it upon the
completion of one year from the date of the grant of the
option (the "Initial Exercise Date"), and with respect to an
additional one-fifth each succeeding year until the option
becomes exercisable with respect to all of the shares
covered by it.
3
<PAGE>
(ii) In the case of options intended to be incentive options, any
award forms or other instruments evidencing such options
shall contain such provisions relating to exercise and other
matters as are required of incentive options under the
applicable provisions of the Code and Treasury Regulations,
as from time to time in effect.
(iii) A person electing to exercise part or all of his
options shall give written notice to the Company, as
specified by the Board, of his election and of the number of
shares he has elected to purchase, such notice to be
accompanied by the instrument evidencing such option and any
other documents required by the Board, and shall at the time
of such exercise tender the purchase price of the shares he
has elected to purchase. If the notice of election to
exercise is given by the executor or administrator of a
deceased Participant, or by the person or persons to whom
the option has been transferred by the Participant's will or
the applicable laws of descent and distribution, the Company
will be under no obligation to deliver shares pursuant to
such exercise unless and until the Company is satisfied that
the person or persons giving such notice is or are entitled
to exercise the option.
(iv) In the case of an option that is not an incentive option,
the Board shall have the right to require that the
Participant exercising the option remit to the Company an
amount sufficient to satisfy any federal, state, or local
withholding tax requirements (or make other arrangements
satisfactory to the Company with regard to such taxes) prior
to the delivery of any common stock pursuant to the exercise
of the option. If permitted by the Board, either at the
time of the grant of the option or the time of exercise, the
Participant may elect, at such time and in such manner as
the Board may prescribe, to satisfy such withholding
obligation by (i) delivering to the Company common stock
owned by such individual having a fair market value equal to
such withholding obligation, or (ii) requesting that the
Company withhold from the shares of common stock to be
delivered upon exercise of the option a number of shares of
common stock having a fair market value equal to such
withholding obligation.
4
<PAGE>
In the case of an incentive option, if at the time the option is
exercised the Board determines that under applicable law and
regulations the Company could be liable for the withholding of
any federal, state or local tax with respect to a disposition of
the common stock received upon exercise, the Board may require as
a condition of exercise that the Participant exercising the
option agree (i) to inform the Company promptly of any
disposition (within the meaning of Section 424(c) of the Code and
the regulations thereunder) of common stock received upon
exercise, and (ii) to give such security as the Board deems
adequate to meet the potential liability of the Company for the
withholding of tax, and to augment such security from time to
time in any amount reasonably deemed necessary by the Board to
preserve the adequacy of such security.
d. Stock Appreciation Rights. The Board in its discretion may grant
SARs either in tandem with or independent of options awarded
under the Plan. Except as hereinafter provided, each SAR will
entitle the Participant to receive upon exercise, with respect to
each share of common stock to which the SAR relates, the excess
of (i) the share's value on the date of exercise, over (ii) the
share's fair market value on the date it was granted. For
purposes of clause (i), "value" shall mean fair market value;
provided, that the Board may adjust such value to take into
account dividends on the stock and may also grant SARs that
provide, in such limited circumstances following a change in
control of the Company (as determined by the Board) as the Board
may specify, that "value" for purposes of clause (i) is to be
determined by reference to a specified value (which may include
an average of values) for the common stock during a period
immediately preceding the change in control, all as determined by
the Board. The amount payable to a Participant upon exercise of
an SAR shall be paid either in cash or in shares of common stock,
as the Board determines. Each SAR shall be exercisable during
such period or periods and on such terms as the Board may
specify. No SAR shall be exercisable after the date which is ten
years from the date of grant.
e. Payment for and Delivery of Shares. Shares which are subject to
options shall be issued only upon receipt by the Company of full
payment of the purchase price for the shares as to which the
award is exercised. The purchase price shall be payable by the
option holder to the Company either (i) in cash or by check, bank
draft or money order payable to the order of the Company; or (ii)
if so permitted by the Board (which in the case of an incentive
option, shall specify such method of payment at the time of
grant), (A)
5
<PAGE>
through the delivery of shares of common stock (duly owned by the
option holder and for which the option holder has good title free
and clear of any liens and encumbrances and which, in the case of
common stock acquired from the Company, shall have been held for
at least six months) having a fair market value on the last
business day preceding the date of exercise equal to the purchase
price or (B) by delivery of a promissory note of the option
holder to the Company, such note to be payable on such terms as
are specified by the Board or (C) by delivery of an unconditional
and irrevocable undertaking by a broker to deliver promptly to
the Company sufficient funds to pay the exercise price; or (iii)
by a combination of the permissible forms of payment as provided
in (i) and (ii) above; provided, that if the common stock
delivered upon exercise of the option is an original issue of
authorized common stock, at least so much of the exercise price
as represents the par value of such common stock shall be paid
other than with a personal check or promissory note of the person
exercising the option.
The Company shall not be obligated to deliver any shares
unless and until, in the opinion of the Company's counsel, all
applicable federal and state laws and regulations have been
complied with, nor, if the outstanding common stock is at the
time listed on any securities exchange, unless and until the
shares to be delivered have been listed (or authorized to be
added to the list upon official notice of issuance) upon such
exchange, nor unless and until all other legal matters in
connection with the issuance and delivery of shares have been
approved by the Company's counsel. Without limiting the
generality of the foregoing, the Company may require from the
person exercising an option such investment representation or
such agreement, if any, as counsel for the Company may consider
necessary in order to comply with the Securities Act of 1933, as
amended, and may require that such person agree that any sale of
the shares will be made only on a national securities exchange or
in such other manner as is permitted by the Board and that he
will notify the Company before he makes any disposition of the
shares whether by sale, gift or otherwise.
A Participant shall have the rights of a shareholder only as
to shares actually acquired by him under the Plan.
f. Nontransferability of Awards. No award may be sold, assigned or
otherwise transferred or disposed of in any manner whatsoever
other than by will or by the laws of descent and distribution,
and
6
<PAGE>
during the Participant's lifetime the award may be exercised only
by him.
g. Forfeiture of Awards upon Termination of Employment. If a
Participant's (other than a non-employee director's) employment
or service with the Company and its subsidiaries terminates for
any reason other than death, the portion of any award held by the
Participant that was not exercisable immediately prior to such
termination of employment or service shall immediately expire and
except as the Board may otherwise determine, in its sole
discretion, the remaining portion, if any, of the award shall
continue to be exercisable for a period of ninety (90) days
immediately following the date of termination of the
Participant's employment or other service with the Company and
its subsidiaries. Notwithstanding the foregoing, if the
Participant was terminated for cause all awards held by the
Participant immediately prior to such termination, whether or not
then exercisable, shall immediately expire.(2) For purposes of
this Section 6(g), employment shall not be considered terminated
(i) in the case of sick leave or other bona fide leave of absence
approved for purposes of the Plan by the Board, so long as the
Participant's right to reemployment is guaranteed either by
statute or by contract, (ii) in the case of a transfer of
employment between the Company and a subsidiary or between
subsidiaries, or to the employment of a corporation (or a parent
or subsidiary corporation of such corporation) issuing or
assuming an option in a transaction to which Section 424(a) of
the Code applies, or (iii) in the case of a transfer of
employment between the Company and its wholly-owned subsidiary
Data Translation, Inc. (formerly Data Translation II, Inc.)
("DTI") and subsequent distribution of the stock of such
subsidiary to the Company's stockholders (the "Distribution");
provided, that this
- ----------------
(2) The preceding two sentences were adopted by amendment dated January 19, 1998
and are effective as to awards granted, regranted or amended on or after such
date, except as the Board may otherwise determine; provided, that any incentive
option granted prior to such date that is amended on or after such date shall
not be subject to such amendment without the consent of the Participant holding
the option if application of such amendment would cause the option (as amended)
to fail to qualify as an incentive stock option. With respect to all awards
which are not subject to the foregoing amendment, the following provision shall
apply:
"If a Participant's (other than a non-employee director's) employment
or service with the Company and its subsidiaries terminates for any
reason other than death, all awards held by the Participant shall
terminate unless the Board determines, in its sole discretion, that
such awards as were exercisable immediately prior to termination shall
continue to be exercisable for a period of time after termination (but
in no event beyond the Final Exercise Date). If the Board determines
that a post-termination exercise period for exercisable awards is
appropriate, such awards shall terminate and be forfeited after
completion of such period to the extent not previously exercised,
expired or terminated."
7
<PAGE>
clause (iii) shall apply only in the case of Participants whose
transfer of employment to DTI occurs in connection with the
Distribution; and further provided, that in the case of any such
Participant, post-Distribution service for DTI shall be treated
for purposes of this paragraph as service for the Company and any
post-Distribution termination of employment with DTI shall be
treated for purposes of this paragraph as a termination of
employment with the Company and its subsidiaries. The Company
may require that any Participant described in clause (iii) above
provide, prior to any post-Distribution exercise of an award
hereunder by such Participant and as a condition thereto,
evidence satisfactory to the Company as to the period of such
Participant's employment with DTI.
h. Death. If a Participant dies at a time when he is entitled to
exercise an option, then at any time or times within one year
after his death (or such further period as the Board may allow)
such option may be exercised, as to all or any of the shares
which the Participant was entitled to purchase immediately prior
to his death, by his executor or administrator or the person or
persons to whom the option is transferred by will or the
applicable laws of descent and distribution, and except as so
exercised such option will expire at the end of such period. In
no event, however, may any option be exercised after the Final
Exercise Date.
i. Confidentiality Agreement. Each Employee, including employees of
DTI who received options while employees of the Company, shall
execute, prior to or contemporaneously with the grant of any
option to such Participant hereunder, the Company's then standard
form of agreement relating to confidentiality, inventions and the
like.
7. Replacement Awards. The Company may grant awards under the Plan on
terms differing from those provided in Section 6, where such awards are
granted in substitution for awards held by employees of another corporation
who concurrently become employees of the Company or a subsidiary as the
result of a merger or consolidation of that corporation with the Company or
a subsidiary, or the acquisition by the Company or a subsidiary of property
or stock of that corporation. The Board may direct that the substitute
awards be granted on such terms and conditions as the Board considers
appropriate in the circumstances. Such awards will be in addition to those
which may be granted under the Plan and will not be counted as granted
under the Plan.
8
<PAGE>
8. Shares Subject to Plan.
a. Number of Shares and Stock to be Delivered. Shares delivered
pursuant to this Plan shall in the discretion of the Board be
authorized but unissued shares of common stock or previously
issued stock acquired by the Company. Subject to adjustment as
described below and exclusive of the shares that are subject to
the options provided for in Section 13, the aggregate number of
shares which may be delivered under this Plan shall not exceed
2,000,000 shares of common stock of the Company.
b. Limitations on Grants to Individuals. Subject to adjustment as
described below and exclusive of the shares that are subject to
the options provided for in Section 13, the aggregate number of
shares for which options may be granted under this Plan to any
individual in any calendar year shall not exceed 250,000 shares
of common stock of the Company.
c. Changes in Stock. In the event of a stock dividend, stock split
or combination of shares, recapitalization, merger in which the
Company is the surviving corporation or other change in the
Company's capital stock, the number and kind of shares of stock
or securities of the Company to be subject to the Plan and to
options then outstanding or to be granted thereunder, the maximum
number of shares or securities which may be delivered under the
Plan, the option price and other relevant provisions shall be
appropriately adjusted by the Board, whose determination shall be
binding on all persons. In the event of a consolidation or
merger in which the Company is not the surviving corporation or
which results in the acquisition of substantially all the
Company's outstanding stock by a single person or entity, or in
the event of the sale or transfer of substantially all the
Company's assets, all outstanding awards shall thereupon
terminate, provided that at least twenty days prior to the
effective date of any such merger, consolidation or sale of
assets, all outstanding awards shall become exercisable
immediately prior to consummation of such merger, consolidation
or sale of assets, unless the Board shall have arranged for the
surviving or acquiring corporation or an affiliate of that
corporation to assume the awards or to grant to the Participants
replacement awards having equivalent terms and conditions as
determined by the Board including, in the case of incentive
options, terms and conditions that satisfy the requirements of
Section 424(a) of the Code.
9
<PAGE>
The Board may also adjust the number of shares subject to
outstanding awards granted under Sections 5 or 6 hereof, the
exercise price of outstanding options and the terms of
outstanding options to take into consideration material changes
in accounting practices or principles, consolidations or mergers
(except those described in the immediately preceding paragraph),
acquisitions or dispositions of stock or property or any other
event if it is determined by the Board that such adjustment is
appropriate to avoid distortion in the operation of the Plan,
including without limitation, the special option adjustments made
in connection with the Distribution and described in Section 14
herein.
9. Employment Rights. Neither the adoption of the Plan nor the grant of
awards shall confer upon any Participant any right to continued employment
with the Company or a subsidiary or affect in any way the right of the
Company to terminate the employment of a Participant at any time. Except
as specifically provided by the Board, in its sole discretion, in any
particular case, the loss of existing or potential profit in awards granted
under this Plan shall not constitute an element of damages in the event of
termination of the relationship of a Participant even if the termination is
in violation of an obligation of the Company to the Participant by contract
or otherwise.
10. Definitions.
a. For purposes of the Plan a subsidiary is any corporation (i) in
which the Company owns, directly or indirectly, stock possessing
50% or more of the total combined voting power of all classes of
stock, or (ii) over which the Company has effective operating
control; provided, however, that no corporation shall be deemed a
subsidiary for the purpose of any provisions applicable to
incentive options, and no incentive options shall be granted to
employees of such corporation, unless in each case, such
corporation shall constitute a subsidiary as defined in clause
(i) above. For special rules relating to DTI, see Section 14,
below.
b. The fair market value of the common stock shall be determined in
accordance with the applicable provisions of the Code or
regulations issued thereunder, or in the absence of any such
provisions or regulations, shall be deemed to be the last sale
price at which such common stock is traded on the date in
question as reported in the Wall Street Journal; or, if the Wall
Street Journal is not published at the date in question or does
not list the common stock, then in such other appropriate
newspaper of general circulation as the Board may prescribe; or,
if there is no sale of the common stock on the date in question
or the last price at which the
10
<PAGE>
common stock traded is not listed, then the mean between the bid
and asked price at the close of the market on such day.
11. Indemnification of Board. In addition to and without affecting such
other rights of indemnification as they may have as members of the Board or
otherwise, each member of the Board shall be indemnified by the Company to
the extent legally possible against reasonable expenses, including
attorneys' fees, actually and reasonably incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which he may be a party by reason of any action taken or
failure to act under or in connection with the Plan, or any option granted
thereunder, and against all judgments, fines and amounts paid by him in
settlement thereof; provided that such payment of amounts so indemnified is
first approved by a majority of the members of the Board who are not
parties to such action, suit or proceeding, or by independent legal counsel
selected by the Company, in either case on the basis of a determination
that such member acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company; and except
that no indemnification shall be made in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such Board member
is liable for negligence or misconduct in his duties; and provided, further
that the Board member shall in writing offer the Company the opportunity,
at its own expense, to handle and defend the same.
12. Amendments. The Board may at any time discontinue granting awards
under the Plan. The Board may at any time or times amend the Plan or amend
any outstanding award or awards for the purpose of satisfying the
requirements of Section 422 of the Code or of any changes in applicable
laws or regulations, to comply with any applicable laws and requirements of
foreign jurisdictions or for any other purpose that may at the time be
permitted by law, provided that no such amendment will adversely affect the
rights of any Participant (without his consent) under any award theretofore
granted.
13. Non-Employee Directors. Notwithstanding anything to the contrary
contained elsewhere herein:
a. Eligible Directors and Grant. Each director of the Company who
is not a full-time employee of the Company or any of its
subsidiaries and is a director on April 8, 1992 shall be
automatically granted on such date non-incentive stock options
covering 10,000 shares of common stock and each non-employee
director who is initially elected after April 8, 1992 and prior
to February 20, 2002 shall be granted on the date of such
election non-incentive stock options covering 10,000 shares of
common stock (notwithstanding the two-for-one split of the common
stock effected on July 31, 1995), all such options to be
exercisable with
11
<PAGE>
respect to one-fifth of the covered shares one year from the date
of grant and with respect to an additional one-fifth each
succeeding year.
b. Terms of Options. The Final Exercise Date of options granted
pursuant to Section 13(a) hereof shall be 10 years from the date
of grant. If a director's service with the Company terminates
for any reason other than death, in lieu of the provisions of
Section 6(g) hereof, all options held by the director that are
exercisable on the date of termination shall continue to be
exercisable for a period of six months, but shall terminate
immediately if the director was removed for cause or resigned
under circumstances which in the opinion of the Board of
Directors casts such discredit on the Company or him as to
justify termination of his options. After completion of said
six-month period, such options shall terminate to the extent not
previously exercised, expired or terminated. All options held by
a director that are not exercisable on the date such director's
service with the Company terminates shall immediately terminate.
The purchase price for shares of common stock issuable upon the
exercise of options granted pursuant to Section 13(a) hereof
shall be the fair market value of the common stock at the close
of business on the date the option is granted, determined in
accordance with Section 10(b) hereof; provided, however, that in
no event shall the exercise price be less than par value per
share.
14. Special Option Adjustments. Notwithstanding any other provision of
the Plan, each option outstanding under the Plan immediately prior to the
Distribution (an "affected option") shall be adjusted in accordance with
Section 8.7 of the Distribution Agreement between the Company and DTI dated
as of November 19, 1996 (the "Distribution Agreement"). Except as otherwise
provided herein, the adjusted option shall have substantially the same
terms as prior to the Distribution. To the extent any such adjustment
shall be treated as an option grant for purposes of Section 8.7 of such
Agreement, it shall be made in accordance with the terms of said Section
8.7 and without regard to the option-grant rules and limitations set forth
in this Plan.
12
<PAGE>
________________________________________________________
MERRILL LYNCH
---------------
SPECIAL
---------------
PROTOTYPE DEFINED
CONTRIBUTION PLAN
ADOPTION AGREEMENT
________________________________________________________
401(k) PLAN
EMPLOYEE THRIFT PLAN
PROFIT-SHARING PLAN
Letter Serial Number: D359287b
National Office Letter Date: 6/29/93
This Prototype Plan and Adoption Agreement are important legal instruments
with legal and tax implications for which the Sponsor, Merrill Lynch,
Pierce, Fenner & Smith, Incorporated, does not assume responsibility. The
Employer is urged to consult with its own attorney with regard to the
adoption of this Plan and its suitability to its circumstances.
<PAGE>
Adoption of Plan
The Employer named below hereby establishes or restates a profit-sharing
plan that includes a 401(k), profit-sharing and/or thrift plan feature
(the "Plan") by adopting the Merrill Lynch Special Prototype Defined
Contribution Plan and Trust as modified by the terms and provisions of this
Adoption Agreement.
Employer and Plan Information
Employer Name:* Media 100 Inc.
Business Address: 290 Donald Lynch Boulevard
Marlboro, MA 01752-4748
Telephone Number: (508) 460-1600
Employer Taxpayer ID Number: 04-2532613
Employer Taxable Year ends on: November 30th
Plan Name: Media 100 Inc.
401(k) Savings Plan
Plan Number: 001
401(k) Profit Sharing Thrift
Effective Date of Adoption
or Restatement: 01/01/98 ---/---/---.
Original Effective Date: 11/15/85 ---/---/--- ---/---/---.
If this Plan is a continuation or an amendment of a prior plan, all
optional forms of benefits provided in the prior plan must be provided
under this Plan to any Participant who had an account balance, whether or
not vested, in the prior plan.
__________________________________________________
* If there are any Participating Affiliates in this Plan, list below the
proper name of each Participating Affiliate.
_____.
_____.
_____.
2
<PAGE>
ARTICLE I. Definitions
A. "Compensation"
(1) With respect to each Participant, except as provided below, Compensation
shall mean the (select all those applicable for each column):
401(k) and/ Profit
or Thrift Sharing
/ / / / (a) amount reported in the "Wages Tips and Other
Compensation" Box on Form W-2 for the applicable period
selected in Item 5 below.
/ / / /(b) compensation for Code Section 415 safe-harbor purposes
(as defined in Section 3.9.1 (H)(i) of basic plan
document #03) for the applicable period selected in
Item 5 below.
/X / / /(c) amount reported pursuant to Code Section 3401(a) for
the applicable period selected in Item 5 below.
/ / / /(d) all amounts received (under options (a) (b) or (c)
above) for personal services rendered to the Employer
but excluding (select one):
/ / overtime
/ / bonuses
/ / commissions
/ / amounts in excess of $
/ / other (specify) ______.
(2) Treatment of Elective Contributions (select one):
/ X /(a) For purposes of contributions, Compensation shall include
Elective Deferrals and amounts excludable from the gross income
of the Employee under Code Section 125, Code Section 402(e)(3),
Code Section 402(h) or Code Section 403(b) ("elective
contributions").
/ /(b) For purposes of contributions, Compensation shall not include
"elective contributions."
(3) CODA Compensation (select one):
/ X /(a) For purposes of the ADP and ACP Tests, Compensation shall include
"elective contributions."
/ /(b) For purposes of the ADP and ACP Tests, Compensation shall not
include "elective contributions."
3
<PAGE>
(4) With respect to Contributions to an Employer Contributions Account,
Compensation shall include all Compensation (select one):
/X /(a) during the Plan Year in which the Participant enters the Plan.
/ /(b) after the Participant's Entry Date.
(5) The applicable period for determining Compensation shall be (select one):
/X /(a) the Plan Year.
/ /(b) the Limitation Year.
/ /(c) the consecutive 12-month period ending on ______.
B. "Disability"
(1) Definition
Disability shall mean a condition which results in the Participant's
(select one):
/ X /(a) inability to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment that
can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12
months.
/ /(b) total and permanent inability to meet the requirements of the
Participant's customary employment which can be expected to last
for a continuous period of not less than 12 months.
/ /(c) qualification for Social Security disability benefits.
/ /(d) qualification for benefits under the Employer's long-term
disability plan.
(2) Contributions Due to Disability (select one):
/ X /(a) No contributions to an Employer Contributions Account will be
made on behalf of a Participant due to his or her Disability.
/ /(b) Contributions to an Employer Contributions Account will be made
on behalf of a Participant due to his or her Disability provided
that: the Employer elected option (a) or (c) above as the
definition of Disability, contributions are not made on behalf of
a Highly Compensated Employee, the contribution is based on the
Compensation each such Participant would have received for the
Limitation Year if the Participant had been paid at the rate of
Compensation paid immediately before his or her Disability, and
contributions made on behalf of such Participant will be
nonforfeitable when made.
4
<PAGE>
C. "Early Retirement" is (select one):
/ /(1) not permitted.
/ X /(2) permitted if a Participant terminates Employment before Normal
Retirement Age and has (select one):
/ X /(a) attained age 59 1/2.
/ /(b) attained age _____ and completed _____ Years of
Service.
/ /(c) attained age _____ and completed _____ Years of Service
as a Participant.
D. "Eligible Employees" (select one):
/ X /(1) All Employees are eligible to participate in the Plan.
/ /(2) The following Employees are not eligible to participate in the
Plan (select all those applicable):
/ /(a) Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer or
a Participating Affiliate and the Employee
representatives (not including any organization more
than half of whose members are Employees who are
owners, officers, or executives of the Employer or
Participating Affiliate) in the negotiation of which
retirement benefits were the subject of good faith
bargaining, unless the bargaining agreement provides
for participation in the Plan.
/ /(b) non-resident aliens who received no earned income from
the Employer or a Participating Affiliate which
constitutes income from sources within the United
States.
/ /(c) Employees of an Affiliate.
/ /(d) Employees employed in or by the following specified
division, plant, location, job category or other
identifiable individual or group of Employees: _____.
5
<PAGE>
E. "Entry Date" Entry Date shall mean (select as applicable):
401(k)
and/or Profit
Thrift Sharing
/ / / / (1) If the initial Plan Year is less than twelve months,
the day of and thereafter:
/ / / / (2) the first day of the Plan Year following the date
the Employee meets the eligibility requirements.
If the Employer elects this option (2) establishing
only one Entry Date, the eligibility "age and
service" requirements elected in Article II must be
no more than age 20-1/2 and 6 months of service.
/ X / / / (3) the first day of the month following the date the
Employee meets the eligibility requirements.
/ / / / (4) the first day of the Plan Year and the first day of
the seventh month of the Plan Year following the
date the Employee meets the eligibility
requirements.
/ / / / (5) the first day of the Plan Year, the first day of the
fourth month of the Plan Year, the first day of the
seventh month of the Plan Year, and the first day of
the tenth month of the Plan Year following the date
the Employee meets the eligibility requirements.
/ / / / (6) other: .
provided that the Entry Date or Dates selected are
no later than any of the options above.
F. "Hours of Service"
Hours of Service for the purpose of determining a Participant's Period of
Severance and Year of Service shall be determined on the basis of the method
specified below:
(1) Eligibility Service: For purposes of determining whether a
Participant has satisfied the eligibility requirements, the following
method shall be used (select one):
401(k)
and/or Profit
Thrift Sharing
/ X / / / (a) elapsed time method
/ / / / (b) hourly records method
6
<PAGE>
(2) Vesting Service: A Participant's nonforfeitable interest shall be
determined on the basis of the method specified below (select one):
/ X /(a) elapsed time method
/ /(b) hourly records method
/ /(c) If this item (c) is checked, the Plan only provides for
contributions that are always 100% vested and this item (2)
will not apply.
(3) Hourly Records: For the purpose of determining Hours of Service under
the hourly record method (select one):
/ /(a) only actual hours for which an Employee is paid or entitled
to payment shall be counted.
/ /(b) an Employee shall be credited with 45 Hours of Service if
such Employee would be credited with at least 1 Hour of
Service during the week.
G. "Integration Level"
/ X /(1) This Plan is not integrated with Social Security.
/ / (2) This Plan is integrated with Social Security. The Integration
Level shall be (select one):
/ /(a) the Taxable Wage Base.
/ /(b) $ (a dollar amount less than the Taxable Wage
Base).
/ /(c) % of the Taxable Wage Base (not to exceed
100%).
/ /(d) the greater of $10,000 or 20% of the Taxable Wage
Base.
H. "Limitation Compensation"
For purposes of Code Section 415, Limitation Compensation shall be compensation
as determined for purposes of (select one):
/ /(1) Code Section 415 Safe-Harbor as defined in Section 3.9.1(H)(i) of
basic plan document #03.
/ /(2) the "Wages, Tips and Other Compensation" Box on Form W-2.
/ X /(3) Code Section 3401(a) Federal Income Tax Withholding.
I. "Limitation Year"
For purposes of Code Section 415, the Limitation Year shall be (select one):
/ X /(1) the Plan Year.
/ /(2) the twelve consecutive month period ending on the day of the
month of .
7
<PAGE>
J. "Net Profits" are (select one):
/ X /(1) not necessary for any contribution.
/ /(2) necessary for (select all those applicable):
/ /(a) Profit-Sharing Contributions.
/ /(b) Matching 401(k) Contributions.
/ /(c) Matching Thrift Contributions.
K. "Normal Retirement Age"
Normal Retirement Age shall be (select one):
/ X /(1) attainment of age 65 (not more than 65) by the Participant.
/ /(2) attainment of age (not more than 65) by the Participant or
the anniversary (not more than the 5th) of the first day of
the Plan Year in which the Eligible Employee became a
Participant, whichever is later.
/ /(3) attainment of age (not more than 65) by the Participant or
the . anniversary (not more than the 5th) of the first day
on which the Eligible Employee performed an Hour of Service,
whichever is later.
L. "Participant Directed Assets" are:
401(k) and/ Profit
or Thrift Sharing
/ X / / / (1) permitted.
/ / / / (2) not permitted.
M. "Plan Year"
The Plan Year shall end on the 31st day of December.
N. "Predecessor Service"
Predecessor service will be credited (select one):
/ /(1) only as required by the Plan.
/ /(2) to include, in addition to the Plan requirements and subject to
the limitations set forth below, service with the following
predecessor employer(s) determined as if such predecessors were
the Employer: .
8
<PAGE>
Service with such predecessor employer applies [select either or both (a)
and/or (b); (c) is only available in addition to (a) and/or (b)]:
/ /(a) for purposes of eligibility to participate;
/ /(b) for purposes of vesting;
/ /(c) except for the following service: .
O. "Valuation Date"
Valuation Date shall mean (select one for each column, as applicable):
401(k) and/ Profit
or Thrift Sharing
/ / / /(1) the last business day of each month.
/ / / /(2) the last business day of each quarter within the Plan
Year.
/ / / /(3) the last business day of each semi-annual period within
the Plan Year.
/ / / /(4) the last business day of the Plan Year.
/ X / / /(5) other: daily basis.
ARTICLE II. Participation
Participation Requirements
An Eligible Employee must meet the following requirements to become a
Participant (select one or more for each column, as applicable):
401(k) and/ Profit
or Thrift Sharing
/ / / /(1) Performance of one Hour of Service.
/ / / /(2) Attainment of age (maximum 20 1/2) and completion
of (not more than 1/2) Years of Service. If this
item is selected, no Hours of Service shall be counted.
/ X / / /(3) Attainment of age 18 (maximum 21) and completion of
1/12 Year(s) of Service. If more than one Year of
Service is selected, the immediate 100% vesting
schedule must be selected in Article VII of this
Adoption Agreement.
9
<PAGE>
401(k) and/ Profit
or Thrift Sharing
/ / / /(4) Attainment of age (maximum 21) and completion of
Year(s) of Service. If more than one Year of
Service is selected, the immediate l00% vesting
schedule must be selected in Article VII of this
Adoption Agreement.
/ X / / /(5) Each Employee who is an Eligible Employee on 01/01/98
will be deemed to have satisfied the participation
requirements on the effective date without regard to
such Eligible Employee's actual age and/or service.
ARTICLE III. 401(k) Contributions and Account Allocation
A. Elective Deferrals
If selected below, a Participant's Elective Deferrals will be (select all
applicable):
/ X /(1) a dollar amount or a percentage of Compensation, as specified by
the Participant on his or her 401(k) Election form, which may not
exceed 16% of his or her Compensation.
/ /(2) with respect to bonuses, such dollar amount or percentage as
specified by the Participant on his or her 401(k) Election form
with respect to such bonus.
B. Matching 401(k) Contributions
If selected below, the Employer may make Matching 401(k) Contributions for each
Plan Year (select one):
/ X /(1) Discretionary Formula:
Discretionary Matching 401(k) Contribution equal to such a dollar
amount or percentage of Elective Deferrals, as determined by the
Employer, which shall be allocated (select one):
/ /(a) based on the ratio of each Participant's Elective Deferral
for the Plan Year to the total Elective Deferrals of all
Participants for the Plan Year. If inserted, Matching
40l(k) Contributions shall be subject to a maximum amount of
$ for each Participant or % of each Participant's
Compensation.
10
<PAGE>
/ X /(b) in an amount not to exceed 100% of each Participant's first
15% of Compensation contributed as Elective Deferrals for
the Plan Year. If any Matching 401(k) Contribution remains,
it is allocated to each such Participant in an amount not to
exceed % of the next % of each Participant's
Compensation contributed as Elective Deferrals for the Plan
Year.
Any remaining Matching 401(k) Contribution shall be allocated to each
such Participant in the ratio that such Participant's Elective
Deferral for the Plan Year bears to the total Elective Deferrals of
all such Participants for the Plan Year. If inserted, Matching 40l(k)
Contributions shall be subject to a maximum amount of $ for each
Participant or % of each Participant's Compensation.
/ /(2) Nondiscretionary Formula:
A nondiscretionary Matching 401(k) Contribution for each Plan Year
equal to (select one):
/ /(a) % of each Participant's Compensation contributed as
Elective Deferrals. If inserted, Matching 40l(k)
Contributions shall be subject to a maximum amount of $
for each Participant or % of each Participant's
Compensation.
/ /(b) % of the first % of the Participant's
Compensation contributed as Elective Deferrals and % of
the next % of the Participant's Compensation
contributed as Elective Deferrals. If inserted, Matching
40l(k) Contributions shall be subject to a maximum amount of
$ for each Participant or % of each Participant's
Compensation.
C. Participants Eligible for Matching 401(k) Contribution Allocation
The following Participants shall be eligible for an allocation to their Matching
401(k) Contributions Account (select all those applicable):
/ X /(1) Any Participant who makes Elective Deferrals.
/ /(2) Any Participant who satisfies those requirements elected by the
Employer for an allocation to his or her Employer Contributions
Account as provided in Article IV Section C.
/ /(3) Solely with respect to a Plan in which Matching 401(k)
Contributions are made quarterly (or on any other regular
interval that is more frequent than annually) any Participant
whose 401(k) Election is in effect throughout such entire quarter
(or other interval). (quarterly, monthly or semi-annual)
11
<PAGE>
D. Qualified Matching Contributions
If selected below, the Employer may make Qualified Matching Contributions for
each Plan Year (select all those applicable):
(1) In its discretion, the Employer may make Qualified Matching
Contributions on behalf of (select one):
/ /(a) all Participants who make Elective Deferrals in that Plan
Year.
/ X /(b) only those Participants who are Nonhighly Compensated
Employees and who make Elective Deferrals for that Plan
Year.
(2) Qualified Matching Contributions will be contributed and allocated to
each Participant in an amount equal to (select one):
/ /(a) % of the Participant's Compensation contributed as
Elective Deferrals. If inserted, Qualified Matching
Contributions shall not exceed % of the Participant's
Compensation.
/ X /(b) Such an amount, determined by the Employer, which is needed
to meet the ACP Test.
(3) In its discretion, the Employer may elect to designate all or any part
of Matching 401(k) Contributions as Qualified Matching Contributions
that are taken into account as Elective Deferrals -- included in the
ADP Test and excluded from the ACP Test -- on behalf of (select one):
/ /(a) all Participants who make Elective Deferrals for that Plan
Year.
/ X /(b) Only Participants who are Nonhighly Compensated Employees
who make Elective Deferrals for that Plan Year.
E. Qualified Nonelective Contributions
If selected below, the Employer may make Qualified Nonelective Contributions for
each Plan Year (select all those applicable):
(1) In its discretion, the Employer may make Qualified Nonelective
Contributions on behalf of (select one):
/ /(a) all Eligible Participants.
/ X /(b) only Eligible Participants who are Nonhighly Compensated
Employees.
12
<PAGE>
(2) Qualified Nonelective Contributions will be contributed and allocated
to each Eligible Participant in an amount equal to (select one):
/ /(a) ____% (no more than 15%) of the Compensation of each
Eligible Participant eligible to share in the allocation.
/ X /(b) Such an amount determined by the Employer, which is needed
to meet either the ADP Test or ACP Test.
(3) At the discretion of the Employer, as needed and taken into account as
Elective Deferrals included in the ADP Test on behalf of (select one):
/ /(a) all Eligible Participants.
/ X /(b) only those Eligible Participants who are Nonhighly
Compensated Employees.
F. Elective Deferrals used in ACP Test (select one):
/ X /(1) At the discretion of the Employer, Elective Deferrals may be used
to satisfy the ACP Test.
/ /(2) Elective Deferrals may not be used to satisfy the ACP Test.
G. Making and Modifying a 401(k) Election
An Eligible Employee shall be entitled to increase, decrease or resume his or
her Elective Deferral percentage with the following frequency during the Plan
Year (select one):
/ /(1) annually.
/ /(2) semi-annually.
/ X /(3) quarterly.
/ /(4) monthly
/ /(5) other (specify): .
Any such increase, decrease or resumption shall be effective as of the
first payroll period coincident with or next following the first day of
each period set forth above. A Participant may completely discontinue
making Elective Deferrals at any time effective for the payroll period
after written notice is provided to the Administrator.
13
<PAGE>
ARTICLE IV. Profit-Sharing Contributions and Account Allocation
A. Profit-Sharing Contributions
If selected below, the following contributions for each Plan Year will be made:
Contributions to Employer Contributions Accounts (select one):
/ /(a) Such an amount, if any, as determined by the Employer.
/ /(b) % of each Participant's Compensation.
B. Allocation of Contributions to Employer Contributions Accounts (select one):
/ /(1) Non-Integrated Allocation
The Employer Contributions Account of each Participant eligible
to share in the allocation for a Plan Year shall be credited with
a portion of the contribution, plus any forfeitures if
forfeitures are reallocated to Participants, equal to the ratio
that the Participant's Compensation for the Plan Year bears to
the Compensation for that Plan Year of all Participants entitled
to share in the contribution.
/ /(2) Integrated Allocation
Contributions to Employer Contributions Accounts with respect to
a Plan Year, plus any forfeitures if forfeitures are reallocated
to Participants, shall be allocated to the Employer Contributions
Account of each eligible Participant as follows:
(a) First, in the ratio that each such eligible Participant's
Compensation for the Plan Year bears to the Compensation for
that Plan Year of all eligible Participants but not in
excess of 3% of each Participant's Compensation.
(b) Second, any remaining contributions and forfeitures will be
allocated in the ratio that each eligible Participant's
Compensation for the Plan Year in excess of the Integration
Level bears to all such Participants' excess Compensation
for the Plan Year but not in excess of 3%.
14
<PAGE>
(c) Third, any remaining contributions and forfeitures will be
allocated in the ratio that the sum of each Participant's
Compensation and Compensation in excess of the Integration
Level bears to the sum of all Participants' Compensation and
Compensation in excess of the Integration Level, but not in
excess of the Maximum Profit-Sharing Disparity Rate (defined
below).
(d) Fourth, any remaining contributions or forfeitures will be
allocated in the ratio that each Participant's Compensation
for that year bears to all Participants' Compensation for
that year.
The Maximum Profit-Sharing Disparity Rate is equal to the lesser
of:
(a) 2.7% or
(b) The applicable percentage determined in accordance with the
following table:
<TABLE>
<CAPTION>
If the Integration Level is
(as a % of the Taxable Wage
Base ("TWB")). The applicable percentage is:
--------------------------- -----------------------------
<S> <C>
20% (or $10,000 if greater)
or less of the TWB 2.7%
More than 20% (but not less
than $10,001 but not
more than 80% of the TWB 1.3%
More than 80% but not less
than 100% of the TWB 2.4%
100% of the TWB 2.7%
</TABLE>
15
<PAGE>
C. Participants Eligible for Employer Contribution Allocation
The following Participants shall be eligible for an allocation to their Employer
Contributions Account (select all those applicable):
/ /(1) Any Participant who was employed during the Plan Year.
/ /(2) In the case of a Plan using the hourly record method for
determining Vesting Service, any Participant who was credited
with a Year of Service during the Plan Year.
/ /(3) Any Participant who was employed on the last day of the Plan
Year.
/ /(4) Any Participant who was on a leave of absence on the last day of
the Plan Year.
/ /(5) Any Participant who during the Plan Year died or became Disabled
while an Employee or terminated employment after attaining Normal
Retirement Age.
/ /(6) Any Participant who was credited with at least 501 Hours of
Service whether or not employed on the last day of the Plan Year.
/ /(7) Any Participant who was credited with at least 1,000 Hours of
Service and was employed on the last day of the Plan Year.
ARTICLE V. Thrift Contributions
A. Employee Thrift Contributions
If selected below, Employee Thrift Contributions, which are required for
Matching Thrift Contributions, may be made by a Participant in an amount equal
to (select one):
/ /(1) A dollar amount or a percentage of the Participant's Compensation
which may not be less than % nor may not exceed % of
his or her Compensation.
/ /(2) An amount not less than % of and not more than % of
each Participant's Compensation.
16
<PAGE>
B. Making and Modifying an Employee Thrift Contribution Election
A Participant shall be entitled to increase, decrease or resume his or her
Employee Thrift Contribution percentage with the following frequency during the
Plan Year (select one):
/ /(1) annually
/ /(2) semi-annually
/ /(3) quarterly
/ /(4) monthly
/ /(5) other (specify): .
Any such increase, decrease or resumption shall be effective as of the first
payroll period coincident with or next following the first day of each period
set forth above. A Participant may completely discontinue making Employee
Thrift Contributions at any time effective for the payroll period after written
notice is provided to the Administrator.
C. Thrift Matching Contributions
If selected below, the Employer will make Matching Thrift Contributions for each
Plan Year (select one):
/ /(1) Discretionary Formula:
A discretionary Matching Thrift Contribution equal to such a dollar
amount or percentage as determined by the Employer, which shall be
allocated (select one):
/ /(a) based on the ratio of each Participant's Employee
Thrift Contribution for the Plan Year to the total
Employee Thrift Contributions of all Participants for
the Plan Year. If inserted, Matching Thrift
Contributions shall be subject to a maximum amount of
$____for each Participant or____% of each
Participant's Compensation.
/ /(b) in an amount not to exceed____% of each Participant's
first____% of Compensation contributed as Employee
Thrift Contributions for the Plan Year. If any
Matching Thrift Contribution remains, it is allocated
to each such Participant in an amount not to exceed
____% of the next____% of each Participant's
Compensation contributed as Employee Thrift
Contributions for the Plan Year.
Any remaining Matching Thrift Contribution shall be allocated to each
such Participant in the ratio that such Participant's Employee Thrift
Contributions for the Plan Year bears to the total Employee Thrift
Contributions of all such Participants for the Plan Year. If
inserted, Matching Thrift Contributions shall be subject to a maximum
amount of $___for each Participant or___% of each Participant's
Compensation.
17
<PAGE>
/ /(2) Nondiscretionary Formula:
A nondiscretionary Matching Thrift Contribution for each Plan
Year equal to (select one):
/ /(a) % of each Participant's Compensation contributed
as Employee Thrift Contributions. If inserted,
Matching Thrift Contributions shall be subject to a
maximum amount of $ for each Participant or %
of each Participant's Compensation.
/ /(b) % of the first % of the Participant's
Compensation contributed as Employee Thrift
Contributions and % of the next % of the
Participant's Compensation contributed as Employee
Thrift Contributions. If inserted, Matching Thrift
Contributions shall be subject to a maximum amount of
$____for each Participant or)____% of each
Participant's Compensation.
D. Qualified Matching Contributions
If selected below, the Employer may make Qualified Matching Contributions for
each Plan Year (select all those applicable):
(1) In its discretion, the Employer may make Qualified Matching
Contributions on behalf of (select one):
/ /(a) all Participants who make Employee Thrift Contributions.
/ /(b) only those Participants who are Nonhighly Compensated
Employees and who make Employee Thrift Contributions.
(2) Qualified Matching Contributions will be contributed and allocated to
each Participant in an amount equal to:
/ /(a) % of the Participant's Employee Thrift Contributions.
If inserted, Qualified Matching Contributions shall not
exceed % of the Participant's Compensation.
/ /(b) such an amount, determined by the Employer, which is needed
to meet the ACP Test.
ARTICLE VI. Participant Contributions
Participant Voluntary Nondeductible Contributions
Participant Voluntary Nondeductible Contributions are (select one):
/ /(a) permitted.
/ /(b) not permitted.
18
<PAGE>
ARTICLE VII. Vesting
A. Employer Contribution Accounts
(1) A Participant shall have a vested percentage in his or her
Profit-Sharing Contributions, Matching 401(k) Contributions and/or
Matching Thrift Contributions, if applicable, in accordance with the
following schedule (Select one):
<TABLE>
<CAPTION>
Matching 401(k)
and/or Matching Profit-Sharing
Thrift Contributions Contributions
- -------------------- --------------
<S> <C> <C>
/ / / / (a) 100% vesting immediately upon
participation.
/ X / / / (b) 100% after 3 (not more than 5)
years of Vesting Service.
/ / / / (c) Graded vesting schedule:
% % after 1 year of Vesting Service;
% % after 2 years of Vesting Service;
% % (not less than 20%) after 3 years of
Vesting Service;
% % (not less than 40%) after 4 years of
Vesting Service;
% % (not less than 60%) after 5 years of
Vesting Service;
% % (not less than 80%) after 6 years of
Vesting Service;
100% after 7 years of Vesting Service.
</TABLE>
19
<PAGE>
(2) Top Heavy Plan
<TABLE>
<CAPTION>
Matching 401(k)
and/or Matching Profit-Sharing
Thrift Contributions Contributions
- -------------------- --------------
Vesting Schedule (Select one):
<S> <C> <C>
/ / / / (a) 100% vesting immediately upon
participation.
/ / / / (b) 100% after 3 (not more than 3)
years of Vesting Service.
/ / / / (c) Graded vesting schedule:
% % after 1 year of Vesting Service;
% % (not less than 20%) after 2 years of
Vesting Service;
% % (not less than 40%) after 3 years of
Vesting Service;
% % (not less than 60%) after 4 years of
Vesting Service;
% % (not less than 80%) after 5 years of
Vesting Service;
100% after 6 years of Vesting Service.
</TABLE>
Top Heavy Ratio:
(a) If the adopting Employer maintains or has ever maintained a qualified
defined benefit plan, for purposes of establishing present value to
compute the top-heavy ratio, any benefit shall be discounted only for
mortality and interest based on the following:
Interest Rate: 8 %
Mortality Table: UP '84
(b) For purposes of computing the top-heavy ratio, the valuation date
shall be the last business day of each Plan Year.
20
<PAGE>
B. Allocation of Forfeitures
Forfeitures shall be (select one from each applicable column):
<TABLE>
<CAPTION>
Matching 401(k)
and/or Matching Profit-Sharing
Thrift Contributions Contributions
- -------------------- --------------
<S> <C> <C>
/ X / / / (1) used to reduce Employer
contributions for succeeding Plan
Year.
/ / / / (2) allocated in the succeeding Plan
Year in the ratio which the
Compensation of each Participant
for the Plan Year bears to the
total Compensation of all
Participants entitled to share in
the Contributions. If the Plan is
integrated with Social Security,
forfeitures shall be allocated in
accordance with the formula elected
by the Employer.
</TABLE>
C. Vesting Service
For purposes of determining Years of Service for Vesting Service [select (1) or
(2) and/or (3)]:
/ X /(1) All Years of Service shall be included.
/ /(2) Years of Service before the Participant attained age 18 shall be
excluded.
/ /(3) Service with the Employer prior to the effective date of the Plan
shall be excluded.
ARTICLE VIII. Deferral of Benefit Distributions,
In-Service Withdrawals and Loans
A. Deferral of Benefit Distributions
<TABLE>
<CAPTION>
401(k) and/ Profit
or Thrift Sharing
----------- --------
<S> <C> <C>
/ / / / If this item is checked, a Participant's vested
benefit in his or her Employer Accounts shall be
payable as soon as practicable after the earlier
of: (1) the date the Participant terminates
Employment due to Disability or (2) the end of the
Plan Year in which a terminated Participant
attains Early Retirement Age, if applicable, or
Normal Retirement Age.
</TABLE>
21
<PAGE>
B. In-Service Distributions
/ X /(1) In-service distributions may be made from any of the
Participant's vested Accounts, at any time upon or after the
occurrence of the following events (select all applicable):
/ X /(a) a Participant's attainment of age 59-1/2.
/ X /(b) due to hardships as defined in Section 5.9 of the Plan.
/ /(2) In-service distributions are not permitted.
C. Loans are:
<TABLE>
<CAPTION>
401(k) and/ Profit
or Thrift Sharing
- ----------- -------
<S> <C> <C>
/ / / / (1) permitted.
/ / / / (2) not permitted.
</TABLE>
ARTICLE IX. Group Trust
If this item is checked, the Employer elects to establish a Group Trust
consisting of such Plan assets as shall from time to time be transferred to the
Trustee pursuant to Article X of the Plan. The Trust Fund shall be a Group
Trust consisting of assets of this Plan plus assets of the following plans of
the Employer or of an Affiliate: .
ARTICLE X. Miscellaneous
A. Identification of Sponsor
The address and telephone number of the Sponsor's authorized representative
is 800 Scudders Mill Road, Plainsboro, New Jersey 08536; (609) 282-2272.
This authorized representative can answer inquiries regarding the adoption
of the Plan, the intended meaning of any Plan provisions, and the effect of
the opinion letter.
The Sponsor will inform the adopting Employer of any amendments made to the
Plan or the discontinuance or abandonment of the Plan.
22
<PAGE>
B. Plan Registration
1. Initial Registration
This Plan must be registered with the Sponsor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, in order to be considered a Prototype
Plan by the Sponsor. Registration is required so that the Sponsor is
able to provide the Administrator with documents, forms and
announcements relating to the administration of the Plan and with Plan
amendments and other documents, all of which relate to administering
the Plan in accordance with applicable law and maintaining compliance
of the Plan with the law.
The Employer must complete and sign the Adoption Agreement. Upon
receipt of the Adoption Agreement, the Plan will be registered as a
Prototype Plan of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
The Adoption Agreement will be countersigned by an authorized
representative and a copy of the countersigned Adoption Agreement will
be returned to the Employer.
2. Registration Renewal
Annual registration renewal is required in order for the Employer to
continue to receive any and all necessary updating documents. There
is an annual registration renewal fee in the amount set forth with the
initial registration material. The adopting Employer authorizes
Merrill Lynch, Pierce, Fenner & Smith Incorporated, to debit the
account established for the Plan for payment of agreed upon annual
fee; provided, however, if the assets of an account are invested
solely in Participant-Directed Assets, a notice for this annual fee
will be sent to the Employer annually. The Sponsor reserves the right
to change this fee from time to time and will provide written notice
in advance of any change.
C. Prototype Replacement Plan
This Adoption Agreement is a replacement prototype plan for the (1) Merrill
Lynch Special Prototype Defined Contribution Plan and Trust - 401(k) Plan
#03-004 and (2) Merrill Lynch Asset Management, Inc., Special Prototype
Defined Contribution Plan and Trust - 401(k) Plan Adoption Agreement
#03-004.
D. Reliance
The adopting Employer may not rely on the opinion letter issued by the
National Office of the Internal Revenue Service as evidence that this Plan
is qualified under Code Section 401. In order to obtain reliance, the
Employer must apply to the appropriate Key District Director of the
Internal Revenue Service for a determination letter with respect to the
Plan.
23
<PAGE>
EMPLOYER'S SIGNATURE
Name of Employer:_____________________________________________
By: ___________________________________________________
Authorized Signature
___________________________________________________
Print Name
___________________________________________________
Title
Dated: _____________________________, 19________
TO BE COMPLETED BY MERRILL LYNCH:
Sponsor Acceptance:
Subject to the terms and conditions of the Prototype Plan and this Adoption
Agreement, this Adoption Agreement is accepted by Merrill Lynch, Pierce, Fenner
& Smith Incorporated as the Prototype Sponsor.
Authorized
Signature:_______________________________________________________________
24
<PAGE>
TRUSTEE(S) SIGNATURE
This Trustee Acceptance is to be completed only if the Employer appoints one or
more Trustees and does not appoint a Merrill Lynch Trust Company as Trustee.
The undersigned hereby accept all of the terms, conditions, and obligations of
appointment as Trustee under the Plan. If the Employer has elected a Group
Trust in this Adoption Agreement, the undersigned Trustee(s) shall be the
Trustee(s) of the Group Trust.
AS TRUSTEE:
merrill lynch
- --------------------------------- -----------------------------------------
(Signature) (print or type name)
- --------------------------------- -----------------------------------------
(Signature) (print or type name)
- --------------------------------- -----------------------------------------
(Signature) (print or type name)
- --------------------------------- -----------------------------------------
(Signature) (print or type name)
- --------------------------------- -----------------------------------------
(Signature) (print or type name)
- --------------------------------- -----------------------------------------
(Signature) (print or type name)
Dated: ________________________, 19 ________
25
<PAGE>
THE MERRILL LYNCH TRUST COMPANIES AS TRUSTEE
This Trustee Acceptance and designation of Investment Committee are to be
completed only when a Merrill Lynch Trust Company is appointed as Trustee.
To be completed by the Employer:
Designation Of Investment Committee
The Investment Committee for the Plan is (print or type names):
Name: ______________________________________________________________________
Name: ______________________________________________________________________
Name: ______________________________________________________________________
Name: ______________________________________________________________________
Name: ______________________________________________________________________
Name: ______________________________________________________________________
To be completed by Merrill Lynch Trust Company:
Acceptance By Trustee:
The undersigned hereby accept all of the terms, conditions, and obligations of
appointment as Trustee under the Plan. If the Employer has elected a Group
Trust in this Adoption Agreement, the undersigned Trustee(s) shall be the
Trustee(s) of the Group Trust.
SEAL MERRILL LYNCH TRUST COMPANY [------------------]
By:
________________________________
Dated: _________, 19____
26
<PAGE>
THE MERRILL LYNCH TRUST COMPANIES AS ONE OF THE TRUSTEES
This Trustee Acceptance is to be completed only if, in addition to a
Merrill Lynch Trust Companies as Trustee, the Employer appoints an
additional Trustee of a second trust fund.
The undersigned hereby accept all of the terms, conditions, and obligations
of appointment as Trustee under the Plan. If the Employer has elected a
Group Trust in this Adoption Agreement, the undersigned Trustee(s) shall be
the Trustee(s) of the Group Trust.
as TRUSTEE
____________________________________ _____________________________________
(Signature) (print or type name)
Dated: _______________, 19_________
SEAL MERRILL LYNCH TRUST COMPANY [____________________]
By: _________________________________________
Dated: _______________, 19_________
DESIGNATION OF INVESTMENT COMMITTEE
The Investment Committee for the Plan is (print or type names):
Name: ______________________________________________________________________
Name: ______________________________________________________________________
Name: ______________________________________________________________________
Name: ______________________________________________________________________
27
<PAGE>
-----------------------------------------
MERRILL LYNCH
--------------
SPECIAL
--------------
PROTOTYPE
DEFINED CONTRIBUTION PLAN
-----------------------------------------
Base Plan Document #03 used in conjunction with:
Non-standardized Profit Sharing Plan with CODA
Letter Serial Number: D359287b
National Office Letter Date: 6/29/93
Non-standardized Money Purchase Pension Plan
Letter Serial Number: D359288b
National Office Letter Date: 6/29/93
Non-standardized Profit Sharing Plan
Letter Serial Number: D359289b
National Office Letter Date: 6/29/93
Non-standardized Target Benefit Plan
Letter Serial Number: D361009a
National Office Letter Date: 6/29/93
This Prototype Plan and Adoption Agreement are important legal instruments
with legal and tax implications for which the Sponsor, Merrill Lynch, Pierce,
Fenner & Smith, Incorporated, does not assume responsibility. The Employer
is urged to consult with its own attorney with regard to the adoption of
this Plan and its suitability to its circumstances.
<PAGE>
<TABLE>
<CAPTION>
Internal Revenue Service Department of the Treasury
<S> <C>
Plan Description: Prototype Non-standardized Profit Sharing Plan with CODA
FFN: 50339816103-004 Washington, DC: 20224
Case: 9201920 EIN: 13-5674085
BPD: 03 Plan: 004
Letter Serial No: D359287b
Person to Contact: Mr. Wolf
MERRILL LYNCH PIERCE FENNER & SMITH INC
Telephone Number: (202) 622-8380
P O BOX 9038 Refer Reply to: E:EP:Q:1
PRINCETON, NJ 08543
Date: 06/29/93
</TABLE>
Dear Applicant:
In our opinion, the amendment to the form of the plan identified above does not
in and of itself adversely affect the plan's acceptability under section 401 of
the Internal Revenue Code. This opinion relates only to the amendment to the
form of the plan. It is not an opinion as to the acceptability of any other
amendment or of the form of the plan as a whole, or as to the effect of other
Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan:
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
An employer who adopts the amended form of the plan after the date of the
amendment should apply for a determination letter by filing an application with
the Key District Director of Internal Revenue on Form 5307, Short Form
Application for Determination for Employee Benefit Plan.
This letter with respect to the amendment to the form of the plan does not
affect the applicability to the plan of the continued, interim and extended
reliance provisions of sections 13 and 17.03 of Rev. Proc. 89-9, 1989-1 C.B.
780. The applicability of such provisions may be determined by reference to the
initial opinion letter issued with respect to the plan.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial Number
and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerly yours,
/s/ Illegible
-----------------------
Chief, Employee Plans Qualifications Branch
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
1.1 "Account" 1
1.2 "Account Balance" 1
1.3 "ACP Test" 1
1.4 "Actual Deferral Percentage" 1
1.5 "Adjustment Factor" 1
1.6 "Administrator" 1
1.7 "Adoption Agreement" 1
1.8 "ADP Test 1
1.9 "Affiliate" 1
1.10 "Annuity Contract" 1
1.11 "Average Actual Deferral Percentage" 1
1.12 "Average Contribution Percentage" 1
1.13 "Beneficiary" 1
1.14 "Benefit Commencement Date" 2
1.15 "CODA" 2
1.16 "CODA Compensation" 2
1.17 "Code" 2
1.18 "Compensation" 2
1.19 "Contribution Percentage" 3
1.20 "Contribution Percentage Amounts" 3
1.21 "Defined Benefit Plan" 3
1.22 "Defined Contribution Plan" 3
1.23 "Disability" 3
1.24 "Early Retirement" 3
1.25 "Early Retirement Date" 3
1.26 "Earned Income" 3
1.27 "Elective Deferrals" 3
1.28 "Elective Deferrals Account" 4
1.29 "Eligible Employee" 4
1.30 "Eligible Participant" 4
1.31 "Employee" 4
1.32 "Employee Thrift Contributions" 4
1.33 "Employee Thrift Contributions Account" 4
1.34 "Employer" 4
1.35 "Employer Account" 4
1.36 "Employer Contributions" 4
1.37 "Employer Contributions Account" 4
1.38 "Employment" 4
1.39 "Entry Date" 4
1.40 "ERISA" 4
1.41 "Excess Aggregate Contributions" 5
1.42 "Excess Contributions" 5
1.43 "Excess Elective Deferrals" 5
1.44 "Family Member" 5
1.45 "401(k) Contributions Accounts" 5
1.46 "401(k) Election" 5
1.47 "Fully Vested Separation" 5
1.48 "Group Trust" 5
1.49 "Highly Compensated Employee" 5
1.50 "Hour of Service" 6
1.51 "Immediately Distributable" 6
1.52 "Investment Manager" 6
1.53 "Key Employee" 6
<PAGE>
TABLE OF CONTENTS
1.54 "Leased Employee" 7
1.55 "Limitation Year" 7
1.56 "Master or Prototype Plan" 7
1.57 "Matching 401(k) Contribution" 7
1.58 "Matching 401(k) Contributions Account" 7
1.59 "Matching Thrift Contributions" 7
1.60 "Matching Thrift Contributions Account" 7
1.61 "Net Profits" 7
1.62 "Nonhighly Compensated Employee" 7
1.63 "Nonvested Separation" 7
1.64 "Normal Retirement Age" 7
1.65 "Owner-Employee" 7
1.66 "Partially Vested Separation" 8
1.67 "Participant" 8
1.68 "Participant Contributions Account" 8
1.69 "Participant-Directed Assets" 8
1.70 "Participant Voluntary Nondeductible
Contributions" 8
1.71 "Participant Voluntary Nondeductible
Contributions Account" 8
1.72 "Participating Affiliate" 8
1.73 "Period of Severance 8
1.74 "Plan" 8
1.75 "Plan Year" 8
1.76 "Prototype Plan" 9
1.77 "Qualified Joint and Survivor Annuity" 9
1.78 "Qualified Matching Contributions" 9
1.79 "Qualified Matching Contributions Account" 9
1.80 "Qualified Nonelective Contributions" 9
1.81 "Qualified Nonelective Contributions Account" 9
1.82 "Qualified Plan" 9
1.83 "Qualifying Employer Securities" 9
1.84 "Rollover Contribution" 9
1.85 "Rollover Contributions Account" 9
1.86 "Self-Employed Individual" 9
l.87 "Social Security Retirement Age" 9
1.88 "Sponsor" 9
1.89 "Spouse" 9
1.90 "Surviving Spouse" 10
1.91 "Taxable Wage Base" 10
1.92 "Transferred Account" 10
1.93 "Trust" 10
1.94 "Trust Fund" 10
1.95 "Trustee" 10
1.96 "Valuation Date" 10
1.97 "Vesting Service" 10
1.98 "Years of Service" 10
ARTICLE II PARTICIPATION
2.1 Admission as a Participant 10
2.2 Rollover Membership and Trust to Trust Transfer 11
2.3 Crediting of Service for Eligibility Purposes 11
2.4 Termination of Participation 11
2.5 Limitation for Owner-Employee 11
2.6 Corrections with Regard to Participation 12
2.7 Provision of Information 12
<PAGE>
TABLE OF CONTENTS
ARTICLE III CONTRIBUTIONS AND ACCOUNT ALLOCATIONS
3.1 Employer Contributions and Allocations 12
3.2 Participant Voluntary Nondeductible Contributions 13
3.3 Rollover Contributions and Trust to Trust
Transfers 13
3.4 Section 401(k) - Contributions and Account
Allocations 13
3.5 Matching 401(k) Contributions 16
3.6 Thrift Contributions 18
3.7 Treatment of Forfeitures 19
3.8 Establishing of Accounts 19
3.9 Limitation on Amount of Allocations 19
3.10 Return of Employer Contributions Under
Special Circumstances 24
ARTICLE IV VESTING
4.1 Determination of Vesting 24
4.2 Rules for Crediting Vesting Service 24
4.3 Employer Accounts Forfeitures 24
4.4 Top-Heavy Provisions 25
ARTICLE V AMOUNT AND DISTRIBUTION OF
BENEFITS, WITHDRAWALS AND LOANS
5.1 Distribution Upon Termination of Employment 27
5.2 Amount of Benefits Upon a Fully Vested Separation 27
5.3 Amount of Benefits Upon a Partially
Vested Separation 27
5.4 Amount of Benefits Upon a Nonvested Separation 27
5.5 Amount of Benefits Upon a Separation Due to
Disability 27
5.6 Distribution and Restoration 27
5.7 Withdrawals During Employment 28
5.8 Loans 28
5.9 Hardship Distributions 30
5.10 Limitation on Commencement of Benefits 30
5.11 Distribution Requirements 30
ARTICLE VI FORMS OF PAYMENT OF RETIREMENT BENEFITS
6.1 Methods of Distribution 34
6.2 Election of Optional Forms 35
6.3 Change in Form of Benefit Payments 36
6.4 Direct Rollovers 36
ARTICLE VII DEATH BENEFITS
7.1 Payment of Account Balances 37
7.2 Beneficiaries 37
7.3 Life Insurance 39
ARTICLE VIII FIDUCIARIES
8.1 Named Fiduciaries 40
8.2 Employment of Advisers 41
8.3 Multiple Fiduciary Capacities 41
8.4 Indemnification 41
8.5 Payment of Expenses 41
<PAGE>
TABLE OF CONTENTS
ARTICLE IX PLAN ADMINISTRATION
9.1 The Administrator 41
9.2 Powers and Duties of the Administrator 41
9.3 Delegation of Responsibility 42
ARTICLE X TRUSTEE AND INVESTMENT COMMITTEE
10.1 Appointment of Trustee and Investment Committee 42
10.2 The Trust Fund 42
10.3 Relationship with Administrator 42
10.4 Investment of Assets 43
10.5 Investment Direction, Participant-Directed Assets
and Qualifying Employer Investments 44
10.6 Valuation of Accounts 45
10.7 Insurance Contracts 46
10.8 The Investment Manager 46
10.9 Powers of Trustee 47
10.10 Accounting and Records 48
10.11 Judicial Settlement of Accounts 48
10.12 Resignation and Removal of Trustee 48
10.13 Group Trust 48
ARTICLE XI PLAN AMENDMENT OR TERMINATION
11.1 Prototype Plan Amendment 48
11.2 Plan Amendment 49
11.3 Right of the Employer to Terminate Plan 49
11.4 Effect of Partial or Complete Termination or
Complete Discontinuance of Contributions 50
11.5 Bankruptcy 50
ARTICLE XII MISCELLANEOUS PROVISIONS
12.1 Exclusive Benefit of Participants 50
12.2 Plan Not a Contract of Employment 51
12.3 Action by Employer 51
12.4 Source of Benefits 51
12.5 Benefits Not Assignable 51
12.6 Domestic Relations Orders 51
12.7 Claims Procedure 51
12.8 Records and Documents; Errors 51
12.9 Benefits Payable to Minors, Incompetents and
Others 52
12.10 Plan Merger or Transfer of Assets 52
12.11 Participating Affiliates 52
12.12 Controlling Law 52
12.13 Singular and Plural and Article and Section
References 52
<PAGE>
ARTICLE I
DEFINITIONS
As used in this Prototype Plan and in each Adoption Agreement, each of the
following terms shall have the meaning for that term set forth in this Article
I:
1.1 Account: A separate Elective Deferrals Account, Employee Thrift
Contributions Account, Employer Contributions Account, Matching 401(k)
Contributions Account, Matching Thrift Contributions Account, Participant
Voluntary Nondeductible Contributions Account, Qualified Matching Contributions
Account, Qualified Nonelective Contributions Account, Rollover Contribution
Account, and Transferred Account, as the case may be.
1.2 Account Balance: The value of an Account determined as of the applicable
Valuation Date.
1.3 ACP Test: The Contribution Percentage test that is set forth in Section
3.5.2 of the Plan.
1.4 Actual Deferral Percentage: The ratio (expressed as a percentage), of (A)
Elective Deferrals made on behalf of an Eligible Participant for the Plan Year
(including Excess Elective Deferrals of Highly Compensated Employees and, at the
election of the Employer, Qualified Nonelective Contributions and/or Qualified
Matching Contributions), but excluding (1) Excess Elective Deferrals of
Nonhighly Compensated Employees that arise solely from Elective Deferrals made
under the Plan or plans of the Employer or an Affiliate and (2) Elective
Deferrals that are taken into account in the ACP Test (provided the ADP Test is
satisfied with or without the exclusion of such Elective Deferrals) to (B) the
Participant's CODA Compensation for the Plan Year (whether or not the Eligible
Employee was a Participant for the entire Plan Year). The Actual Deferral
Percentage of an Eligible Participant who would be a Participant but for the
failure to make an Elective Deferral is zero.
1.5 Adjustment Factor: The cost of living adjustment factor prescribed by the
Secretary of the Treasury under Code Section 415(d) for years beginning after
December 31, 1987, as applied to such items and in such manner as the Secretary
shall provide.
1.6 Administrator: The Employer, unless otherwise specified by duly authorized
action by the Employer.
1.7 Adoption Agreement: The document so designated with respect to this
Prototype Plan that is executed by the Employer, as amended from time to time.
1.8 ADP Test: The Average Actual Deferral Percentage test set forth in Section
3.4.2(B) of the Plan.
1.9 Affiliate: Any corporation or unincorporated trade or business (other than
the Employer) while it is:
(A) a member of a "controlled group of corporations" (within the meaning of Code
Section 414(b)) of which the Employer is a member;
(B) a member of any trade or business under "common control" (within the meaning
of Code Section 414(c)) with the Employer;
(C) a member of an "affiliated service group" (as that term is defined in Code
Section 414(m)) which includes the Employer; or
(D) any other entity required to be aggregated with the Employer pursuant to
Code Section 414(o). With respect to Section 3.9, "Affiliate" status shall be
determined in accordance with Code Section 415(h).
1.10 Annuity Contract: An individual or group annuity contract issued by an
insurance company providing periodic benefits, whether fixed, variable or both,
the benefits or value of which a Participant or Beneficiary cannot transfer,
sell, assign, discount, or pledge as collateral for a loan or as security for
the performance of an obligation, or for any other purpose, to any person other
than the issuer thereof. The terms of any annuity contract purchased and
distributed by the Plan to a Participant or Spouse shall comply with the
requirements of this Plan.
1.11 Average Actual Deferral Percentage: For any group of Eligible
Participants, the average (expressed as a percentage) of the Actual Deferral
Percentages for each of the Eligible Participants in that group, including those
not making Elective Deferrals.
1.12 Average Contribution Percentage: For any group of Eligible Participants,
the average (expressed as a percentage) of the Contribution Percentages for each
of the Participants in that group, including those on whose behalf Matching
401(k) Contributions and/or Matching Thrift Contributions, if applicable, are
not being made.
1.13 Beneficiary: A person or persons entitled to receive any payment of
benefits pursuant to Article VII.
<PAGE>
1.14 Benefit Commencement Date: The first day, determined pursuant to Article
V, for which a Participant or Beneficiary receives or begins to receive payment
in any form of distribution as a result of death, Disability, termination of
Employment, Early Retirement, Plan termination or upon or after Normal
Retirement Age or age 70-1/2.
1.15 CODA: A cash or deferred arrangement pursuant to Code Section 401(k)
which is part of a profit sharing plan and under which an Eligible Participant
may elect to make Elective Deferrals in accordance with Section 3.4.1.
1.16 CODA Compensation: Solely for purposes of determining the Actual Deferral
Percentage and the Contribution Percentage, CODA Compensation shall be
Compensation excluding or including "elective contributions" as specified in the
Adoption Agreement. The preceding sentence shall be effective for Plan Years
beginning on or after January 1, 1989.
1.17 Code: The Internal Revenue Code of 1986, as
now in effect or as amended from time to time. A reference to a specific
provision of the Code shall include such provision and any applicable regulation
pertaining thereto.
1.18 Compensation: For purposes of contributions, Compensation shall be
defined in the Adoption Agreement and Section 3.9.1(H), subject to any
exclusions elected under Section IAA(d) of the Adoption Agreement, Section 3.1.4
and the following modifications:
(A) For a Self-Employed Individual, Compensation means his or her Earned Income,
provided that if the Self-Employed Individual is not a Participant for an entire
Plan Year, his or her Compensation for that Plan Year shall be his or her Earned
Income for that Plan Year multiplied by a fraction the numerator of which is the
number of days he or she is a Participant during the Plan Year and the
denominator of which is the number of days in the Plan Year.
(B) Compensation of each Participant taken into account under this Plan for any
Plan Year beginning after December 21, 1988 shall be limited to the first
$200,000 as adjusted by the Adjustment Factor. In determining the Compensation
of a Participant for purposes of this limitation, the rule of Code
Section 414(q)(6) shall apply, except in applying such rules, the term "family"
shall include only the Spouse of the Participant and any lineal descendants of
the Participant who have not attained the age of 19 before the close of the
year. If, as a result of the application of such rules, the adjusted $200,000
limitation is exceeded, (except for purposes of determining the portion of
Compensation up to the Integration Level if this Plan is integrated with Social
Security), the limitation shall be prorated among the affected Participants in
proportion to each such Participant's Compensation as determined under this
Section 1.18 prior to the application of this limitation. In a manner applied
uniformly to all Eligible Employees, only Compensation during the period in
which the Employee is an Eligible Employee may be taken into account for
purposes of the nondiscrimination tests described in Code Section 401(k) and
401(m).
(C) If Compensation for any prior Plan Year is taken into account in determining
an Employee's contributions or benefits for the current year, the Compensation
for such prior year is subject to the applicable annual compensation limit in
effect for that prior year. For this purpose, for years beginning before
January 1, l990, the applicable annual compensation limit is $200,000.
(D) In addition to other applicable limitations set forth in the Plan, and not
withstanding any other provision of the Plan to the contrary, for Plan Years
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 limitations under Section 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 prior determination periods beginning before the first day of
the first Plan year beginning on or after January 1, 1994, the OBRA'93
Compensation limit is $150,000.
<PAGE>
1.19 Contribution Percentage: The ratio (expressed as a percentage) of the
Participant's Contribution Percentage Amounts to the Participant's CODA
Compensation for the Plan Year, whether or not the Eligible Employee was a
Participant for the entire Plan Year.
1.20 Contribution Percentage Amounts shall mean the sum of the: (A) Matching
401(k) Contributions; (B) Matching Thrift Contributions; (C) Qualified Matching
Contributions (to the extent not taken into account for purposes of the ADP
Test); (D) Employee Thrift Contributions; and (E) Participant Voluntary
Nondeductible Contributions, as applicable, made on behalf of the Participant
for the Plan Year. Such Contribution Percentage Amounts shall not include
Matching 401(k) Contributions that are forfeited either to correct Excess
Aggregate Contributions or because the contributions to which they relate are
Excess Elective Deferrals, Excess Contributions or Excess Aggregate
Contributions. The Employer may include Qualified Nonelective Contributions in
the Contribution Percentage Amounts, as specified in the Adoption Agreement.
Elective Deferrals may also be used in the Contribution Percentage Amounts so
long as the ADP Test is met before the Elective Deferrals are used in the ACP
Test and continues to be met following the exclusion of those Elective Deferrals
that are used to meet the ACP Test, as specified in the Adoption Agreement. An
Eligible Participant who does not direct an Elective Deferral or an Employee
Thrift Contribution shall be treated as an Eligible Participant on behalf of
whom no such contributions are made.
1.21 Defined Benefit Plan: A plan of the type defined in Code Section 414(j)
maintained by the Employer or Affiliate, as applicable.
1.22 Defined Contribution Plan: A plan of the type defined in Code
Section 414(i) maintained by the Employer or Affiliate, as applicable.
1.23 Disability: Disability as defined in the Adoption Agreement. The
permanence and degree of such impairment shall be supported by medical evidence.
1.24 Early Retirement: An actively employed Participant is eligible for Early
Retirement upon satisfying the requirements set forth in the Adoption Agreement.
1.25 Early Retirement Date: The Participant's Benefit Commencement Date
following his or her termination of Employment on or after satisfying the
requirements for Early Retirement and prior to Normal Retirement Age.
1.26 Earned Income: The "net earnings from self-employment" within the meaning
of Code Section 401(c)(2) of a Self-Employed Individual from the trade or
business with respect to which the Plan is established, but only if the personal
services of the Self-Employed Individual are a material income-producing factor
in that trade or business. Net earnings will be determined without regard to
items not included in gross income and the deductions properly allocable to or
chargeable against such items and are to be reduced by contributions by the
Employer or Affiliate to a Qualified Plan to the extent deductible under Code
Section 404. Where this Plan refers to Earned Income in the context of a trade
or business other than that with respect to which the Plan is adopted, the term
Earned Income means such net earnings as would be Earned Income as defined above
if that trade or business was the trade or business with respect to which the
Plan is adopted.
Net earnings shall be determined with regard to the deduction allowed to the
Employer by Code Section 164(f) for taxable years beginning after December 31,
1989.
1.27 Elective Deferrals: Contributions made to the Plan during the Plan Year
by the Employer, at the election of the Participant, in lieu of cash
compensation and shall include contributions that are made pursuant to a 401(k)
Election. A Participant's Elective Deferral in any taxable year is the sum of
all Employer and Affiliate contributions pursuant to an election to defer under
any qualified cash or deferred arrangement, any simplified employee pension plan
or deferred arrangement as described in Code Section 402(h)(1)(B), any eligible
deferred compensation plan under Code Section 457, any plan as described under
Code Section 501(c)(18), and any Employer contributions made on behalf of a
Participant for the purchase of an annuity under Code Section 403(b) pursuant to
a salary reduction agreement. Such contributions are nonforfeitable when made
and are not distributable under the terms of the Plan to Participants or their
Beneficiaries earlier than the earlier of:
(A) termination from Employment, death or Disability of the Participant;
(B) termination of the Plan without establishment of another Defined
Contribution Plan by the Employer or an Affiliate;
(C) disposition by the Employer or Affiliate to an unrelated corporation of
substantially all of its assets used in a trade or business if such unrelated
corporation continues to maintain this Plan after the disposition but only with
respect to Employees who continue employment with the acquiring unrelated
entity. The sale of 85% of the assets used in a trade or business will be
deemed a sale of "substantially all" the assets used in a trade or business;
<PAGE>
(D) sale by the Employer or Affiliate to an unrelated entity of its interest in
an Affiliate if such unrelated entity continues to maintain the Plan but only
with respect to Employees who continue employment with such unrelated entity; or
(E) the events specified in Part B, Article VIII of the Adoption Agreement.
Elective Deferrals shall not include any deferrals properly distributed as an
"Excess Amount" pursuant to Section 3.9.2.
1.28 Elective Deferrals Account: The Account established for a Participant
pursuant to Section 3.8.1.
1.29 Eligible Employee: Those Employees specified in the Adoption Agreement.
1.30 Eligible Participant: An Eligible Employee who has met the eligibility
requirements set forth in the Adoption Agreement whether or not he or she makes
Elective Deferrals and/or Employee Thrift Contributions.
1.31 Employee: A Self-Employed Individual, or any individual who is employed
by the Employer in the trade or business with respect to which the Plan is
adopted and any individual who is employed by an Affiliate. Each Leased
Employee shall also be treated as an Employee of the recipient Employer. The
preceding sentence shall not apply, however, to any Leased Employee who is (A)
covered by a money purchase pension plan maintained by the "leasing
organization" referred to in Section 1.54 which provides, with respect to such
Leased Employee, a nonintegrated Employer contribution rate of at least 10% of
Limitation Compensation, but including amounts contributed pursuant to a salary
reduction agreement which are excluded from the Employee's gross income under
Code Section 402(a)(8), Code Section 402(h) or Code Section 403(b), immediate
participation, and full and immediate vesting and (B) such Leased Employees do
not constitute more than 20% of the Employer's and Affiliates' nonhighly
compensated workforce. For purposes of the Plan, all Employees will be treated
as employed by a single employer.
1.32 Employee Thrift Contributions: Employee nondeductible contributions which
are required to be eligible for a Matching Thrift Contribution. Employee Thrift
Contributions do not include Participant Voluntary Nondeductible Contributions.
1.33 Employee Thrift Contributions Account: The Account established for a
Participant pursuant to Section 3.8.3.
1.34 Employer: The sole proprietorship, partnership or corporation that adopts
the Plan by executing the Adoption Agreement. For all purposes relating to
eligibility, participation, contributions, vesting and allocations, Employer
includes all Participating Affiliates.
1.35 Employer Account: The Participant's Matching 401(k) Contributions
Account, Matching Thrift Contributions Account, Employer Contributions Account,
Qualified Matching Contributions Account and Qualified Nonelective Contributions
Account, as the case may be.
1.36 Employer Contributions: Any contributions made by the Employer for the
Plan Year on behalf of a Participant in accordance with Section 3.1 of the Plan.
1.37 Employer Contributions Account: The Account established for a Participant
pursuant to Section 3.8.2.
1.38 Employment: An Employee's employment or self-employment with the
Employer, Affiliate or a "leasing organization" referred to in Section 1.54 or,
to the extent required under Code Section 414(a)(2) or as otherwise specified by
the Administrator on a uniform and nondiscriminatory basis, any predecessor of
any of them. If any of them maintains a plan of a "predecessor employer"
(within the meaning of Code Section 414(a)(1)) employment or self-employment
with the "predecessor employer" will be treated as Employment. Additionally, if
the trade or business conducted by a Self-Employed Individual becomes
incorporated, all employment with that trade or business or with any Affiliate
shall be treated as Employment with the Employer.
1.39 Entry Date: The date on which an Eligible Employee becomes a Participant,
as specified in the Adoption Agreement.
1.40 ERISA: The Employee Retirement Income Security Act of 1974, as amended
from time to time. Reference to a specific provision of ERISA shall include
such provision and any applicable regulation pertaining thereto.
<PAGE>
1.41 Excess Aggregate Contributions: With respect to any Plan Year, the
excess of:
(A) The aggregate Contribution Percentage Amounts, taken into account in
computing the numerator of the Contribution Percentage actually made on
behalf of Highly Compensated Employees for such Plan Year, over
(B) The maximum Contribution Percentage Amounts permitted by the ACP Test
(determined by reducing contributions made on behalf of Highly Compensated
Employees in the order of their Contribution Percentages beginning with the
highest of such percentages) Such determination shall be made after first
determining Excess Elective Deferrals and then determining Excess
Contributions.
1.42 Excess Contributions: With respect to any Plan Year, the aggregate
amount of Elective Deferrals, Qualified Nonelective Contributions and
Qualified Matching Contributions, if applicable, actually paid over to the
Trust Fund on behalf of Highly Compensated Employees for such Plan Year, over
the maximum amount of such contributions permitted by the ADP Test
(determined by reducing contributions made on behalf of Highly Compensated
Employees in order of the Actual Deferral Percentages, beginning with the
highest of such percentages).
1.43 Excess Elective Deferrals: The amount of Elective Deferrals for a
Participant's taxable year that are includible in the gross income of the
Participant to the extent that such Elective Deferrals exceed the Code
Section 402(g) dollar limitation and which the Participant allocates to this
Plan pursuant to the procedure set forth in Section 3.4.2. Excess Elective
Deferrals shall be treated as an Annual Addition pursuant to Section 3.9,
unless such amounts are distributed no later than the first April 15th
following the close of the Participant's taxable year.
1.44 Family Member: An individual described in Code Section 414(q)(6)(B).
1.45 401(k) Contributions Accounts: The Participant's Elective Deferral
Account, Qualified Nonelective Contributions Account, and/or Qualified
Matching Contributions Account, as the case may be.
1.46 401(k) Election: The election by a Participant to make Elective
Deferrals in accordance with Section 3.4.1.
1.47 Fully Vested Separation: Termination of Employment, by reason other
than death, of a Participant whose vested percentage in each Employer Account
is 100%.
1.48 Group Trust: A Trust Fund consisting of assets of any Plan maintained
and established by the Employer or an Affiliate pursuant to Section 10.14.
1.49 Highly Compensated Employee: The term Highly Compensated Employee
includes highly compensated active Employees and highly compensated former
employees.
(A) A highly compensated active Employee includes any Employee who performs
service for the Employer or Affiliate during the Plan Year and who, during
the look-back year (the twelve-month period immediately preceding the Plan
Year):
(i) received Compensation from the Employer or Affiliate in excess of
$75,000 (as adjusted by the Adjustment Factor);
(ii) received Compensation from the Employer or Affiliate in excess of
$50,000 (as adjusted by the Adjustment Factor) and was a member of the
top-paid group for such year; or
(iii) was an officer of the Employer or Affiliate and received Compensation
during such year that is greater than 50% of the Defined Benefit Dollar
Limitation.
(B) The term Highly Compensated Employee also includes:
(i) Employees who are both described in the preceding sentence if the term
"Plan Year" is substituted for the term "look-back year" and the Employee is
one of the 100 Employees who received the most Compensation from the Employer
or Affiliate during the Plan Year; and
(ii) Employees who are 5% owners at any time during the look-back year or
Plan Year.
(C) If no officer has received Compensation that is greater than 50% of the
Defined Benefit Dollar Limitation in effect during either the Plan Year or
look-back year, the highest paid officer of such year shall be treated as a
Highly Compensated Employee.
(D) A highly compensated former employee includes any Employee who
terminated Employment (or was deemed to have terminated) prior to the Plan
Year, performs no service for the Employer or Affiliate during the Plan Year,
and was a highly compensated active employee for either the separation year
or any Plan Year ending on or after the Employee's 55th birthday.
(E) If an Employee is, during a Plan Year or look-back year, a Family Member
of either (i) a 5% owner who is an active or former Employee or (ii) a Highly
Compensated Employee who is one of the ten most
<PAGE>
highly compensated employees ranked on the basis of Compensation paid by the
Employer or Affiliate during such year, then the Family Member and the 5%
owner or top-ten Highly Compensated Employee shall be aggregated. In such
case, the Family Member and 5% owner or top-ten Highly Compensated Employee
shall be treated as a single Employee receiving Compensation and plan
contributions or benefits equal to the sum of such Compensation and
contributions or benefits of the Family Member and 5% owner or top-ten Highly
Compensated Employee. For purposes of this section, Family Member includes
the Spouse, lineal ascendants and descendants of the Employee or former
employee and the spouses of such lineal ascendants and descendants.
(F) The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid group;
the top 100 Employees; the number of Employees treated as officers; and the
Compensation that is considered will be made in accordance with Code Section
414(q).
1.50 Hour of Service: If the Employer elects in the Adoption Agreement the
hourly record method, an Hour of Service shall include:
(A) Each hour for which an Employee is paid, or entitled to payment, by the
Employer or an Affiliate for the performance of duties for the Employer or an
Affiliate. These hours will be credited to the Employee for each Plan Year
in which the duties are performed, or with respect to eligibility under
Article II, the applicable computation period under the definition of Year of
Service in which the duties are performed;
(B) Each hour for which an Employee is paid, or entitled to payment, by the
Employer or an Affiliate due to a period of time during which no duties are
performed (irrespective of whether Employment has terminated) due to
vacation, holiday, illness, incapacity (including Disability), layoff, jury
duty, military duty, or leave of absence. No more than 501 Hours of Service
will be credited under this paragraph for any single continuous period
(whether or not such period occurs in a single computation period). Hours
under this paragraph will be calculated and credited pursuant to section
2530.200b-2 of the Department of Labor Regulations which are incorporated
herein by this reference; and
(C) Each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Employer or an Affiliate. The same Hours
of Service will not be credited both under subparagraph (A) or subparagraph
(B), as the case may be, and under this subparagraph (C). These hours will
be credited to the Employee for the Year of Service or other computation
period to which the award or agreement pertains rather than the Year of
Service or other computation period in which the award, agreement or payment
is made.
If the Employer elects in the Adoption Agreement the elapsed time method, an
Hour of Service is an hour for which an Employee is paid, or entitled to
payment, for the performance of duties for the Employer or an Affiliate.
With respect to both the hourly record method and the elapsed time method, in
addition to service with an Affiliate, Hours of Service will also be credited
for any individual considered an Employee for purposes of this Plan under
Code Section 414(n).
1.51 Immediately Distributable: A Participant's Account is Immediately
Distributable if any part of such Account could be distributed to the
Participant or Participant's Surviving Spouse before the Participant attains
(or would have attained if not deceased) the later of Normal Retirement Age
or age 62.
1.52 Investment Manager: Any person appointed by the Trustee or, with
respect to Participant-Directed Assets, by the Participant or Beneficiary
having the power to direct the investment of such assets, to serve as such in
accordance with Section 10.8.
1.53 Key Employee: Any Employee or former Employee (and the beneficiaries
of such Employee) who at any time during the "determination period" was (A)
an officer of the Employer or Affiliate, having an annual Compensation
greater than 50% of the Defined Benefit Dollar Limitation for any Plan Year
within the "determination period"; (B) an owner (or considered an owner under
Code Section 318) of one of the ten largest interests in the Employer or
Affiliate if such individual's Compensation exceeds 100% of the dollar
limitation under Code Section 415(c)(1)(A); (C) a "5% owner" (as defined in
Code Section 416(i)) of the Employer or Affiliate; or (D) a "1% owner" (as
defined in Code Section 416(i)) of the Employer or Affiliate who has an
annual Compensation of more than $150,000. Annual Compensation means
compensation as defined in Code Section 415(c)(3), but including amounts
contributed by the Employer pursuant to a salary reduction agreement which
are excludible from the Employee's gross income under Code Section 125, Code
Section 402(a)(8), Code Section 402(h) or Code Section 403(b). The
"determination period" is the Plan Year containing the "determination date"
and the four preceding Plan Years. The "determination date" for the first
Plan Year is the last day of that Plan Year, and for any subsequent Plan Year
is the last day of the preceding Plan Year. The determination of who is a
Key Employee will be made in accordance with Code Section 416(i).
<PAGE>
1.54 Leased Employee: Any individual (other than an Employee of the
recipient Employer or Affiliate) who, pursuant to an agreement between the
Employer or Affiliate and any other person (the "leasing organization") has
performed services for the Employer (or for the Employer or Affiliate and
"related persons" determined in accordance with Code Section 414(n)(6)) on a
substantially full-time basis for a period of at least one year, which
services are of a type historically performed, in the business field of the
recipient Employer or Affiliate, by employees. Contributions or benefits
provided a Leased Employee by the leasing organization which are attributable
to services performed for the recipient Employer or Affiliate shall be
treated as provided by the recipient Employer.
1.55 Limitation Year: The Limitation Year as specified in the Adoption
Agreement. All Qualified Plans maintained by the Employer must use the same
Limitation Year. If the Limitation Year is amended to a different
12-consecutive month period, the new Limitation Year must begin on a date
within the Limitation Year in which the amendment is made.
1.56 Master or Prototype Plan: A plan the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
1.57 Matching 401(k) Contribution: Any contribution made by the Employer to
this and/or any other Defined Contribution Plan for the Plan Year, by reason
of the Participant's 401(k) Election, and allocated to a Participant's
Matching 401(k) Contributions Account or to a comparable account in another
Defined Contribution Plan. Matching 401(k) Contributions are subject to the
distribution provisions applicable to Employer Accounts in the Plan.
1.58 Matching 401(k) Contributions Account: The Account established for a
Participant pursuant to Section 3.8.4.
1.59 Matching Thrift Contributions: Any contribution made by the Employer
for the Plan Year by reason of Employee Thrift Contributions. Matching
Thrift Contributions shall be subject to the distribution provisions
applicable to Employer Accounts in the Plan.
1.60 Matching Thrift Contributions Account: The Account established for a
Participant pursuant to Section 3.8.5.
1.61 Net Profits: The current and accumulated profits of the Employer from
the trade or business of the Employer with respect to which the Plan is
established, as determined by the Employer before deductions for federal,
state and local taxes on income and before contributions under the Plan or
any other Qualified Plan.
1.62 Nonhighly Compensated Employee: An Employee of the Employer who is
neither a Highly Compensated Employee nor a Family Member.
1.63 Nonvested Separation: Termination of Employment of a Participant whose
vested percentage in each Employer Account is 0%.
1.64 Normal Retirement Age: The age specified in the Adoption Agreement.
Notwithstanding the Employer's election in the Adoption Agreement, if, for
Plan Years beginning before January 1, 1988, Normal Retirement Age was
determined with reference to the anniversary of the participation
commencement date (more than 5 but not to exceed 10 years), the anniversary
date for Participants who first commenced participation under the Plan before
the first Plan Year beginning on or after January 1, 1988, shall be the
earlier of (A) the tenth anniversary of the date the Participant commenced
participation in the Plan (or such anniversary as had been elected by the
Employer, if less than 10) or (B) the fifth anniversary of the first day of
the first Plan Year beginning on or after January 1, 1988.
1.65 Owner-Employee: An individual who is a sole proprietor, if the
Employer is a sole proprietorship, or if the Employer is a partnership, a
partner owning more than 10% of either the capital interest or the profits
interest in the Employer; provided that where this Plan refers to an
Owner-Employee in the context of a trade or business other than the trade or
business with respect to which the Plan is adopted, the term Owner-Employee
means a person who would be an Owner-Employer as defined above if that other
trade or business was the Employer.
<PAGE>
1.66 Partially Vested Separation: Termination of Employment of a
Participant whose vested percentage in any Employer Account is less than 100%
but greater than 0%.
1.67 Participant: An Employee who has commenced, but not terminated,
participation in the Plan as provided in Article II.
1.68 Participant Contributions Account: The Participant's Participant
Voluntary Nondeductible Contributions Account and/or Employee Thrift
Contributions Account, as the case may be.
1.69 Participant-Directed Assets: The assets of an Account which are
invested, as described in Section 10.5.1, according to the direction of the
Participant or the Participant's Beneficiary, as the case may be, in either
individually selected investments or in commingled funds or in shares of
regulated investment companies.
1.70 Participant Voluntary Nondeductible Contributions: Any voluntary
nondeductible contributions made in cash by a Participant to this Plan other
than Employee Thrift Contributions.
1.71 Participant Voluntary Nondeductible Contributions Account: The
Account established for a Participant pursuant to Section 3.8.6.
1.72 Participating Affiliate: Any Affiliate or any other employer
designated as such by the Employer, and, by duly authorized action, that has
adopted the Plan with the consent of the Employer and has not withdrawn
therefrom.
1.73 Period of Severance: For purposes of the hourly records method, a
Period of Severance is a period equal to the number of consecutive Plan Years
or, with respect to eligibility, the applicable computation period under the
definition of Year of Service, in which an Employee has 500 Hours of Service
or less. The Period of Severance shall be determined on the basis of Hours
of Service and shall commence with the first Plan Year in which the Employee
has 500 Hours of Service or less. With respect to any period of absence
during which a Period of Severance does not commence, the Participant shall
be credited with the Hours of Service (up to a maximum of 501 Hours of
Service in a Plan Year) which would otherwise have been credited to him or
her but for such absence, or if such Hours of Service cannot be determined, 8
Hours of Service for each day of absence.
For purposes of the elapsed time method, a Period of Severance is a
continuous period of at least 12-consecutive months during which an
individual's Employment is not continuing, beginning on the date an Employee
retires, quits or is discharged or, if earlier, the first 12-month
anniversary of the date that the individual is otherwise first absent from
service (with or without pay) for any other reason, and ending on the date
the individual again performs an Hour of Service.
Anything in the definition thereof to the contrary notwithstanding, a Period
of Severance shall not commence if the Participant is:
(A) On an authorized leave of absence in accordance with standard personnel
policies applied in a nondiscriminatory manner to all Employees similarly
situated and returns to active Employment by the Employer
or Affiliate immediately upon the expiration of such leave of absence;
(B) On a military leave while such Employee's re-employment rights are
protected by law and returns to active Employment within ninety days after
his or her discharge or release (or such longer period as may be prescribed
by law); or
(C) Absent from work by reason of (i) the pregnancy of the Employee, (ii) the
birth of a child of the Employee, or (iii) the placement of a child with the
Employment in connection with the adoption of such child by such Employee, or
(iv) the care of such child for a period beginning immediately following such
birth or placement. In determining when such a Participant's Period of
Severance begins, the Participant will be credited with (i) for purposes of
the elapsed time method, the 12-consecutive month period beginning on the
first anniversary of the first date of such absence; or (ii) for purposes of
the hourly records method, the Hours of Service he or she would normally have
had but for such absence, or if such Hours cannot be determined, eight Hours
of Service for each day of such absence; provided, however, that such Hours
of Service shall not exceed 501 and shall be credited only in the year in
which such absence began if such crediting would prevent the Participant from
incurring a Period of Severance in that year, or in any other case, shall be
credited in the immediately following year.
1.74 Plan: The plan established by the Employer in the form of this
Prototype Plan and the applicable Adoption Agreement executed by the
Employer. The Plan shall have the name specified in the Adoption Agreement.
1.75 Plan Year: Each 12-consecutive month period ending on the date
specified in the Adoption Agreement, during any part of which the Plan is in
effect.
<PAGE>
1.76 Prototype Plan: The Merrill Lynch Special Prototype Defined
Contribution Plan set forth in this document, as amended or restated from
time to time.
1.77 Qualified Joint and Survivor Annuity: An immediate annuity for the
life of Participant with a survivor annuity continuing after the
Participant's death to the Participant's Surviving Spouse for the Surviving
Spouse's life in an amount equal to 50% of the amount of the annuity payable
during the joint lives of the Participant and such Surviving Spouse and which
is the actuarial equivalent of a single life annuity which could be provided
for the Participant under an Annuity Contract purchased with the aggregate
vested Account Balances of the Participant's Accounts at the Benefit
Commencement Date.
1.78 Qualified Matching Contributions: Matching Contributions which,
pursuant to the election made by the Employer, and in accordance with Code
Section 401(m), are nonforfeitable when made and subject to the limitation on
distribution set forth in the definition of Qualified Nonelective
Contributions.
1.79 Qualified Matching Contributions Account: The Account established for
a Participant pursuant to Section 3.8.7.
1.80 Qualified Nonelective Contributions: Contributions (other than
Matching 401(k) Contributions, Qualified Matching 401(k) Contributions or
Elective Deferrals), if any, made by the Employer which the Participant may
not elect to receive in cash until distributed from the Plan, which are
nonforfeitable when made, and which are not distributable under the terms of
the Plan to Participants or their Beneficiaries earlier than the earlier of:
(A) termination of Employment, death, or Disability of the Participant;
(B) attainment of the age 59-1/2 by the Participant;
(C) termination of the Plan without establishment of another Defined
Contribution Plan by the Employer or an Affiliate;
(D) disposition by the Employer or Participating Affiliate to an unrelated
corporation of substantially all of its assets used in a trade or business if
such unrelated corporation continues to maintain this Plan after the
disposition but only with respect to Employees who continue employment with
the acquiring unrelated entity. The sale of 85% of the assets used in a
trade or business will be deemed a sale of "substantially all" the assets
used in a trade or business;
(E) sale by the Employer to an unrelated entity of its interest in an
Affiliate if such unrelated entity continues to maintain the Plan but only
with respect to Employees who continue employment with such unrelated entity;
and
(F) effective for Plan Years beginning before January 1, 1989, upon the
hardship of the Participant.
1.81 Qualified Nonelective Contributions Account: The Account established
for a Participant pursuant to Section 3.8.7.
1.82 Qualified Plan: A Defined Benefit Plan or Defined Contribution Plan.
1.83 Qualifying Employer Securities: Employer securities, as that term is
defined in ERISA Section 407(d)(5).
1.84 Rollover Contribution: A contribution described in Section 3.4.
1.85 Rollover Contributions Account: The Account established for a
Participant pursuant to Section 3.8.9.
1.86 Self-Employed Individual: An individual who has Earned Income for the
Plan Year involved from the trade or business for which the Plan is
established, or who would have had such Earned Income but for the fact that
the trade or business with respect to which the Plan is established had no
Net Profits for that Plan Year.
1.87 Social Security Retirement Age: Age 65 in the case of a Participant
attaining age 62 before January 1, 2000 (i.e., born before January 1, 1938),
age 66 for a Participant attaining age 62 after December 31, 1999, and before
January 1, 2017 (i.e., born after December 31, 1937, but before January 1,
1955), and age 67 for a Participant attaining age 62 after December 31, 2016
(i.e., born after December 31, 1954).
1.88 Sponsor: The mass submitter, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and any successor thereto, and any other qualifying sponsoring
organization who sponsors with the consent of the mass submitter, the
Prototype Plan and makes the Prototype Plan available for adoption by
Employers.
1.89 Spouse: The person married to a Participant, provided that a former
spouse will be treated as the Spouse to the extent provided under a
"qualified domestic relations order" (or a "domestic relations order" treated
as such) as referred to in Section 12.6.
<PAGE>
1.90 Surviving Spouse: The person married to a Participant on the earliest
of:
(A) the date of the Participant's death;
(B) the Participant's Benefit Commencement Date; or
(C) the date on which an Annuity Contract is purchased for the Participant
providing benefits under the Plan;
Anything contained herein to the contrary notwithstanding, a former spouse
will be treated as the Surviving Spouse to the extent provided under a
"qualified domestic relations order" (or a "domestic relations order" treated
as such) as referred to in Section 12.6.
1.91 Taxable Wage Base: The maximum amount of earnings which may be
considered "wages" for the Plan Year involved under Code Section 3121(a)(1).
1.92 Transferred Account: The Account established for a Participant
pursuant to Section 3.8.10.
1.93 Trust: The trust established under the Plan to which Plan
contributions are made and in which Plan assets are held.
1.94 Trust Fund: The assets of the Trust held by or in the name of the
Trustee.
1.95 Trustee: The person appointed as Trustee pursuant to Article X and any
successor Trustee.
1.96 Valuation Date: The last business day of each Plan Year, the date
specified in the Adoption Agreement or determined pursuant to Section 10.6,
if applicable, and each other date as may be determined by the Administrator.
1.97 Vesting Service: The Years of Service credited to a Participant under
Article IV for purposes of determining the Participant's vested percentage in
any Employer Account established for the Participant.
1.98 Years of Service: If the Employer elects the hourly records method in
the Adoption Agreement, an Employee shall be credited with one Year of
Service for each Plan Year in which he or she has 1,000 Hours of Service.
Solely for purposes of eligibility to participate, an Employee shall be
credited with a Year of Service on the last day of the 12-consecutive month
period which begins on the first day on which he or she has an Hour of
Service, if he or she has at least 1,000 Hours of Service in that period. If
an Employee fails to be credited with a Year of Service on such date, he or
she shall be credited with a Year of Service on the last day of each
succeeding 12-consecutive month period.
If the Employer elects the elapsed time method in the Adoption Agreement, the
Employee's Years of Service shall be a span of service equal to the sum of:
(A) the period commencing on the date the Employee first performs an Hour of
Service and ending on the date he or she quits, retires, is discharged, dies,
or if earlier, the 12-month anniversary of the date on which the Employee was
otherwise first absent from service (with or without pay) for any other
reason; and
(B) (i) if the Employee quits, retires, or is discharged, the period
commencing on the date the Employee terminated his or her Employment and
ending on the first date on which he or she again performs an Hour of
Service, if such date is within 12 months of the date on which he or she last
performed an Hour of Service; or
(ii) if the Employee is absent from work for any other reason and, within 12
months of the first day of such absence, the Employee quits, retires or is
discharged, the period commencing on the first day of such absence and ending
on the first day he or she again performs an Hour of Service if such day is
within 12 months of the date his or her absence began.
With respect to both the elapsed time method and the hourly record method,
service with a predecessor employer, determined in the manner in which the
rules of this Plan would have credited such service had the Participant
earned such service under the terms of this Plan, may be included in Years of
Service, as specified in the Adoption Agreement.
ARTICLE II PARTICIPATION
2.1 Admission as a Participant
2.1.1 An Eligible Employee shall become a Participant on the Entry Date
coincident with or next following the date on which he or she meets the
eligibility requirements specified in the Adoption Agreement; provided,
however that
(A) an Eligible Employee who has met the eligibility requirements as of the
first day of the Plan Year in which the Plan is adopted as a new Plan shall
become a Participant as of such date;
(B) an Eligible Employee who had met the eligibility requirements of a plan
that is restated and/or amended to become this Plan shall become a
Participant as of the date this Plan is adopted; and
<PAGE>
(C) if selected in the Adoption Agreement, an Eligible Employee shall become
a Participant on the effective date of the Plan providing he or she is an
Eligible Employee on such date.
2.1.2 An Employee who did not become a Participant on the Entry Date
coincident with or next following the day on which he or she met the
eligibility requirements because he or she was not then an Eligible Employee
shall become a Participant on the first day on which he or she again becomes
an Eligible Employee unless determined otherwise in accordance with Section
2.3.1 of the Plan.
2.1.3 If the Plan includes a CODA or thrift feature, in addition to the
participation requirements set forth in Section 2.1.1, an Eligible Employee
shall become a Participant upon filing his or her 401(k) Election or election
to make Employee Thrift Contributions with the Administrator. An election
shall not be required if the Employer has elected to make contributions to an
Employer Account and/or Qualified Nonelective Contributions with respect to
all Eligible Participants.
2.1.4 An individual who has ceased to be a Participant and who again becomes
an Eligible Employee shall become a Participant immediately upon reemployment
as an Eligible Employee unless determined otherwise in accordance with
Section 2.3.1 of the Plan.
2.2 Rollover Membership and Trust to Trust Transfer
An Eligible Employee who makes a Rollover Contribution or a trust to trust
transfer shall become a Participant as of the date of such contribution or
transfer even if he or she had not previously become a Participant. Such an
Eligible Employee shall be a Participant only for the purposes of such
Rollover Contribution or transfer and shall not be eligible to share in
contributions made by the Employer until he or she has become a Participant
in accordance with Section 2.1.
2.3 Crediting of Service for Eligibility Purposes
2.3.1 For purposes of eligibility to participate, an Eligible Employee or
Participant without any vested interest in any Employer Account and without
an Elective Deferrals Account who terminates Employment shall lose credit for
his or her Years of Service prior to such termination of Employment if his or
her Period of Severance equals or exceeds five years or, if greater, the
aggregate number of Years of Service.
2.3.2. For purposes of eligibility to participate, a Participant who has a
vested interest in any Employer Account and who terminates Employment shall
retain credit for his or her Years of Service prior to such termination of
Employment without regard to the length of his or her Period of Severance.
In the event such Participant returns to Employment, he or she shall
participate immediately.
2.3.3 A former Eligible Employee who was not a Participant who again becomes
an Eligible Employee with no Years of Service to his or her credit shall be
treated as a new Employee.
2.4 Termination of Participation
A Participant shall cease to be a Participant:
(A) upon his or her death;
(B) upon the payment to him or her of all nonforfeitable benefits due to him
or her under the Plan, whether directly or by the purchase of an Annuity
Contract; or
(C) upon his or her Nonvested Separation.
2.5 Limitation for Owner-Employee
2.5.1 If the Plan provides contributions or benefits for one or more
Owner-Employees who control the trade or business for which this Plan is
established and who also control as an Owner-Employee or as Owner-Employees
one or more other trades or businesses, this Plan and the plan established
for each such other trade or business must, when looked at as a single plan,
satisfy the requirements of Code Sections 401(a) and (d) with respect to the
employees of this and all of such other trades or businesses.
2.5.2 If the Plan provides contributions or benefits for one or more
Owner-Employees who control as an Owner-Employee or as Owner-Employees one or
more other trades or businesses, the employees of the other trades or
businesses must be included in a plan which satisfies the requirements of
Code Sections 401(a) and (d) and which provides contributions and benefits
for the employees of such other trades or businesses not less favorable than
the contributions and benefits provided for Owner-Employees under this Plan.
2.5.3 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 such individual under the most
favorable plan of the trade or business which is not controlled.
<PAGE>
2.5.4 For purposes of the preceding three subsections, 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:
(A) own the entire interest in an unincorporated trade or business, or
(B) in the case of a partnership, own more than 50% 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.
2.6 Corrections with Regard to Participation
2.6.1 If in any Plan Year an Eligible Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission
is not made until after a contribution by the Employer for the year has been
made, the Employer shall make a subsequent contribution with respect to the
omitted Eligible Employee in the amount which would have contributed with
respect to such Eligible Employee had he or she not been omitted. Such
contribution shall be made whether or not it is deductible in whole or in
part in any taxable year under applicable provisions of the Code. It shall
be the responsibility of the Employer and Administrator to take any and all
actions as required by this Section 2.6.1.
2.6.2 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 amount contributed on behalf of such ineligible person shall
constitute a forfeiture for the Plan Year in which the discovery is made. It
shall be the responsibility of the Employer and Administrator to take any and
all actions as required by this Section 2.6.2.
2.7 Provision of Information
Each Employee shall execute such forms as may reasonably be required by the
Administrator, and shall make available to the Administrator any information
the Administrator may reasonably request in this regard. By virtue of his or
her participation in this Plan, an Employee agrees, on his or her own behalf
and on behalf of all persons who may have or claim any right by reason of the
Employee's participation in the Plan, to be bound by all provisions of the
Plan.
ARTICLE III
CONTRIBUTIONS AND ACCOUNT ALLOCATIONS
3.1 Employer Contributions and Allocations
3.1.1 If the Plan is a profit-sharing plan, the Employer will contribute
cash and/or Qualifying Employer Securities to the Trust Fund, in such amount,
if any, as specified in the Adoption Agreement and with respect to Qualifying
Employer Securities as is consistent with Sections 10.4.2 and 10.4.3. If the
Plan is a profit-sharing plan, Net Profits may be necessary for an Employer
to make contributions, as specified in the Adoption Agreement. Employer
Contributions for a Plan Year will be allocated no later than the last day of
the Plan Year to the Employer Contributions Account of Participants eligible
for an allocation in the manner specified in the Adoption Agreement. A
not-for-profit corporation may adopt a profit-sharing plan as an incentive
plan; provided, however, that such a plan may not contain a CODA feature
unless otherwise permitted by law.
3.1.2 If the Plan is a money purchase pension plan, the Employer will
contribute cash to the Trust Fund in an amount equal to that percentage of
the Compensation of each Participant eligible for an allocation of Employer
contributions for that Plan Year as specified in the Adoption Agreement.
Employer Contributions for the Plan Year will be allocated as of the last day
of the Plan Year to the Employer Contributions Accounts of Participants
eligible for an allocation and entitled to share in such contributions in the
manner specified in the Adoption Agreement.
3.1.3 If the Plan is a target benefit plan, the Employer will contribute
cash to the Trust Fund in an amount specified in the Adoption Agreement. The
amount contributed with respect to the targeted benefit of each Participant
eligible for an allocation for that Plan Year will be allocated as of the
last day of the Plan Year to the Participant's Employer Contributions Account
in the manner specified in the Adoption Agreement.
3.1.4 If the Employer elects in the Adoption Agreement to make contributions
on behalf of a Participant whose Employment terminated due to Disability,
"Compensation" shall mean, with respect to
<PAGE>
such Participant, the Compensation he or she would have received for the
entire calendar year in which the Disability occurred if he or she had been
paid for such year at the rate at which he or she was being paid immediately
prior to such Disability. Employer Contributions may be taken into account
only if the Participant is a Nonhighly Compensated Employee and contributions
made on his or her behalf are nonforfeitable.
3.1.5 If an Employer has adopted more than one Adoption Agreement, or has
adopted a plan pursuant to the Merrill Lynch Special Prototype Defined
Benefit Plan and Trust, only one Adoption Agreement may be integrated with
Social Security.
3.1.6 For purposes of the Plan, contributions provided by the "leasing
organization" referred to in Section 1.37 of a Leased Employee which are
attributable to services performed for the Employer shall be treated as
provided by the Employer.
3.2 Participant Voluntary Nondeductible Contributions
3.2.1 If elected by the Employer in the Adoption Agreement, each Participant
while actively employed may make Participant Voluntary Nondeductible
Contributions in cash in a dollar amount or a percentage of Compensation
which does not, when included in the Contribution Percentage Amount, exceed
the limitations set forth in Code Section 401(m).
3.2.2 Participant Voluntary Nondeductible Contributions shall be made in
accordance with rules and procedures adopted by the Administrator.
3.3 Rollover Contributions and Trust to Trust Transfers
3.3.1 Any Eligible Employee or Participant may make a Rollover Contribution
under the Plan. A Rollover Contribution shall be in cash or in other
property acceptable to the Trustee and shall be a contribution attributable
to (a) a "qualified total distribution" (as defined in Code Section
402(a)(5)), distributed to the contributing Employee under Code Section
402(a)(5) from a Qualified Plan or distributed to the Employee under Code
Section 403(a)(4) from an "employee annuity" or referred to in that section,
or (b) a payout or distribution to the Employee referred to in Code Section
408(d)(3) from an "individual retirement account" or an "individual
retirement annuity" described, respectively, in Code Section 408(a) or
Section 408(b) consisting exclusively of amounts attributable to "qualified
total distributions" (as defined in Code Section 402(a)(5)) from a Qualified
Plan. The Plan shall not accept a Rollover Contribution attributable to any
accumulated deductible employee contributions as defined by Code Section
72(o)(5)(B). The Trustee may condition acceptance of a Rollover Contribution
upon receipt of such documents as it may require. In the event that an
Employee makes a contribution pursuant to this Section 3.3 intended to be a
Rollover Contribution but which did not qualify as a Rollover Contribution,
the Trustee shall distribute to the Employee as soon as practicable after
that conclusion is reached the entire Account balance in his or her Rollover
Contributions Account deriving from such contributions determined as of the
valuation date coincident with or immediately preceding such discovery.
3.3.2 Any Eligible Employee or Participant may direct the Administrator to
direct the Trustee to accept a transfer to the Trust Fund from another trust
established pursuant to another Qualified Plan of all or any part of the
assets held in such other trust. The Plan shall not accept a direct transfer
attributable to accumulated deductible employee contributions as defined by
Code Section 72(o)(5)(B). The Trustee may condition acceptance of such a
trust to trust transfer upon receipt of such documents as it may require.
3.4 Section 401(k) Contributions and Account Allocations
3.4.1 Elective Deferrals
(A) Amount of Elective Deferrals
Subject to the limitations contained in Section 3.4.2, the Employer will
contribute cash to the Trust Fund in an amount equal to:
(i) as specified on the Participant's 401(k) Election form, the specific
dollar amount, or the deferral percentage multiplied by each such
Participant's Compensation; or
(ii) a bonus contribution made pursuant to Section 3.4.1(C).
(B) The amount elected by a Participant pursuant to a 401(k) Election shall
be determined within the limits specified in the Adoption Agreement. The
401(k) Election shall be made on a form provided by the Administrator but no
election shall be effective prior to approval by the Administrator. The
Administrator may reduce the amount of any 401(k) Election, or make such
other modifications as necessary, so that the Plan complies with the
provisions of the Code. A Participant's 401(k) Election shall remain in
effect until modified or terminated. Modification or termination of a 401(k)
Election shall be made at such time as specified in the Adoption Agreement.
(C) If elected by the Employer in the Adoption Agreement, an Eligible
Employee may make a 401(k) Election to have an amount withheld up to the
amount
<PAGE>
of any bonus payable for such Plan Year and direct the Employer to contribute
the amount so withheld to his or her Elective Deferrals Account.
3.4.2 Limitation on Elective Deferrals
(A) Maximum Amount of Elective Deferrals and Distribution of Excess
Elective Deferrals
(i) No Participant shall be permitted to have Elective Deferrals made under
this Plan, or any other Qualified Plan maintained by the Employer, during any
Plan Year in excess of the dollar limitation contained in Code Section 402(g)
in effect at the beginning of the Participant's taxable year. (ii)
Notwithstanding any other provision of the Plan, Excess Elective Deferrals
made to this Plan or assigned to this Plan, plus any income and minus any
loss allocable thereto, shall be distributed no later than April 15, 1988,
and each April 15 thereafter, to Participants to whose accounts Excess
Elective Deferrals were designated for the preceding Plan Year and who claim
Excess Elective Deferrals for such taxable year. Excess Elective Deferrals
shall be treated as Annual Additions.
(iii) Claims. A Participant may designate to this Plan any amount of his or
her Elective Deferrals as Excess Elective Deferrals during his or her taxable
year. A Participant's claim shall be in writing, shall be submitted to the
Administrator no later than March 1, shall specify the Participant's Excess
Elective Deferral for the preceding Plan Year, and shall be accompanied by
the Participant's written statement that if such amounts are not distributed,
such Excess Elective Deferral, when added to amounts deferred under other
plans or arrangements described in Code Section 401(k), Code Section 408(k),
Code Section 403(b) or Code Section 457, exceeds the limit imposed on the
Participant by Code Section 402(g) for the year in which the deferral
occurred. A Participant is deemed to notify the Administrator of any Excess
Elective Deferrals that arise by taking into account only those Elective
Deferrals made to this Plan and any other plans of the Employer or an
Affiliate.
(iv) Determination of Income or Loss. Excess Elective Deferrals shall be
adjusted for income or loss up to the date of distribution. The income or
loss allocable to Participant's Excess Elective Deferrals is the sum of: (1)
the income or loss allocable to the Participant's Elective Deferrals Account
for the Participant's taxable year multiplied by a fraction, the numerator of
which is the Participant's Excess Elective Deferrals for the Participant's
taxable year and the denominator of which is the Account Balance of the
Participant's Elective Deferrals Account without regard to any income or loss
occurring during such taxable year; and (2) ten percent of the amount
determined under (1) multiplied by the number of whole calendar months
between the end of the Participant's taxable year and the date of
distribution, counting the month of distribution if distribution occurs after
the 15th of such month.
Anything in the preceding paragraph of this Section 3.4.2(A)(iv) to the
contrary notwithstanding, any reasonable method for computing the income or
loss allocable to Excess Elective Deferrals may be used, provided that such
method is used consistently for all Participants and for all corrective
distributions under the Plan, and is used by the Plan for allocating income
or loss to Participants' Accounts. Income or loss allocable to the period
between the end of the taxable year and the date of distribution may be
disregarded in determining income or loss.
(B) ADP Test
The Average Actual Deferral Percentage for Highly Compensated Employees for
each Plan Year and the Average Actual Deferral Percentage for Nonhighly
Compensated Employees for the same Plan Year must satisfy one of the
following tests:
(i) The Average Actual Deferral Percentage for Eligible Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the Average
Actual Deferral Percentage for Eligible Participants who are Nonhighly
Compensated Employees for the Plan Year multiplied by 1.25; or
(ii) The Average Actual Deferral Percentage for Eligible Participants who
are Highly Compensated Employees for the Plan Year shall not exceed the
Average Actual Deferral Percentage for Eligible Participants who are
Nonhighly Compensated Employees for the Plan Year multiplied by 2.0; provided
that the Average Actual Deferral Percentage for Eligible Participants who are
Highly Compensated Employees does not exceed the Average Actual Deferral
Percentage for Participants who are Nonhighly Compensated Employees by more
than two percentage points.
<PAGE>
(C) Special Actual Deferral Percentage Rules
(i) The Actual Deferral Percentage for any Eligible Participant who is a
Highly Compensated Employee for the Plan Year and who is eligible to have
Elective Deferrals and Qualified Matching Contributions or Qualified Nonelective
Contributions, or both, if treated as Elective Deferrals for purposes of the ADP
Test, allocated to his or her accounts under two or more plans or arrangements
described in Code Section 401(k) that are maintained by the Employer shall be
determined as if all such Elective Deferrals, Qualified Matching Contributions
and Qualified Nonelective Contributions were made under a single arrangement.
If a Highly Compensated Employee participates in two or more cash or deferred
arrangements that have different plan years, all cash or deferred arrangements
ending with or within the same calendar year shall be treated as a single
arrangement.
(ii) In the event that this Plan satisfies the requirements of Code Section
401(k), Code Section 401(a)(4) or Code Section 410(b) only if aggregated with
one or more other qualified plans, or if one or more other qualified plans
satisfy the requirements of such Code Sections only if aggregated with this
Plan, then this Section shall be applied by determining the Actual Deferral
Percentage of Employees as if all such qualified plans were a single qualified
plan. For Plan Years beginning after December 31, 1989, plans may be aggregated
in order to satisfy Code Section 401(k) only if they have the same plan year.
(iii) For purposes of determining the Actual Deferral Percentage of an Eligible
Participant who is a 5% owner or one of the ten most highly paid Highly
Compensated Employees, the Elective Deferrals (and Qualified Matching
Contributions or Qualified Nonelective Contributions, or both, if treated as
Elective Deferrals for purposes of one of the tests referred to in Section
3.4.2(B)) and CODA Compensation of such Participant shall include the Elective
Deferrals (and, if applicable, Qualified Matching Contributions, Qualified
Nonelective Contributions) and CODA Compensation for the Plan Year of Family
Members. Family Members with respect to such Highly Compensated Employees shall
be disregarded as separate employees in determining the Actual Deferral
Percentage both for Eligible Participants who are Nonhighly Compensated
Employees and for Eligible Participants who are Highly Compensated Employees.
(iv) For purposes of determining the ADP Test, Elective Deferrals, Qualified
Matching Contributions, and Qualified Nonelective must be made before the last
day of the 12-month period immediately following the Plan Year to which such
contributions relate.
(v) The Employer shall maintain records sufficient to demonstrate satisfaction
of the ADP Test and the amount of Qualified Nonelective Contributions and/or
Qualified Matching Contribution used in such test.
(vi) The determination and treatment of the Elective Deferrals, Qualified
Matching Contributions, and Qualified Nonelective Contributions, used in the ADP
Test shall satisfy such other requirements as may be prescribed by the Secretary
of the Treasury.
(D) Distribution of Excess Contributions
(i) In General. Notwithstanding any other provision of the Plan except
Section 3.4.2(E), Excess Contributions, plus any income and minus any loss
allocable thereto, shall be distributed no later than the last day of each
Plan Year beginning after December 31, 1987, to Participants to whose
Accounts Elective Deferrals, Qualified Matching Contributions, and Qualified
Nonelective Contributions were allocated for the preceding Plan Year.(1)
Excess Contributions of Participants who are subject to the Family Member
aggregation rules shall be allocated among the Family Members in proportion
to the Elective Deferrals (and amounts treated as Elective Deferrals) of each
Family Member that is combined to determine the combined Actual Deferral
Percentage. Excess Contributions shall be treated as Annual Additions.
(ii) Determination of Income or Loss. Excess Contributions shall be adjusted
for any income or loss up to the date of distribution. The income or loss
allocable to Excess Contributions is the sum of: (1) the income or loss
allocable to the Participant's Elective Deferrals Account (and, if applicable,
the Qualified Nonelective Contributions Account or the Qualified Matching
Contributions Account or both) for the Plan Year multiplied by a fraction, the
numerator of which is such Participant's Excess Contributions for the year and
the denominator of which is the Account Balances of Participant's Elective
Deferrals Account, Qualified Nonelective Contributions Account and Qualified
Matching Contributions Account if any of such contributions are included in the
ADP Test, without regard to any income or loss occurring during such Plan Year;
and
- ---------------------------
(1)Distribution of Excess Contributions on or before the last day of the Plan
Year after the Plan Year in which such excess amounts arose is required under
Code Section 401(k)(8) if the Plan is to maintain its tax-qualified status.
However, if such excess amounts, plus any income and minus any loss allocable
thereto, are distributed more than 2-1/2 months after the last day of the
Plan Year in which such excess amounts arose, then Code Section 4979 imposes
a 10% excise tax on the employer maintaining the plan with respect to such
amounts.
<PAGE>
(2) 10% of the amount determined under (1) multiplied by the number of whole
calendar months between the end of the Plan Year and the date of distribution,
counting the month of distribution if distribution occurs after the 15th of such
month.
Anything in the preceding paragraph of this Section 3.4.2(D)(ii) to the contrary
notwithstanding, any reasonable method for computing the income or loss
allocable to Excess Contributions may be used, provided that such method is used
consistently for all Participants and for all corrective distributions under the
Plan for the Plan Year, and is used by the Plan for allocating income or loss to
Participant's Accounts. Income or loss allocable to the period between the end
of the Plan Year and the date of distribution may be disregarded in determining
income or loss.
(iii) Accounting for Excess Contributions. Amounts distributed under this
Section 3.4.2(D) shall first be distributed from the Participant's Elective
Deferrals Account and Qualified Matching Contributions Account in proportion to
the Participant's Elective Deferrals and Qualified Matching Contributions (to
the extent used in the ADP Test) for the Plan Year. Excess Contributions shall
be distributed from the Participant's Qualified Nonelective Contributions
Account only to the extent that such Excess Contributions exceed the balance in
the Participant's Elective Deferrals Account and Qualified Matching
Contributions Account.
(E) In lieu of distributing Excess Contributions pursuant to the preceding
Section 3.4.2(D), and as specified in the Adoption Agreement, the Employer may
make special Qualified Nonelective Contributions on behalf of Nonhighly
Compensated Employees that are sufficient to satisfy the ADP Test.
(F) In lieu of distributing Excess Contributions, the Participant may treat his
or her Excess Contributions as an amount distributed and then re-contributed by
such Participant. Recharacterized amounts are 100% nonforfeitable and subject
to the same distribution requirements as Elective Deferrals. Amounts may not be
recharacterized by a Highly Compensated Employee to the extent that such amount
in combination with other amounts made to the Participant's Participant
Contributions Account would exceed any stated limit on such contributions, as
specified in the Adoption Agreement. If Excess Contributions are
recharacterized, they must be so no later than two and one half months after the
last day of the Plan Year in which such Excess Contributions arose and they are
deemed to occur no earlier than the date the last Highly Compensated Employee is
informed in writing of the amount recharacterized and the consequences thereof.
Recharacterized amounts are taxable to the Participant for the tax year in which
he or she would have received such contributions in cash.
(G) Under no circumstances may Elective Deferrals, Qualified Matching
Contributions and Qualified Nonelective Contributions be contributed and
allocated to the Trust later than the last day of the 12-month period
immediately following the Plan Year to which such contributions relate.
3.5 Matching 401(k) Contributions
3.5.1 Amount of Matching Contributions Subject to the limitations contained in
Sections 3.9 and 3.5.2, for each Plan Year the Employer will contribute in cash
and/or Qualifying Employer Securities, Matching 401(k) Contributions to the
Trust Fund in an amount, if any, calculated by reference to the Participants'
Elective Deferrals as specified in the Adoption Agreement.
3.5.2 Limitation on Contribution Percentage
(A) ACP Test
The Average Contribution Percentage for Eligible Participants who are Highly
Compensated Employees for the Plan Year and the Average Contributions Percentage
for Eligible Participants who are Nonhighly Compensated Employees for the same
Plan Year must satisfy one of the following tests:
(i) the Average Contribution Percentage for Eligible Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the Average
Contribution Percentage for Eligible Participants who are Nonhighly Compensated
Employees for the same Plan Year multiplied by 1.25; or
(ii) the Average Contribution Percentage for Eligible Participants who are
Highly Compensated Employees shall not exceed the Average Contribution
Percentage for Eligible Participants who are Nonhighly Compensated Employees by
more than two percentage points or such lesser amount as the Secretary of the
Treasury shall prescribe to prevent the multiple use of this alternative
limitation with respect to any Highly Compensated Employee.
(B) Special Average Contribution Percentage Rules
(i) For purposes of this Section 3.5.2, the Contribution Percentage for any
Eligible Participant who is a Highly Compensated Employee for the Plan Year and
who is eligible to have Matching 401(k) Contributions
<PAGE>
or Matching Thrift Contributions, as the case may be (other than Qualified
Matching Contributions), allocated to his or her account under two or more
qualified plans described in Code Section 401(a), or arrangements described in
Code Section 401(k) shall be determined as if the total of such Contribution
Percentage Amounts was made under each plan. If a Highly Compensated Employee
participates in 2 or more cash or deferred arrangements that have different plan
years, all cash or deferred arrangements ending with or within the same calendar
year shall be treated as a single arrangement.
(ii) In the event that this Plan satisfies the requirements of Code Section
410(b) only if aggregated with one or more other plans, or if one or more other
plans satisfy the requirements of Code Section 410(b) only if aggregated with
this Plan, then this Section 3.5.2 shall be applied by determining the
Contribution Percentages of Employees as if all such plans were a single plan.
For Plan Years beginning after December 31, 1989, plans may be aggregated in
order to satisfy Code Section 401(m) only if they have the same plan year.
(iii) For purposes of determining the Contribution Percentage of an Eligible
Participant who is a 5% owner or one of the 10 most highly-paid Highly
Compensated Employees, the Contribution Percentage Amounts and the CODA
Compensation of such Participant shall include the Contribution Percentage
Amounts and CODA Compensation for the Plan Year of Family Members. Family
Members with respect to Highly Compensated Employees shall be disregarded as
separate employees in determining the Contribution Percentage both for
Participants who are Nonhighly Compensated Employees and for Participants who
are Highly Compensated Employees.
(iv) For purposes of determining the ACP Test, Matching 401(k) Contributions,
Matching Thrift Contributions and Qualified Nonelective Contributions will be
considered made for a Plan Year if made no later than the end of the 12-month
period beginning on the day after the close of the Plan Year.
(v) The Employer shall maintain records sufficient to demonstrate satisfaction
of the ACP Test and the amount of Qualified Nonelective Contributions or
Qualified Matching Contributions, or both, used in such test.
(C) Multiple Use
If one or more Highly Compensated Employees participate in both a cash or
deferred arrangement and a plan subject to the ACP Test and the sum of the
Actual Deferral Percentage and the Actual Contribution Percentage of those
Highly Compensated Employees exceeds the "aggregate limit", then the Actual
Contribution Percentage of those Highly Compensated Employees will be reduced,
beginning with such Highly Compensated Employee whose Actual Contribution
Percentage is the highest, so that the limit is not exceeded. The amount by
which each Highly Compensated Employee's Contribution Percentage is reduced
shall be treated as an Excess Aggregate Contribution. The Actual Deferral
Percentage and Actual Contribution Percentage of the Highly Compensated
Employees are determined after any corrections required to meet the ADP Test and
the ACP Test. Multiple use does not occur if either the Average Deferral
Percentage or Actual Contribution Percentage of the Highly Compensated Employees
does not exceed 1.25 multiplied by the Actual Deferral Percentage and the Actual
Contribution Percentage of the Nonhighly Compensated Employees.
(i) The "aggregate limit" is the sum of (1) 125% of the greater of the Actual
Deferral Percentage for Participants who are Nonhighly Compensated Employees for
the Plan Year or the Actual Deferral Percentage for Participants who are
Nonhighly Compensated Employees for the Plan Year beginning with or within the
Plan Year and (2) the lesser of 200% or two plus the lesser of such Actual
Deferral Percentage or Actual Contribution Percentage. "Lesser" is substituted
for "greater" in "(1)," above, and "greater" is substituted for "lesser" after
"two plus the" in "(2)" if it would result in a larger aggregate limit.
(D)Forfeiture of Excess Aggregate Contributions
(i) In General. Notwithstanding any other provision of this Plan, Excess
Aggregate Contributions, plus any income and minus any loss allocable thereto,
shall be forfeited and applied to reduce subsequent Matching 401(k)
Contributions or Matching Thrift Contributions, as the case may be. No
forfeitures arising under this Section 3.6.2(D) shall be allocated to the
account of any Highly Compensated Employee. If not forfeitable, Excess
Aggregate Contributions shall be distributed no later than the last day of each
Plan Year beginning after December 31, 1987, to Participants to whose Accounts
such Excess Aggregate Contributions were allocated for the preceding Plan Year.
Excess Aggregate Contributions of Participants who are subject to the Family
Member
<PAGE>
aggregation rules shall be allocated among the Family Members in proportion to
the amounts constituting Contribution Percentage Amounts of each Family Member
that is combined to determine the combined Actual Contribution Percentage.
Excess Aggregate Contributions shall be treated as Annual Additions. Anything
above to the contrary notwithstanding, any forfeiture or distribution under this
Section 3.5.2(D)(i) shall occur only if sufficient Employee Thrift Contributions
and/or Participant Voluntary Nondeductible Contributions, as the case may be,
are not distributed from the qualified plan holding such Employee Thrift
Contributions and/or Participant Voluntary Nondeductible Contributions, as the
case may be.(2)
(ii) Determination of Income or Loss. Excess Aggregate Contributions shall be
adjusted for any income or loss up to the date of distribution. The income or
loss allocable to Excess Aggregate Contributions is the sum of: (1) the income
or loss allocable to the Participant's Matching 401(k) Contribution Account or
Matching Thrift Contribution Account (if any, and if all amounts therein are not
used in the ADP Test) and, if applicable, Qualified Nonelective Contribution
Account and Elective Deferrals Account for the Plan Year multiplied by a
fraction, the numerator of which is such Participant's Excess Aggregate
Contributions for the year and the denominator of which is the Participant's
Account Balance(s) attributable to Contribution Percentage Amounts without
regard to any income or loss occurring during such Plan Year; and (2) 10% of the
amount determined under (1) multiplied by the number of whole calendar months
between the end of the Plan Year and the date of distribution, counting the
month of distribution if distribution occurs after the 15th of such month.
Anything in the preceding paragraph of this Section 3.5.2(D)(ii) to the contrary
notwithstanding, any reasonable method for computing the income or loss
allocable to Excess Aggregate Contributions may be used, provided that such
method is used consistently for all Participants and for all corrective
distributions under the Plan for the Plan Year, and is used by the Plan for
allocating income or loss to Participants' Accounts. Income or loss allocable
to the period between the end of the Plan Year and the date of distribution may
be disregarded in determining income or loss.
(iii) The determination of the Excess Aggregate Contributions shall be made
after first determining the Excess Elective Deferrals, and then determining the
Excess Contributions.
3.5.3 For purposes of determining the ACP Test, Qualified Nonelective
Contributions, Matching 401(k) Contributions and Matching Thrift Contributions
will be considered made for a Plan Year if paid to the Trustee no later than the
end of the 12-month period beginning on the day after the close of the Plan
Year.
3.6 Thrift Contributions
3.6.1 Employee Thrift Contributions. If elected by the Employer in the
Adoption Agreement to provide for Employee Thrift Contributions, the Employer
will contribute cash to the Trust Fund in an amount equal to (A) the Employee
Thrift Contribution percentage of each Participant on his or her Employee Thrift
Contribution election form multiplied by each such Participant's Compensation or
(B) the specific dollar amount set forth on the Participant's election form.
The amount elected by a Participant pursuant to a Participant's Employee Thrift
Contribution election shall be determined within the limits specified in the
Adoption Agreement. Such election shall be made on a form provided by the
Administrator but no election shall be effective prior to approval by the
Administrator. The Administrator may reduce the amount of any Employee Thrift
Contribution, or make such other modifications as necessary, so that the Plan
complies with the provisions of the Code. A Participant's election shall remain
in effect until modified or terminated at such times as specified in the
Adoption Agreement.
3.6.2 Matching Thrift Contributions. Subject to the limitations contained in
Sections 3.9 and 3.5.2, for each Plan Year the Employer will contribute in cash
and/or Qualifying Employer Securities, Matching Thrift Contributions to the
Trust Fund in an amount, if any, calculated by reference to the Participants'
Employee Thrift Contributions, as specified in the Adoption Agreement.
Matching Thrift Contributions made by the Employer will be allocated to the
Matching Thrift Contributions Account of those Participants who have contributed
Employee Thrift Contributions to the Plan, as specified in the Adoption
Agreement.
______________________
(2) Distribution or forfeiture of Excess Aggregate Contributions on or before
the last day of the Plan Year after the Plan Year in which such excess
amounts arose is required under Code Section 401(m)(6) if the Plan is to
maintain its tax-qualified status. However, if such excess amounts, plus
any income and minus any loss allocable thereto, are distributed more than
2-1/2 months after the last day of the Plan Year in which such excess
amounts arose, then Code Section 4979 imposes a 10% excise tax on the
employer maintaining the plan with respect to such amounts.
<PAGE>
3.7 Treatment of Forfeitures
3.7.1 If the Employer has elected in the Adoption Agreement to reallocate
forfeitures for a Plan Year among Participants, then such forfeitures, if any,
shall be allocated as of the last day of the Plan Year to the Employer Accounts
of those Participants who are eligible to share in the allocation of
contributions to that particular Employer Account (whether or not a contribution
was made for that Plan Year) for that Plan Year in that particular Employer
Account category with respect to which such forfeitures are attributable. If
the Plan is a Target Benefit Plan, forfeitures may only be used to reduce
Employer Contributions, in accordance with Section 3.7.2.
3.7.2 If the Employer has elected in the Adoption Agreement to use forfeiture
to reduce contributions, then forfeitures shall be applied in the succeeding
Plan Year to reduce Employer Contributions in that particular Employer Account
category to which such forfeitures were attributable.
3.8 Establishing of Accounts
3.8.1 An Elective Deferrals Account shall be established for each Eligible
Participant who makes a 401(k) Election to which the Administrator shall credit,
or cause to be credited, Elective Deferrals allocable to each such Participant,
plus earnings or losses thereon.
3.8.2 An Employer Contributions Account shall be established for each
Participant to which the Administrator shall credit or cause to be credited
Employer contributions pursuant to Section 3.1, and forfeitures attributable to
such contributions, if any, plus earnings or losses thereon.
3.8.3 An Employee Thrift Contributions Account shall be established for each
Participant who makes Employee Thrift Contributions to the Plan, to which the
Administrator shall credit, or cause to be credited, all amounts allocable to
each such Participant, plus earnings or losses thereon.
3.8.4 A Matching 401(k) Contributions Account shall be established for each
Participant for whom Matching 401(k) Contributions are made, to which the
Administrator shall credit, or cause to be credited, all such amounts allocable
to each such Participant, plus earnings or losses thereon.
3.8.5 A Matching Thrift Contributions Account shall be established for each
Participant for whom Matching Thrift Contributions are made, to which the
Administrator shall credit, or cause to be credited, all amounts allocable to
each such Participant, plus earnings or losses thereon.
3.8.6 A Participant Voluntary Nondeductible Contributions Account shall be
established for each Participant who makes Participant Voluntary Nondeductible
Contributions to the Plan, plus earnings or losses thereon.
3.8.7 A Qualified Matching Contributions Account shall be established for each
Eligible Participant for whom Qualified Matching Contributions are made, to
which the Administrator shall credit, or cause to be credited, all amounts
allocable to each such Participant, plus earnings or losses thereon.
3.8.8 A Qualified Nonelective Contributions Account shall be established for
each Participant for whom Qualified Nonelective Contributions are made, to which
the Administrator shall credit, or cause to be credited, all amounts allocable
to each such Participant, plus earnings or losses thereon.
3.8.9 A Rollover Contributions Account shall be established for each
Participant who contributes to the Plan pursuant to Section 3.3 to which the
Administrator shall credit, or cause to be credited, Rollover Contributions made
by the Participant, plus earnings or losses thereon.
3.8.10 A Transferred Contributions Account shall be established for each
Participant for whom assets are transferred from another Qualified Plan, to
which the Administrator shall credit, or cause to be credited, transferred
assets, plus earnings or losses thereon.
3.9 Limitation on Amount of Allocations
3.9.1 As used in this Section 3.9, each of the following terms shall have the
meaning for that term set forth in this Section 3.9.1:
(A) Annual Additions means, for each Participant, the sum of the following
amounts credited to the Participant's Accounts for the Limitation Year:
(I) Employer Contributions within the meaning of IRS regulation 1.415-6(b);
(ii) Employee Contributions;
(iii) forfeitures;
(iv) allocation under a simplified employee pension; and
(v) any Excess Amount applied under a Defined Contribution Plan in the
Limitation Year to reduce Employer Contributions will also be considered as part
of the Annual Additions for such Limitation Year.
Amounts allocated after March 31, 1984, to an "individual medical benefit
account" as defined in Code
<PAGE>
Section 415(1)(2) ("Individual Medical Benefit Account") which is part of a
pension or annuity plan maintained by the Employer or Affiliate are treated as
Annual Additions to a Defined Contribution Plan. Also, amounts derived from
contributions paid or accrued after December 31, 1985, in taxable years ending
after that date, which are attributable to post-retirement medical benefits
allocated to the separate account of a "key employee" as defined in Code Section
419A(d)(3) under a "welfare benefit fund" as defined in Code Section 419(e)
("Welfare Benefit Fund") maintained by the Employer or Affiliate, are treated as
Annual Additions to a Defined Contribution Plan.
(B) Defined Benefit Dollar Limitation means $90,000 multiplied by the Adjustment
Factor or such other limitation set forth in Code Section 415(b)(1) as in effect
for the Limitation Year.
(C) Defined Benefit Fraction means a fraction, the numerator of which is the
sum of the Projected Annual Benefits of the Participant involved under all
Defined Benefit Plans (whether or not terminated) maintained by the Employer or
Affiliate, and the denominator of which is the lesser of 125% of the Defined
Benefit Dollar Limitation determined for the Limitation Year or 140% of the
Participant's Highest Average Limitation Compensation, including any adjustments
under Code Section 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 Affiliate which were in
existence on May 5, 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 plans after
May 5, 1986. The preceding sentence applies only if the Defined Benefit Plans
individually and in the aggregate satisfied the requirements of Code Section 415
for all Limitation Years beginning before January 1, 1987.
(D) Defined Contribution Dollar Limitation means $30,000 or if greater,
one-fourth of the Defined Benefit Dollar Limitation as in effect for the
Limitation Year.
(E) Defined Contribution Fraction means a fraction, the numerator of which is
the sum of the Annual Additions to the Participant's Account or Accounts under
all the Defined Contribution Plans (whether or not terminated) maintained by the
Employer or Affiliate for the current and all prior Limitation Years (including
the Annual Additions attributable to the Participant's nondeductible
contributions to all Defined Benefit Plans, whether or not terminated,
maintained by the Employer or Affiliate and the Annual Additions attributable to
all Welfare Benefit Funds, Individual Medical Benefit Accounts, and simplified
employee pensions maintained by the Employer or Affiliate), and the denominator
of which is the sum of the "maximum aggregate amounts" (as defined in the
following sentence) for the current and all prior Limitation Years of service
with the Employer or Affiliate (regardless of whether a Defined Contribution
Plan was maintained by the Employer or Affiliate). The "maximum aggregate
amount" in any Limitation Year is the lesser of (i) 125% of the Defined Benefit
Dollar Limitation in effect under Code Section 415(c)(1)(A) or (ii) 35% of the
Participant's Compensation for such year.
If the Employee was a Participant as 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 Affiliate in existence on May 5, 1986, the
numerator of this fraction will be adjusted if the sum of this fraction and the
Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this
Plan. Under the adjustment, an amount equal to the product of (A) the excess of
the sum of the fractions over 1.0 times (B) 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
later of the end of the last Limitation Year beginning before January 1, 1987,
and disregarding any changes in the terms and conditions of the Plans made after
May 6, 1986, but using the Code Section 415 limitation applicable to the first
Limitation Year beginning on or after January 1, 1987. The Annual Addition for
any Limitation Year beginning before January 1, 1987, shall not be recomputed to
treat all Participant contributions as Annual Additions.
<PAGE>
(F) Excess Amounts means the excess of the Participant's Annual Additions for
the Limitation Year involved over the Maximum Permissible Amount for that
Limitation Year.
(G) Highest Average Limitation Compensation means the average Compensation as
defined in Code Section 415(c)(3) of the Participant involved for that period of
three consecutive Years of Service with the Employer or Affiliate (or if the
Participant has less than three such Years of Service, the actual number
thereof) that produces the highest average.
(H) Limitation Compensation means Compensation, as defined in either (i), (ii)
or (iii) below, as specified in the Adoption Agreement:
(i) Code Section 415 Safe-Harbor Compensation
For an Employee other than a Self-Employed Individual, the Employee's earned
income, wages, salaries, and fees for professional services and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of Employment (including, but
not limited to, commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance premiums, tips,
bonuses, fringe benefits, and reimbursements or other expense allowances under a
nonaccountable plan (as described in Reg. 1.62-2(c)) and excluding the
following:
(1) Employer contributions to a plan of deferred compensation which are not
includible in the Employee's gross income for the taxable year in which
contributed, or contributions under a "simplified employee pension" plan (within
the meaning of Code Section 408(k)) to the extent such contributions are
deductible by the Employee, or any distributions from a plan of deferred
compensation;
(2) amounts realized from the exercise of a non-qualified stock option, or when
restricted stock (or other property) held by the Employee either becomes freely
"transferable" or is no longer subject to a "substantial risk of forfeiture"
(both quoted terms within the meaning of Code Section 83(a));
(3) amounts realized from the sale, exchange or other disposition of stock
acquired under a qualified stock option; and
(4) other amounts which received special tax benefits, or contributions made
(whether or not under a salary reduction agreement) towards the purchase of an
annuity described in Code Section 403(b) (whether or not the amounts are
actually excludable from the gross income of the Employee); or For Limitation
Years beginning after December 31, 1991, Limitation Compensation shall include
only that compensation which is actually paid or made available during the
Limitation Year.
(ii) Information required to be reported under Sections 6041 and 6051.
("Wages, Tips and other Compensation Box" Form W-2) Limitation Compensation is
defined as wages as defined in Code Section 3401(a) and all other payments of
compensation to an Employee by the Employer (in the course of the Employer's
trade or business) for which the Employer is required to furnish the Employee a
written statement under Sections 6041(d) and 6051(a)(3) of the Code.
Compensation must be determined without regard to any rules under Section
3401(a) 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 Section 3401(a)(2)).
(iii) Code Section 3401(a) wages
Limitation Compensation is defined as wages within the meaning of Code Section
3401(a) for the purposes of income tax withholding at the source but determined
without regard to any rules that limit the remuneration included in wages based
on the nature or location of the employment or the services performed (such as
the exception for agricultural labor in Code Section 3401(a)(2)).
Without regard to the definition of Limitation Compensation elected by the
Employer, for a Self-Employed Individual, Limitation Compensation means his or
her Earned Income, provided that if the Self-Employed Individual is not a
Participant for an entire Plan Year, his or her Limitation Compensation for that
Plan Year shall be his or her Earned Income for that Plan Year multiplied by a
fraction the numerator of which is the number of days he or she is a Participant
during the Plan Year and the denominator of which is the number of days in the
Plan Year. Additionally, Limitation Compensation for a Participant in a Defined
Contribution Plan who is permanently and totally disabled (as defined in Code
Section 22(e)) is the compensation such Participant would have received for the
Limitation Year if the Participant had been paid at the rate of compensation
paid immediately before becoming disabled; such imputed compensation may be
taken into account only if the Participant is not a Highly Compensated Employee
and contributions made on behalf of such Participant are nonforfeitable when
made.
<PAGE>
(I) Maximum Permissible Amount means the maximum Annual Addition which may be
contributed or allocated to a Participant's Account under the Plan for any
Limitation Year. The maximum Annual Addition shall not exceed the lesser of:
(a) the Defined Contribution Dollar Limitation, or (b) 25% of the Participant's
Compensation for the Limitation Year. The Compensation limitation referred to
in (b) shall not apply to any contribution for medical benefits (within the
meaning of Code Sections 401(h) or 419A(f)(2)) which is otherwise treated as an
Annual Addition under Code Section 415(l)(1) or 419A(d)(2). If a short
Limitation Year is created because of an amendment changing the Limitation Year
to a different 12-consecutive month period, the Maximum Permissible Amount will
not exceed the Defined Contribution Dollar Limitation multiplied by the
following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
(J) Projected Annual Benefit means the annual retirement benefit (adjusted to
an actuarially equivalent straight life annuity if such benefit is expressed in
a form other than a straight life annuity or Qualified Joint and Survivor
Annuity) to which the Participant would be entitled under the terms of a Defined
Benefit Plan assuming:
(i) the Participant continues in employment with the Employer or Affiliate
until the Participant's "normal retirement age" under the Plan within the
meaning of Code Section 411(a)(8) (or the Participant's current age, if later);
and
(ii) the Participant's Limitation Compensation for the current Limitation Year
and all other relevant factors used to determine benefits under the Plan will
remain constant for all future Limitation Years.
3.9.2 The provisions of this subsection 3.9.2 apply with respect to a
Participant who does not participate in, and has never participated in, another
Qualified Plan, a Welfare Benefit Fund or an Individual Medical Benefit Account
or a simplified employee pension, as defined in Code Section 401(k), maintained
by the Employer or an Affiliate, which provides an Annual Addition as defined in
Section 3.9.1(A) of the Plan, other than this Plan:
(A) The amount of Annual Additions which may be credited to the Participant's
Account for any Limitation Year will not exceed the lesser of the Maximum
Permissible Amount or any other limitation contained in this Plan. If the
Employer Contribution that would otherwise be contributed or allocated to the
Participant's Account would cause the Annual Additions on behalf of the
Participant for the Limitation Year to exceed the Maximum Permissible Amount
with respect to that Participant for the Limitation Year, the amount contributed
or allocated will be reduced so that the Annual Additions on behalf of the
Participant for the Limitation Year will equal such Maximum Permissible Amount.
(B) Prior to determining the Participant's actual Limitation Compensation for a
Limitation Year, the Employer may determine the Maximum Permissible Amount for
the Participant for the Limitation Year on the basis of a reasonable estimation
of the Participant's Compensation for that Limitation Year. Such estimated
Compensation shall be uniformly determined for all Participants similarly
situated.
(C) As soon as is administratively feasible after the end of a Limitation Year,
the Maximum Permissible Amount for the Limitation Year will be determined on the
basis of the Participant's actual compensation for the Limitation Year.
(D) If pursuant to Section 3.9.2(C) or as a result of the allocation of
forfeitures, there is an Excess Amount with respect to the Participant for a
Limitation Year, the Excess Amount shall be disposed of as follows:
(i) First, any contribution to the Participant's Elective Deferrals Account,
Participant Voluntary Nondeductible Contributions Account or Employee Thrift
Contributions Account, if applicable, and any earnings allocable thereto will be
distributed to the Participant to the extent that the return thereof would
reduce the Excess Amount in such Participant's Accounts;
(ii) If after the application of Section 3.9.2(D)(i) an Excess Amount still
exists, and the Participant is covered by the Plan at the end of the Limitation
Year, the remaining Excess Amount in the Participant's Account will be used to
reduce Employer contributions (including allocation of any forfeitures) under
this Plan for such Participant in the next Limitation Year, and in each
succeeding Limitation Year, if necessary.
(iii) If after the application of Section 3.9.2(D)(i) an Excess Amount still
exists, and the Participant is not covered by the Plan at the end of the
Limitation Year, the Excess Amount will be held unallocated in a suspense
account. The suspense account will be applied to reduce future Employer
contributions under this Plan for all remaining Participants in the next
Limitation Year, and in each succeeding Limitation Year, if necessary; provided,
however, that if all or any part of the Excess Amount held in a suspense account
is attributable to a Participant's Elective Deferrals, such Excess Amount shall
be held unallocated in a suspense account to be used for such Participant in the
next Limitation Year and each succeeding Limitation Year as an Elective Deferral
if such Participant is covered by the
<PAGE>
Plan in the next and each succeeding Limitation Year, if necessary.
(iv) If a suspense account is in existence at any time during a Limitation Year
pursuant to Section 3.9.2(D)(iii), the suspense account will not participate in
the allocation of the Trust Fund's investment gains or losses to or from any
other Account. If a suspense account is in existence at any time during a
particular Limitation Year, all amounts in the suspense account must be
allocated and reallocated to Participants' Accounts before any Employer or
Participant contributions may be made to the Plan for the Limitation Year.
Excess Amounts, other than those Excess Amounts referred to in Section
3.9.2(D)(i), may not be distributed to Participants or Former Participants.
3.9.3 The provisions of this subsection 3.9.3 apply with respect to a
Participant who, in addition to this Plan, is covered or has been covered under
one or more Defined Contribution Plans which are Master or Prototype Plans,
Welfare Benefit Funds an Individual Medical Benefit Account or a simplified
employee pension maintained by the Employer or an Affiliate, which provides an
Annual Addition as described in Section 3.9.1(A) of the Plan during any
Limitation Year:
(A) The Annual Additions which may be credited to a Participant's Accounts
under this Plan for any such Limitation Year will not exceed the Maximum
Permissible Amount reduced by the Annual Additions credited to the Participant's
account or accounts under any other plans and Welfare Benefit Fund, Individual
Medical Benefit Account or simplified employee pension for the same Limitation
Year. If the Annual Additions with respect to the Participant under any one or
more other such Defined Contribution Plans or Welfare Benefit Funds, Individual
Medical Benefit Account or simplified employee pension maintained by the
Employer are less than the Maximum Permissible Amount and the Employer
Contribution that would otherwise be contributed or allocated to a Participant's
Account under this Plan would cause the Annual Additions for the Limitation Year
to exceed this limitation, the amount contributed or allocated shall be reduced
so that the Annual Additions under all such plans and funds for the Limitation
Year will equal the Maximum Permissible Amount.
If the Annual Additions with respect to the Participant under such other Defined
Contribution Plans and Welfare Benefit Funds, Individual Medical Benefit Account
or simplified employee pension in the aggregate are equal to or greater than the
Maximum Permissible Amount, no amount will be contributed or allocated to any of
the Participant's Account under this Plan for the Limitation Year.
(B) Prior to determining the Participant's actual compensation for a Limitation
Year, the Maximum Permissible Amount for a Participant may be determined in the
manner described in Section 3.9.2(B).
(C) As soon as is administratively feasible after the end of a Limitation Year,
the Maximum Permissible Amount for the Limitation Year will be determined on the
basis of the Participant's actual Limitation Compensation for the Limitation
Year.
(D) If, pursuant to subsection 3.9.3(C) above, or as a result of the allocation
of forfeitures, a Participant's Annual Additions under this Plan and the
Participant's Annual Additions under such other plans would result in an Excess
Amount for a Limitation Year, the Excess Amount will be deemed to consist of the
Annual Additions last allocated, except that Annual Additions attributable to
simplified employee pension will be deemed to have been allocated first,
followed by Annual Additions to a Welfare Benefit Fund or Individual Medical
Benefit Account regardless of the actual allocation date.
(E) If an Excess Amount was allocated to a Participant on an allocation date of
this Plan which coincides with an allocation date of another such plan, the
Excess Amount attributed to this Plan will be the product of:
(i) the total Excess Amount allocated as of such date, times
(ii) the ratio of (A) the Annual Additions allocated to the Participant for the
Limitation Year as of such date under this Plan to (B) the total Annual
Additions allocated to the Participant for the Limitation Year as of such date
under this Plan and all of the other plans referred to in the first sentence of
this Section 3.9.3.
(F) Any Excess Amount attributed to this Plan will be disposed in the manner
described in Section 3.9.2(D).
3.9.4 If a Participant is covered under one or more Defined Contribution Plans,
other than this Plan, maintained by the Employer or an Affiliate which are not
Master or Prototype Plans, or Welfare Benefit Funds or an Individual Medical
Benefit Account maintained by the Employer, Annual Additions which may be
credited to the Participant's Account under this Plan for any Limitation Year
shall be limited in accordance with the provisions of subsections 3.9.3(A) - (F)
above as though each such other plan was a Master or Prototype Plan.
<PAGE>
3.9.5 If the Employer maintains, or at any time maintained, a Defined Benefit
Plan covering any Participant in this Plan, the sum of the Participant's Defined
Benefit Fraction and Defined Contribution Fraction will not exceed 1.0 in any
Limitation Year. If such sum would otherwise exceed 1.0 and if such Defined
Benefit Plan does not provide for a reduction in benefits thereunder, Annual
Additions which may be credited to a Participant's Account under this Plan for
any Limitation Year shall be limited in accordance with the provisions of
Section 3.9.2.
3.9.6 If required pursuant to Section 4.4.4, "100%" shall be substituted for
"125%" wherever the latter percentage appears in this Section 3.9.
3.10 Return of Employer Contributions Under Special Circumstances
Notwithstanding any provision of this Plan to the contrary, upon timely written
demand by the Employer or the Administrator to the Trustee:
(A) Any contribution by the Employer to the Plan under a mistake of fact shall
be returned to the Employer by the Trustee within one year after the payment of
the contribution.
(B) Any contribution made by the Employer incident to the determination by the
Commissioner of Internal Revenue that the Plan is initially a Qualified Plan
shall be returned to the Employer by the Trustee within one year after
notification from the Internal Revenue Service that the Plan is not initially a
Qualified Plan but only if the application for the qualification is made by the
time prescribed by law for filing the Employer's return for the taxable year in
which the Plan is adopted, or such later date as the Secretary of the Treasury
may prescribe.
(C) In the event the deduction of a contribution made by the Employer is
disallowed under Code Section 404, such contribution (to the extent disallowed)
must be returned to the Employer within one year of the disallowance of the
deduction.
ARTICLE IV VESTING
4.1 Determination of Vesting
4.1.1 A Participant shall at all times have a vested percentage of 100% in the
Account Balance of each of his or her Participant Contributions Accounts, 401(k)
Contributions Accounts, Rollover Contributions Account and Transferred Account.
4.1.2 A Participant shall have a vested percentage of 100% in his or her
Account Balance of each of his or her Employer Accounts if he or she terminates
Employment due to the attainment of Normal Retirement Age, Early Retirement
specified in the Adoption Agreement, if elected by the Employer in the Adoption
Agreement, or upon Disability or death.
4.1.3 The vested percentage of a Participant in the Account Balance of each of
his or her Employer Accounts not vested pursuant to Section 4.1.1 or 4.1.2 shall
be determined in accordance with the vesting rule or schedule specified in the
Adoption Agreement.
4.2 Rules for Crediting Vesting Service
4.2.1 Subject to Section 4.2.2, Years of Service shall be credited for purposes
of determining a Participant's Vesting Service as specified in the Adoption
Agreement. If the Employer maintains the plan of a predecessor employer,
service with such predecessor employer shall be treated as service with the
Employer for purposes of Vesting Service.
4.2.2 An Employee who terminates Employment with no vested percentage in an
Employer Account shall, if he or she returns to Employment, have no credit for
Vesting Service prior to such termination of Employment if his or her Period of
Severance equals or exceeds five years.
4.2.3 Vesting Service of an Employee following a Period of Severance of five
years or more shall not be counted for the purpose of computing his or her
vested percentage in his or her Employer Accounts derived from contributions
accrued prior to the Period of Severance. If applicable, separate records shall
be maintained reflecting the Participant's vested rights in his or her Account
Balance attributable to service prior to the Period of Severance and reflecting
the Participant's vested percentage in his or her Account Balance attributable
to service after the Period of Severance. Vesting Service prior to and
following an Employee's Period of Severance shall be counted for purposes of
computing his or her vested percentage in an Employer Account derived from
contributions made after the Period of Severance.
4.3 Employer Accounts Forfeitures
4.3.1 Subject to Section 5.6, upon the Nonvested Separation of a Participant,
the nonvested portion of each Employer Account of such Participant will be
forfeited as of the date of termination of Employment.
<PAGE>
Upon the Partially Vested Separation of a Participant, the nonvested portion of
each Employer Account of such Participant will be forfeited as of the date of
termination of Employment; provided, however, that such Participant receives a
distribution in accordance with Section 5.6. If a Participant does not receive
a distribution following his or her termination of Employment, the nonvested
portion of each Employer Account of the Participant shall be forfeited following
a Period of Severance of five years.
4.3.2 If the Employer elects in the Adoption Agreement to reallocate
forfeitures, forfeitures for a Plan Year shall be allocated in accordance with
Section 3.7.1. If the Employer elects in the Adoption Agreement to use
forfeitures to reduce Employer contributions, forfeitures shall be applied in
accordance with Section 3.7.2.
4.4 Top-Heavy Provisions
4.4.1 As used in this Section 4.4, each of the following terms shall have the
meanings for that term set forth in this Section 4.4.1:
(A) Determination Date means, for any Plan Year subsequent to the first Plan
Year, the last day of the preceding Plan year. For the first Plan Year of the
Plan, the last day of that year.
(B) Permissive Aggregation Group means the Required Aggregation Group of plans
plus any other plan or plans of the Employer or Affiliate which, when considered
as a group with the Required Aggregation Group, would continue to satisfy the
requirements of Code Sections 401(a)(4) and 410.
(C) Required Aggregation Group means (i) each Qualified Plan of the Employer or
Affiliate in which at least one Key Employee participates or participated at any
time during the determination period (regardless of whether the Plan has
terminated), and (ii) any other qualified plan of the Employer or Affiliate
which enables a plan described in (i) to meet the requirements of Code Sections
401(a)(4) or 410.
(D) Super Top-Heavy means, for any Plan Year beginning after December 31, 1983,
the Plan if any Top-Heavy Ratio as determined under the definition of Top-Heavy
Plan exceeds 90%.
(E) Top-Heavy Plan means, for any Plan Year beginning after December 31, 1983,
the Plan if any of the following conditions exists:
(i) If the Top-Heavy Ratio for the Plan exceeds 60% and the Plan is not part of
any Required Aggregation Group or Permissive Aggregation Group of Plans.
(ii) If the Plan is a part of a Required Aggregation Group of plans but not
part of a Permissive Aggregation Group and the Top-Heavy Ratio for the group of
plans exceeds 60%.
(iii) If the Plan is a part of a Required Aggregation Group and part of a
Permissive Aggregation Group of plans and the Top-Heavy Ratio for the Permissive
Aggregation Group exceeds 60%.
(F) Top-Heavy Ratio means
(i) If the Employer or Affiliate maintains one or more Defined Contribution
Plans (including any Simplified Employee Pension Plan) and the Employer or
Affiliate has never maintained any Defined Benefit Plan which during the
five-year period ending on the Determination Date has or has had accrued
benefits, the Top-Heavy Ratio for this Plan alone or for the Required or
Permissive Aggregation Group as appropriate is a fraction, the numerator of
which is the sum of the Account Balances of all Key Employees as of the
Determination Date (including any part of any Account Balance distributed in
the five-year period ending on the Determination Date), and the denominator
of which is the sum of all Account Balances (including any part of any
Account Balance distributed in the five-year period ending on the
Determination Date), both computed in accordance with Code Section 416. Both
the numerator and denominator of the Top-Heavy Ratio are increased to reflect
any contribution not actually made as of the Determination Date, but which is
required to be taken into account on that date under Code Section 416.
(ii) If the Employer or an Affiliate maintains one or more Defined Contribution
Plans (including any Simplified Employee Pension Plan) and the Employer or an
Affiliate maintains or has maintained one or more Defined Benefit Plans which
during the five-year period ending on the Determination Date has or has had any
accrued benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation
Group as appropriate is a fraction, the numerator of which is the sum of Account
Balances under the aggregated Defined Contribution Plans for all Key Employees,
determined in accordance with (i) above, and the present value of accrued
benefits under the aggregated Defined Benefit Plans for all Key Employees as of
the Determination Date, and the denominator of which is the sum of the Account
Balances under the aggregated Defined Contribution Plans for all Participants,
determined in accordance with (i) above, and the present value of accrued
benefits under the Defined Benefit Plans for all Participants as of the
Determination Date, all determined in accordance with Code Section 416. The
accrued benefit under a Defined Benefit Plan in both the numerator and
denominator of the Top-Heavy Ratio are increased for any distribution of an
accrued benefit made in the five-year period ending on the Determination Date.
<PAGE>
(iii) For purposes of (i) and (ii) above, the value of Account Balances and
the present value of accrued benefits will be determined as of the most
recent Valuation Date that falls within or ends with the 12-month period
ending on the Determination Date, except as provided in Code Section 416 for
the first and second Plan Years of a Defined Benefit Plan. The Account
Balances and accrued benefits of a Participant (1) who is not a Key Employee
but who was a Key Employee in a prior year, or (2) who has not been credited
with at least one Hour of Service with the Employer or an Affiliate at any
time during the five-year period ending on the Determination Date, will be
disregarded. The calculation of the Top-Heavy Ratio, and the extent to which
distributions, rollovers, and transfers are taken into account will be made
in accordance with Code Section 416.
Elective Deferrals will not be taken into account for purposes of computing the
Top-Heavy Ratio. When aggregating plans the value of Account Balances and
accrued benefits will be calculated with reference to the Determination Dates
that fall within the same calendar year.
The accrued benefit of a Participant who is not a Key Employee shall be
determined under (A) the method, if any, that uniformly applies for accrual
purposes under all Defined Benefit Plans 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 rule of Code Section 411(b)(1)(C).
4.4.2 If the Plan is determined to be a Top-Heavy Plan or a Super Top-Heavy
Plan as of any Determination Date after December 31, 1983, then the Top-Heavy
vesting schedule specified in the Adoption Agreement, beginning with the first
Plan Year commencing after such Determination Date, shall apply only for those
Plan Years in which the Plan continues to be a Top-Heavy Plan or Super Top-Heavy
Plan, as the case may be
4.4.3 (A) Except as provided in Sections 4.4.3(C) and (D), for any Plan Year
in which the Plan is a Top-Heavy Plan, contributions and forfeitures allocated
to the Employer Contributions Account of any Participant who is not a Key
Employee in respect of that Plan Year shall not be less than the lesser of:
(i) 3% of such Participant's Limitation Compensation, or
(ii) if the Employer has no Defined Benefit Plan which designates this Plan to
satisfy Code Section 401, the largest percentage of contributions and
forfeitures, as a percentage of the Key Employee's Limitation Compensation,
allocated to the Employer Contributions Account of any Key Employee for that
year. The minimum allocation is determined without regard to any Social
Security contribution. This minimum allocation shall be made even though, under
other Plan provisions, the Participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation for the Plan
Year because of (a) the Participant's failure to complete a Year of Service, (b)
the Participant's failure to make mandatory Participant contributions to the
Plan or (c) compensation less than a stated amount.
(B) For purposes of computing the minimum allocation, a Participant's
Limitation Compensation will be applied.
(C) The provision in (A) above shall not apply to any Participant who was not
employed by the Employer or an Affiliate on the last day of the Plan Year.
(D) If the Employer or an Affiliate has executed Adoption Agreements covering
Participants by a plan which is a profit-sharing plan and by another plan which
is a money purchase pension plan or a target benefit plan, the minimum
allocation specified in the preceding Section 4.4.3(A) shall be provided by the
money purchase pension plan or by the target benefit plan, as the case may be.
If a Participant is covered under this Plan and a Defined Benefit Plan
maintained pursuant to Adoption Agreements offered by the Sponsor, the minimum
allocation specified in the preceding Section 4.4.3(A) shall not be applicable
and the Participant shall receive the minimum benefit specified in the Defined
Benefit Plan.
(E) With respect to any profit-sharing or money purchase pension plan which
becomes Top-Heavy and is integrated with Social Security, prior to making the
allocations specified in the Adoption Agreement, anything contained therein to
the contrary notwithstanding, there shall be an allocation of the Employer
Contribution to each eligible Participant's Employer Contribution Account in the
ratio that each such Participant's Limitation Compensation for the Plan Year
bears to the Limitation Compensation of all such Participants for the Plan Year,
but not in excess of 3% of such Limitation Compensation.
4.4.4 If the Plan becomes a Top-Heavy Plan, then the maximum benefit which can
be provided under Section 3.9 shall continue to be determined by applying "125%"
wherever it appears in that Section and by substituting "4%" for "3%" wherever
that appears in Section 4.4.3. However, if the Plan becomes a Super Top-Heavy
Plan, the maximum benefit which can be provided under Section 3.9 shall be
determined by substituting "100%" for "125%" wherever the latter percentage
appears and the 3% minimum contribution provided for in Section 4.4.4 shall
remain unchanged.
4.4.5 Beginning with the Plan Year in which this Plan is Top-Heavy, one of the
minimum Top-Heavy vesting
<PAGE>
schedules as specified in the Adoption Agreement will apply. The minimum
vesting schedule applies to all benefits within the meaning of Code Section
411(a)(7) except those attributable to Employee contributions, including
benefits accrued before the effective date of Code Section 416 and benefits
accrued before the Plan became Top-Heavy. However, this Section 4.4 does not
apply to the Account Balances of any Employee who does not have an Hour of
Service after the Plan has initially become Top-Heavy and such Employee's
vesting in his or her Employer Contributions Account will be determined without
regard to this Section 4.4. The minimum allocation pursuant to Section 4.4.3
(to the extent required to be nonforfeitable under Code Section 416(b)) may not
be forfeited under Code Section 411(a)(3)(B) or Code Section 411(a)(3)(D).
ARTICLE V
AMOUNT AND DISTRIBUTION OF BENEFITS,
WITHDRAWALS AND LOANS
5.1 Distribution Upon Termination of Employment
5.1.1 Subject to Section 5.1.2, a Participant's Benefit Commencement Date shall
be as soon as practicable following his or her Fully Vested Separation,
Partially Vested Separation or Nonvested Separation, if applicable, and in
accordance with Section 5.6. If the Plan includes a CODA feature, each 401(k)
Contributions Account of a Participant shall be payable in accordance with the
events specified in Section 1.27 of the Plan.
5.1.2 If specified in the Adoption Agreement, a Participant's Benefit
Commencement Date shall be deferred until the earliest of his or her Normal
Retirement Age, Disability, or if elected by the Employer in the Adoption
Agreement, Early Retirement. If a Participant terminates Employment after
satisfying any service requirement for Early Retirement specified in the
Adoption Agreement, he or she shall be entitled to elect to receive a
distribution of his or her vested Employer Accounts upon satisfaction of any age
requirement for Early Retirement.
5.2 Amount of Benefits Upon a Fully Vested Separation
A Participant's benefits upon his or her Fully Vested Separation for any reason
other than Disability shall be the Account Balance of all of his or her Accounts
determined in accordance with Section 10.6.2.
5.3 Amount of Benefits Upon a Partially Vested Separation
A Participant's benefits upon his or her Partially Vested Separation for any
reason other than Disability shall be: (A) the Account Balance of his or her
Employer Accounts determined in accordance with Section 10.6.2 multiplied by his
or her vested percentage determined pursuant to Section 4.1.3, or, if
applicable, Section 4.4.2, plus (B) the Account Balance of his or her other
Accounts determined in accordance with Section 10.6.2.
5.4 Amount of Benefits Upon a Nonvested Separation
A Participant's benefits upon his or her Nonvested Separation shall be the
Account Balance of his or her Accounts other than Employer Accounts, if any,
determined in accordance with Section 10.6.2.
5.5 Amount of Benefits Upon a Separation Due to Disability
If a Participant terminates Employment due to a Disability, his or her benefit
shall be the Account Balance of all of his or her Accounts determined as a Fully
Vested Separation in accordance with Section 5.2 and Section 10.6.2. The
Benefit Commencement Date of any such Participant on whose behalf contributions
are being made pursuant to Section 3.1.4 shall be as soon as practicable after
the date such contributions cease.
5.6 Distribution and Restoration
5.6.1 If, upon a Participant's termination of Employment, the vested Account
Balance of his or her Accounts as of the applicable Valuation Date is equal to
or less than $3,500, such Participant will receive a distribution of his or her
entire vested benefit and the nonvested portion will be treated as forfeiture.
If the value of a Participant's vested Account is zero, the Participant shall be
deemed to have received a distribution of such vested Account.
5.6.2 If, upon a Participant's termination of Employment, the vested Account
Balance of his or her Accounts as of the applicable Valuation Date exceeds
$3,500, the Participant may elect, in accordance with Article VI, to receive a
distribution of the entire vested portion of such Accounts and the nonvested
portion, if any, will be treated as a forfeiture.
5.6.3 If the vested Account Balance of a Participant's Accounts as of the
applicable Valuation Date has an
<PAGE>
aggregate value exceeding (or at the time of any prior distribution exceeded)
$3,500, and the Participant's benefit is Immediately Distributable, the
Participant and the Participant's Spouse (or where either the Participant or
the Spouse has died, the survivor) must consent to any distribution of such
benefit. The consent of the Participant and the Participant's Spouse shall be
obtained in writing within the 90-day period ending on the Participant's
Benefit Commencement Date; provided, however, that if the Plan is a
profit-sharing plan and Section 6.1.2 applies, the consent of the
Participant's Spouse will not be required. The Administrator shall notify
the Participant and the Participant's Spouse of the right to defer any
distribution until the Participant's benefit 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 Code Section 417(a)(3), and shall be provided no less
than 30 days and no more than 90 days prior to the Benefit Commencement Date.
5.6.4 Notwithstanding the foregoing, only the Participant need consent to the
commencement of a distribution in the form of a Qualified Joint and Survivor
Annuity while the Participant's benefit is Immediately Distributable. Neither
the consent of the Participant nor the Participant's Spouse shall be required to
the extent that a distribution is required to satisfy Code Section 401(a)(9) or
Code Section 415.
5.6.5 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 benefit shall not
include amounts attributable to accumulated deductible Participant contributions
within the meaning of Code Section 72(o)(5)(B).
5.6.6 If a Participant, who after termination of Employment received a
distribution and forfeited any portion of an Employer Account or is deemed to
have received a distribution in accordance with Section 5.6.1, resumes
Employment, he or she shall have the right, while an Employee, to repay the
full amount previously distributed from such Employer Account. Such
repayment must occur before the earlier of (i) the date on which he or she
would have incurred a Period of Severance of five years commencing after the
distribution or (ii) five years after the first date on which the Participant
is subsequently reemployed. If the Participant makes a repayment, the
Account Balance of his or her relevant Employer Account shall be restored to
its value as of the date of distribution. The restored amount shall be
derived from forfeitures during the Plan Year and, if such forfeitures are
not sufficient, from a contribution by the Employer made as of that date
(determined without reference to Net Profits). If an Employee who had a
Nonvested Separation and was deemed to receive a distribution resumes
Employment before a Period of Severance of five years, his or her Employer
Account will be restored, upon reemployment, to the amount on the date of
such deemed distribution.
5.7 Withdrawals During Employment
5.7.1 If the Plan is a profit-sharing plan, and if the Employer has elected in
the Adoption Agreement to permit withdrawals during Employment, prior to
termination of Employment, each Participant upon attainment of age 59-1/2 may
elect to withdraw, as of the Valuation Date next following the receipt of an
election by the Administrator, and upon such notice as the Administrator may
require, all or any part of the vested Account Balance of all of his or her
Accounts, as of such Valuation Date.
5.7.2 Notwithstanding Section 5.7.1, prior to termination of Employment, each
Participant with a Rollover Contributions Account and/or a Participant Voluntary
Nondeductible Contributions Account may elect to withdraw, as of the Valuation
Date next following the receipt of an election by the Administrator, and upon
such notice as the Administrator may require, all or any of such Account, as of
such Valuation Date.
5.7.3 The Administrator may establish from time to time rules and procedures
with respect to any withdrawals including the order of Accounts from which such
withdrawals shall be made.
5.7.4 No forfeitures shall occur as a result of a withdrawal pursuant to this
Section 5.7.
5.7.5 If a Participant is married at the time of such election, the
Participant's Spouse must consent to such a withdrawal in the same manner as
provided in Section 6.2.4; provided, however, that if the Plan is a
profit-sharing plan and Section 6.1.2 applies, the consent of the
Participant's Spouse will not be required.
5.8 Loans
5.8.1 If the Employer has elected in the Adoption Agreement to make loans
available, a Participant may submit an application to the Administrator to
borrow from any Account maintained for the Participant (on such terms and
conditions as the Administrator shall prescribe) an amount which when added to
the outstanding balance of all other loans to the Participant would not exceed
the lesser of (a) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans during the one year period ending on the day before
the loan is made, over the outstanding balance of loans from the Plan on the
date the loan is made, or (b) 50% of the vested portion of his or her Account
from
<PAGE>
which the borrowing is to be made as of the Valuation Date next following the
receipt of his or her loan application by the Administrator and the expiration
of such notice period as the Administrator may require. For this purpose, all
loans from Qualified Plans of the Employer or an Affiliate shall be aggregated,
and an assignment or pledge of any portion of the Participant's interest in the
Plan, and a loan, pledge or assignment with respect to any insurance contract
purchased under the Plan, will be treated as a loan under this Section 5.8.1.
5.8.2 If approved, each such loan shall comply with the following conditions:
(A) it shall be evidenced by a negotiable promissory note;
(B) the rate of interest payable on the unpaid balance of such loan shall be a
reasonable rate determined by the Administrator;
(C) the Participant must obtain the consent of his or her Spouse, if any,
within the 90-day period before the time an Account is used as security for the
loan; provided, however, that if the Plan is a profit-sharing plan that meets
the requirements in Section 6.1.2 of the Plan, the consent of the Participant's
Spouse will not be required. A new consent is required if an Account is used
for any increase in the amount of security. The consent shall comply with the
requirements of Section 6.2.4, but shall be deemed to meet any requirements
contained in section 6.2.4 relating to the consent of any subsequent Spouse. A
new consent shall be required if an Account is used for renegotiation,
extension, renewal, or other revision of the loan;
(D) the loan, by its terms, must require repayment (principal and interest) be
amortized in level payments, not less frequently than quarterly, over a period
not extending beyond five years from the date of the loan; provided, however,
that if the proceeds of the loan are used to acquire a dwelling unit which
within a reasonable time (determined at the time the loan is made) will be used
as the principal residence of the Participant, the repayment schedule may be for
a term in excess of five years; and
(E) the loan shall be adequately secured and may be secured by no more than 50%
of the Participant's vested interest in the Account Balance of his or her
Accounts.
5.8.3 If a Participant or Beneficiary requests and is granted a loan, and the
loan is made from Participant-Directed Assets, principal and interest payments
with respect to the loan shall be credited solely to the Account of the
borrowing Participant from which the loan was made. Any loss caused by
nonpayment or other default on a Participant's loan obligations shall be charged
solely to that Account. Any other loan shall be treated as an investment of the
Trust Fund and interest and principal payments on account thereof shall be
credited to the Trust Fund. The Administrator shall determine the order of
Accounts from which a loan may be made.
5.8.4 Anything herein to the contrary notwithstanding:
(A) in the event of a default, foreclosure on the promissory note will not
occur until a distributable event occurs under this Article V;
(B) no loan will be made to any Owner-Employee or to any "shareholder-employee"
of the Employer or a Participating Affiliate or with respect to any amounts
attributable to a Rollover Contribution or a trust to trust transfer and
relating to prior participation by such an individual in a Qualified Plan. For
this purpose, a "shareholder-employee" means an employee or officer of an
electing small business, i.e., an "S corporation" as defined in Code
Section 1361, who owns (or is considered as owning within the meaning of Code
Section 318(a)(1)) on any day during the taxable year of such corporation, more
than 5% of the outstanding stock of the corporation; and
(C) loans shall not be made available to Highly Compensated Employees in an
amount greater than the amount made available to other Employees.
5.8.5 If a valid spousal consent has been obtained in accordance with Section
5.8.2(C), then, notwithstanding any other provision of this Plan, the portion of
the Participant's vested Account used as a security interest held by the Plan by
reason of a loan outstanding to the Participant shall be taken into account for
purposes of determining the amount of the Participant's benefit payable at the
time of death or distribution; but only if the reduction is used as repayment of
the loan. If less than 100% of the Participant's vested benefit (determined
without regard to the preceding sentence) is payable to the Surviving Spouse,
then the Participant's benefit shall be adjusted by first reducing the
Participant's vested benefit by the amount of the security used as repayment of
the loan, and then determining the benefit payable to the Surviving Spouse.
<PAGE>
5.9 Hardship Distributions
5.9.1 Effective January 1, 1989, if available and elected by the Employer in
the Adoption Agreement, a Participant may request a distribution due to hardship
from the vested portion of his or her Accounts, (other than from his or her
Qualified Nonelective Contributions Account, Qualified Matching Contributions
Account or earnings accrued after December 31, 1988, on the Participant's
Elective Deferrals) only if the distribution is made both due to an immediate
and heavy financial need of the Participant and is necessary to satisfy such
financial need.
5.9.2 A hardship distribution shall be permitted only if the distribution is
due to:
(A) expenses incurred or necessary for medical care described in Code
Section 213(d) incurred by the Participant, the Participant's Spouse, or any
dependents of the Participant (as defined in Code Section 152);
(B) purchase (excluding mortgage payments) of a principal residence for the
Participant;
(C) payment of tuition and related educational fees for the next 12 months of
post-secondary education for the Participant, his or her Spouse, children or
dependents;
(D) the need to prevent the eviction of the Participant from his or her
principal residence or foreclosure on the mortgage of the Participant's
principal residence; or
(E) any other condition or event which the Commissioner of the Internal Revenue
Service determines is a deemed immediate and financial need.
5.9.3 A distribution will be considered necessary to satisfy an immediate and
heavy financial need of a Participant if all of the following requirements are
satisfied:
(A) the distribution will not be in excess of the amount of the immediate and
heavy financial need of the Participant (including amounts necessary to pay any
Federal, state or local income taxes or penalties reasonably anticipated to
result from the distribution);
(B) the Participant obtains all distributions, other than hardship
distributions, and all nontaxable loans currently available under all plans
maintained by the Employer or an Affiliate;
(C) the Participant's Elective Deferrals, Employee Thrift Contributions and
Participant Voluntary Nondeductible Contributions will be suspended for at least
12 months after receipt of the hardship distribution in this Plan and in all
other plans maintained by the Employer or an Affiliate; and
(D) the Participant may not make Elective Deferrals for the Participant's
taxable year immediately following the taxable year of the hardship distribution
in excess of the applicable limit under Code Section 402(g) for such next
taxable year less the amount of such Participant's Elective Deferrals for the
taxable year of the distribution in this Plan and in all other plans maintained
by the Employer or an Affiliate.
5.9.4 If the distribution is made from any Account other than a 401(k)
Contributions Account, a distribution due to hardship may be made without
application of Section 5.9.3(B), 5.9.3(C), or 5.9.3(D).
5.10 Limitation on Commencement of Benefits
5.10.1 Anything in this Article V to the contrary notwithstanding, a
Participant's Benefit Commencement Date shall in no event be later than the 60th
day after the close of the Plan Year in which the latest of the following events
occur:
(A) the attainment by the Participant of his or her Normal Retirement Age;
(B) the tenth anniversary of the year in which the Participant commenced
participation in the Plan; or
(C) the Participant's termination of Employment. Notwithstanding the foregoing,
the failure of a Participant and Spouse to consent to a distribution while a
benefit is Immediately Distributable, shall be deemed to be an election to defer
commencement of payment of any benefit sufficient to satisfy this Section.
5.10.2 If it is not possible to distribute a Participant's Accounts because the
Administrator has been unable to locate the Participant after making reasonable
efforts to do so, then a distribution of the Participant's Accounts shall be
made when the Participant can be located.
5.11 Distribution Requirements
5.11.1 Subject to the Joint and Survivor Annuity rules set forth in Article VI,
the requirements of this Article shall apply to any distribution of a
Participant's interest and will take precedence over any inconsistent provisions
of this Plan. Unless otherwise specified, the provisions of this article apply
to calendar years beginning after December 31, 1984. As used in this Section
5.11, each of the following terms shall have the meaning for that term set forth
in this Section 5.11.1:
(A) Applicable Life Expectancy. The life expectancy (or joint and last survivor
expectancy) calculated using the attained age of the Participant (or designated
Beneficiary) as of the Participant's (or designated
<PAGE>
Beneficiary's) birthday in the applicable calendar year reduced by one for each
calendar year which has elapsed since the date Life Expectancy was first
calculated. If Life Expectancy is being recalculated, the Applicable Life
Expectancy shall be the Life Expectancy as so recalculated. The applicable
calendar year shall be the first distribution calendar year, and if Life
Expectancy is being recalculated such succeeding calendar year.
(B) Designated Beneficiary. The individual who is designated as the Beneficiary
under the Plan in accordance with Code Section 401(a)(9). In the event that a
Participant names a trust to be a designated Beneficiary, such designation shall
provide that, as of the later of the date on which the trust is named as a
Beneficiary or the Participant's Required Beginning Date, and as of all
subsequent periods during which the trust is named as a Beneficiary, the
following requirements are met: (i) the trust is a valid trust under state law,
or would be but for the fact that there is no corpus; (ii) the trust is
irrevocable; (iii) the Beneficiaries of the trust who are Beneficiaries with
respect to the trust's interest in the Participant's benefits are identifiable
from the trust instrument within the meaning of Code Section 401(a)(9); and
(iv) a copy of the trust is provided to the Plan.
(C) Distribution Calendar Year. A calendar year for which a minimum
distribution is required. For distributions beginning before the Participant's
death, the first Distribution Calendar Year is the calendar year immediately
preceding the calendar year which contains the Participant's Required Beginning
Date. For distributions beginning after the Participant's death, the first
Distribution Calendar Year is the calendar year in which distributions are
required to begin pursuant to Section 7.2.
(D) Life Expectancy. Life Expectancy and joint and last survivor expectancy are
computed by use of the expected return multiples in Tables V and VI of section
1.72-9 of the regulations issued under the Code.
Unless otherwise elected by the Participant (or Spouse, in the case of
distributions described in Section 7.2) by the time distributions are required
to begin, Life Expectancies shall not be recalculated annually. Such election
shall be irrevocable as to the Participant or Spouse and shall apply to all
subsequent years. The Life Expectancy of a nonspouse Beneficiary may not be
recalculated.
(E) Required Beginning Date.
(I) General rule. The Required Beginning Date of a Participant is the first day
of April of the calendar year following the calendar year in which the
Participant attains age 70-1/2.
(Ii) Transitional rule. The Required Beginning Date of a Participant who
attains age 70-1/2 before January 1, 1988, shall be determined in accordance
with (1) or (2) below:
(1) Non-5% owners. The Required Beginning Date of a Participant who is not a
"5% owner" as defined in (iii) below is the first day of April of the calendar
year following the calendar year in which the later of retirement or attainment
of age 70-1/2 occurs.
(2) 5% owners. The Required Beginning Date of a Participant who is a 5% owner
during any year beginning after December 31, 1979, is the first day of April
following the later of:
(a) the calendar year in which the Participant attains age 70-1/2; or
(b) the earlier of the calendar year with or within which ends the Plan Year in
which the Participant becomes a 5% owner, or the calendar year in which the
Participant retires.
The Required Beginning Date of a Participant who is not a 5% owner who attains
age 70-1/2 during 1988 and who has not retired as of January 1, 1989, is April
1, 1990.
(iii) 5% owner. A Participant is treated as a 5% owner for purposes of this
Section 5.11 if such Participant is a 5% owner as defined in Code Section 416(i)
(determined in accordance with section 416 but without regard to whether the
plan is top-heavy) at any time during the Plan Year ending with or within the
calendar year in which such owner attains age 66-1/2 or any subsequent Plan
Year.
(iv) Once distributions have begun to a 5% owner under this Section 5.11, they
must continue to be distributed, even if the Participant ceases to be a 5% owner
in a subsequent year.
5.11.2 All distributions required under this Section 5.11 shall be determined
and made in accordance with the Income Tax Regulations under Code
Section 401(a)(9), including the minimum distribution incidental benefit
requirement of section 1.401(a)(9)-2 of the regulations issued under the Code.
The entire interest of a Participant must be distributed or begin to be
distributed no later than the Participant's Required Beginning Date.
<PAGE>
5.11.3 Limits on Distribution Periods. As of the first Distribution Calendar
Year, distributions, if not made in a lump sum, may only be made over one of the
following periods (or a combination thereof):
(A) the life of the Participant;
(B) the life of the Participant and a Designated Beneficiary;
(C) a period certain not extending beyond the Life Expectancy of the
Participant; or
(D) a period certain not extending beyond the joint and last survivor expectancy
of the Participant and a Designated Beneficiary.
For calendar years beginning before January 1, 1989, if the Participant's Spouse
is not the Designated Beneficiary, the method of distribution selected must
assure that at least 50% of the present value of the amount available for
distribution is paid within the Life Expectancy of the Participant.
5.11.4 Determination of Amount to be Distributed Each Year. (A) If the
Participant's interest is to be paid in the form of annuity distributions under
the Plan (whether directly or in the form of an annuity purchased from an
insurance company), payments under the annuity shall satisfy the following
requirements:
(I) the annuity distributions must be paid in periodic payments made at
intervals not longer than one year;
(ii) the distribution period must be over a life (or lives) or over a period
certain not longer than a Life Expectancy (or joint life and last survivor
expectancy) described in Code Section 401(a)(9)(A)(ii) or Code
Section 401(a)(9)(B)(iii), whichever is applicable;
(iii) the Life Expectancy (or joint life and last survivor expectancy) for
purposes of determining the period certain shall be determined without
recalculation of Life Expectancy;
(iv) once payments have begun over a period certain, the period certain may not
be lengthened even if the period certain is shorter than the maximum permitted;
(v) payments must either be nonincreasing or increase only as follows:
(1) with any percentage increase in a specified and generally recognized
cost-of-living index;
(2) to the extent of the reduction to the amount of the Participant's payments
to provide for a survivor benefit upon death, but only if the Beneficiary whose
life was being used to determine the distribution period described in Section
5.11.4(A)(iii) dies and the payments continue otherwise in accordance with that
section over the life of the Participant;
(3) to provide cash refunds of Employee contributions upon the Participant's
death; or
(4) because of an increase in benefits under the Plan.
(vi) If the annuity is a life annuity (or a life annuity with a period certain
not exceeding 20 years), the amount which must be distributed on or before the
Participant's Required Beginning Date (or, in the case of distributions after
the death of the Participant, the date distributions are required to begin
pursuant to Section 7.2) shall be the payment which is required for one payment
interval. The second payment need not be made until the end of the next payment
interval even if that payment interval ends in the next calendar year. Payment
intervals are the periods for which payments are received, e.g., bimonthly,
monthly, semi-annually, or annually.
If the annuity is a period certain annuity without a life contingency (or is a
life annuity with a period certain exceeding 20 years) periodic payments for
each distribution calendar year shall be combined and treated as an annual
amount. The amount which must be distributed by the Participant's Required
Beginning Date (or, in the case of distributions after the death of the
Participant, the date distributions are required to begin pursuant to Section
7.2) is the annual amount for the first Distribution Calendar Year. The annual
amount for other Distribution Calendar Years, including the annual amount for
the calendar year in which the Participant's Required Beginning Date (or the
date distributions are required to begin pursuant to Section 7.2) occurs, must
be distributed on or before December 31 of the calendar year for which the
distribution is required.
(B) Annuities purchased after December 31, 1988, are subject to the following
additional conditions:
(i) Unless the Participant's Spouse is the Designated Beneficiary, if the
Participant's interest is being distributed in the form of a period certain
annuity without a life contingency, the period certain as of the beginning of
the first Distribution Calendar Year may not exceed the applicable period
determined using the table set forth in Q&A A-5 of section 1.401(a)(9)-2 of the
regulations issued under the Code.
(ii) If the Participant's interest is being distributed in the form of a joint
and survivor annuity for the joint lives of the Participant and a nonspouse
Beneficiary, annuity payments to be made on or after the Participant's Required
Beginning Date to the Designated Beneficiary after the Participant's death must
not at any time exceed the applicable percentage
<PAGE>
of the annuity payment for such period that would have been payable to the
Participant using the table set forth in Q&A A-6 of section 1.401(a)(9)-2 of
the regulations under the Code.
(C) Transitional Rule. If payments under an annuity which complies with
Section 5.11.4(A) begin prior to January 1, 1989, the minimum distribution
requirements in effect as of July 27, 1987, shall apply to distributions from
this Plan, regardless of whether the annuity form of payment is irrevocable.
This transitional rule also applies to deferred annuity contracts distributed
to or owned by the Participant prior to January 1, 1989, unless additional
contributions are made under the Plan by the Employer or Affiliate with
respect to such contract.
(D) If the form of distribution is an annuity made in accordance with Section
5.11.4, any additional benefits accruing to the Participant after his or her
Required Beginning Date shall be distributed as a separate and identifiable
component of the annuity beginning with the first payment interval ending in the
calendar year immediately following the calendar year in which such amount
accrues.
(E) Any part of the Participant's interest which is in the form of an
individual account shall be distributed in a manner satisfying the requirements
of Code Section 401(a)(9).
5.11.5 Transitional Rule: Section 242 Election. Notwithstanding the other
requirements of this Article and subject to the Joint and Survivor Annuity rules
set forth in Article VI, distribution on behalf of any Employee, including a 5%
owner, may be made in accordance with all of the following requirements
(regardless of when such distribution commences):
(A) the distribution by the trust is one which would not have disqualified
such trust under Code Section 401(a)(9) as in effect prior to amendment by
the Deficit Reduction Act of 1984;
(B) the distribution is in accordance with a method of distribution designated
by the Employee whose interest in the trust is being distributed or, if the
Employee is deceased, by a Beneficiary of such Employee;
(C) such designation was in writing, was signed by the Employee or the
Beneficiary, and was made before January 1, 1984;
(D) the Employee had accrued a benefit under the Plan as of December 31, 1983;
and
(E) the method of distribution designated by the Employee or the Beneficiary
specifies the time at which distribution will commence, the period over which
distributions will be made, and in the case of any distribution upon the
Employee's death, the Beneficiaries of the Employee listed in order of priority.
A distribution upon death will not be covered by this transitional rule unless
the information in the designation contains the required information described
above with respect to the distributions to be made upon the death of the
Employee.
For any distribution which commences before January 1, 1984, but continues after
December 31, 1983, the Employee, or the Beneficiary, to whom such distribution
is being made, will be presumed to have designated the method of distribution
under which the distribution is being made if the method of distribution was
specified in writing and the distribution satisfies the requirements in
subsections 5.11.5(A) and (E).
If a designation is revoked any subsequent distribution must satisfy the
requirements of Code Section 401(a)(9). If a designation is revoked subsequent
to the date distributions are required to begin, the trust must distribute by
the end of the calendar year following the calendar year in which the revocation
occurs the total amount not yet distributed to satisfy Code Section 401(a)(9)
but for the Section 242(b)(2) election. For calendar years beginning after
December 31, 1988, such distributions must meet the minimum distribution
incidental benefit requirements in section 1.401(a)(9)-2 of the regulations
issued under the Code. Any changes in the designation will be considered to be
a revocation of the designation. However, the mere substitution or addition of
another Beneficiary (one not named in the designation) under the designation
will not be considered to be a revocation of the designation, so long as such
substitution or addition does not alter the period over which distributions are
to be made under the designation, directly or indirectly (for example, by
altering the relevant measuring life). In the case in which an amount is
transferred or rolled over from one plan to another plan, the rules in Q&A J-2
and Q&A J-3 of section 1.401(a)(9)-1 of the regulations issued under the Code.
<PAGE>
ARTICLE VI
FORMS OF PAYMENT OF RETIREMENT
BENEFITS
6.1 Methods of Distribution
6.1.1 If the Plan is a money purchase pension plan or a target benefit plan,
a Participant's benefit shall be payable in the normal form of a Qualified
Joint and Survivor Annuity if the Participant is married on his or her
Benefit Commencement Date and in the normal form of an immediate annuity for
the life of the Participant if the Participant is not married on that date.
A Participant who terminated Employment on or after satisfying the
requirements for Early Retirement may elect to have his or her Qualified
Joint and Survivor Annuity distributed upon attainment of such Early
Retirement. If the Plan is a profit-sharing plan that satisfies the
requirements set forth in Section 6.1.2, a Participant's Accounts shall only
be payable in the normal form of a lump-sum distribution in accordance with
Section 6.1.1(B) below. A Participant in a money purchase pension plan, a
target benefit plan, or a profit-sharing plan that does not satisfy the
requirements set forth in Section 6.1.2, may at any time after attaining age
35 and prior to his or her Benefit Commencement Date elect, in accordance
with Section 6.2, any of the following optional forms of payment instead of
the normal form:
(A) An Annuity Contract payable as:
(i) a single life annuity;
(ii) a joint and 50% survivor annuity with a contingent annuitant;
(iii) a joint and 100% survivor annuity with a contingent annuitant;
(iv) an annuity for the life of the Participant with 120 monthly payments
certain;
(B) A lump-sum distribution in cash or in kind, or part in cash and part in
kind; or
(C) In installments payable in cash or in kind, or part in cash and part in
kind over a period not in excess of that required to comply with Section
5.11.4.
Anything in this Section 6.1.1 to the contrary notwithstanding, if the value
of a Participant's vested Account as of the applicable Valuation Date is
$3,500 or less, his or her benefit shall be paid in the form of a lump-sum
distribution and no optional form of benefit payment shall be available.
6.1.2 If the Plan is a profit-sharing plan then:(A) the Participant cannot
elect payments in the form of a Life annuity (this Section 6.1.2 shall not
apply if a life annuity form is an optional form preserved under Code Section
411(d)(6)); (B) on the death of the Participant, the Participant's benefits
will be paid to his or her Surviving Spouse, if any, or, if his or her
Surviving Spouse has already consented in a manner conforming to an election
under Section 6.2.4, then to the Participant's Beneficiary; and(C) the normal
form of benefit shall be a lump-sum and Sections 6.2.1, 6.2.2 and 6.2.4 shall
not be applied by the Administrator. A Participant in such a profit-sharing
plan may also elect to receive his or her benefit in the form of installments
in accordance with Section 6.1.1(C) of the Plan. This Section 6.1.2 shall
not apply, however, with respect to the Participant if it is determined that
the Plan is a direct or indirect transferee of a defined benefit plan, a
money purchase pension plan (including a target benefit plan) or a stock
bonus or profit-sharing plan which is subject to the survivor annuity
requirements of Code Sections 401(a)(11) and 417. In addition, this Section
6.1.2 shall not apply unless the Participant's Surviving Spouse, if any, is
the Beneficiary of (i) the proceeds of any insurance on the Participant's
life purchased by Employer contributions or (ii) forfeitures allocated to the
Participant's Employer Account or unless the Participant's Surviving Spouse
has consented to the Participant's designation of another Beneficiary as
referred to in subsection (C) of this Section 6.1.2.
6.1.3 The following transitional rules shall apply for those Participants
entitled to but not receiving benefits as of August 23, 1984:
(A) Any living Participant not receiving benefits on August 23, 1984, who
would otherwise not receive the benefits prescribed by Section 6.1 must be
given the opportunity to elect to have Section 6.1 apply if such Participant
is credited with at least one Hour of Service under this Plan or a
predecessor plan in a Plan Year beginning on or after January 1, 1976, and
such Participant had at least 10 Years of Service when he or she terminated
from Employment.
(B) Any living Participant not receiving benefits on August 23, 1984, who
was credited with at least one Hour of Service under this Plan or a
predecessor plan on or after September 2, l974, and who is not otherwise
credited with an Hour of Service in a Plan Year beginning on or after January
1, 1976, must be given the opportunity to have his or her benefits paid in
accordance with this Section 6.1.3(D).
(C) The respective opportunities to elect (as described in these Sections
6.1.3(A) and (B)) must be afforded to the appropriate Participants during the
period commencing on August 23, 1984, and ending on such Participant's
Benefit Commencement Date.
(D) Any Participant who has elected pursuant to this Section 6.1.3(B) and
any Participant who does not elect under this Section 6.1.3(A) or who meets
the
<PAGE>
requirements of this Section 6.1.3(A) except that such Participant does not
have at least ten Years of Service when he or she terminates from Employment,
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
single life annuity:
(1) Automatic Qualified Joint and Survivor Annuity
If benefits in the form of a single life annuity become payable to a married
Participant who:
(a) begins to receive payments on or after Normal Retirement Age; or
(b) dies on or after Normal Retirement Age while in active Employment; or
(c) begins to receive payments on or after the "Qualified Early Retirement
Age", as that term is defined in Section 6.1.3(D)(3)(a); or
(d) terminates from Employment on or after attaining Normal Retirement Age
(or Qualified Early Retirement Age) and after satisfying the eligibility
requirement for the payment of benefits under the Plan and thereafter dies
before his or her Benefit Commencement Date; then such benefits will be
received in the form of a Qualified Joint and Survivor Annuity, unless the
Participant has elected otherwise during the election period which begins at
least six months before the Participant attains Qualified Early Retirement
Age and ends no earlier than 90 days before his or her Benefit Commencement
Date. Any election hereunder will be in writing and may be changed by the
Participant at any time.
(2) Election of early survivor annuity
A Participant who is employed after attaining the Qualified Early Retirement
Age will be given the opportunity to elect, beginning on the later of (1) the
90th day before he or she attains his or her Qualified Early Retirement Age,
or (2) the date on which participation begins, and ending on the date he or
she terminates Employment, 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 Qualified 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.
(3) Qualified Early Retirement Age
(a) For purposes of this section 6.1.3, Qualified Early Retirement Age is
the latest of:
(i) the earliest date, 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.
(b) Qualified Joint and Survivor Annuity is an annuity for the life of the
Participant with a survivor annuity for the life of the Spouse as described
in Section 1.77.
6.2 Election of Optional Forms
6.2.1 By notice to the Administrator at any time prior to a Participant's
date of death and beginning on the first day of the Plan Year in which the
Participant attains age 35, the Participant may elect, in writing, not to
receive the normal form of benefit payment otherwise applicable and to
receive instead an optional form of benefit payment provided for in Section
6.1.1. If the Participant separates from Employment prior to the first day
of the Plan Year in which the Participant attains age 35, the Participant may
make such election beginning on the date he or she separates from Employment.
This Section 6.2.1 shall not be applicable if Section 6.1.2 applies to a
Participant.
6.2.2 Within a reasonable period, but in any event no less than 30 and no
more than 90 days prior to each Participant's Benefit Commencement Date, the
Administrator shall provide to each Participant a written explanation of the
terms and conditions of a Qualified Joint and Survivor Annuity. Such written
explanation shall consist of:
(A) the terms and conditions of the Qualified Joint and Survivor Annuity;
(B) the Participant's right to make, and the effect of, an election to waive
the Qualified Joint and Survivor Annuity;
(C) the rights of the Participant's Spouse under Section 6.2.4;
(D) the right to make, and the effect of, a revocation of a previous election
to waive the Qualified Joint and Survivor Annuity; and
(E) the relative values of the various optional forms of benefit under the
Plan.
<PAGE>
The Administrator may, on a uniform and nondiscriminatory basis, provide for
such other notices, information or election periods or take such other action
as the Administrator considers necessary or appropriate to implement the
provisions of this Section 6.2.2.
6.2.3 A Participant may revoke his or her election to take an optional form
of benefit, and elect a different form of benefit, at any time prior to the
Participant's Benefit Commencement Date.
6.2.4 The election of an optional benefit by a Participant after December
31, 1984, must also be a waiver of a Qualified Joint and Survivor Annuity by
the Participant. Any waiver of a Qualified Joint and Survivor Annuity shall
not be effective unless (A) the Participant's Spouse consents in writing; (B)
the election designates a specific alternate 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 to
the waiver is witnessed by a Plan representative or notary public; and (D)
the Spouse's consent acknowledges the effect of the election. Additionally,
a Participant's waiver of the Qualified Joint and Survivor Annuity will 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 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 or the Spouse cannot be located, the election will be
deemed effective. Any consent necessary under this provision will not be
valid with respect to any other Spouse. A consent that permits designations
by the Participant without any requirement of further consent by such Spouse
must acknowledge that the Spouse has the right to limit 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.
Additionally, a revocation of a prior waiver may be made by a Participant
without the consent of the Spouse at any time before his or her Benefit
Commencement Date. The number of revocations shall not be limited. Any new
waiver will require a new consent by the electing Participant's Spouse. No
consent obtained under this provision shall be valid unless the Participant
has received notice as provided in this Section.
6.2.5 The election of an optional form of benefit which contemplates the
payment of an annuity shall not be given effect if any person who would
receive benefits under the annuity dies before the Benefit Commencement Date.
6.3 Change in Form of Benefit Payments
Any former Employee whose payments are being deferred or who is receiving
installment payments may request acceleration or other modification of the
form of benefit distribution, subject to Code Section 401(a)(9), provided
that any necessary consent to such change required pursuant to Section 6.2.4
is obtained from the Employee's Spouse. This Section 6.3 shall not apply to
any Employee who becomes a Participant on or after January 1, 1989 or to
Plans adopted after that date.
6.4 Direct Rollovers
6.4.1 The provisions of this Section 6.4 apply only to distributions made on
or after January 1, 1993.
6.4.2 Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this Section 6.4, a
Distributee may elect, at the time and in the manner prescribed by the
Administrator, to have any portion of an Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan specified by the Distributee in a
Direct Rollover.
6.4.3 Definitions - All terms used in this Section 6.4 shall have the
meaning set forth below:
(A) Eligible Rollover Distribution: An Eligible Rollover Distribution is any
distribution of all or any portion of the balance to the credit of the
Distributee, except, that an Eligible Rollover Distribution does not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint 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 Code Section 401(a)(9); and
the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized appreciation
with respect to employer securities).
(B) Eligible Retirement Plan: An Eligible Retirement Plan is an individual
retirement account described in Code Section 408(a), an individual retirement
annuity described in Code Section 408(b), an annuity plan described in Code
Section 403(a), or a qualified trust described in Code Section 401(a) that
accepts the Distributee's Eligible Rollover Distribution. However, in the
case of an Eligible Rollover Distribution to the Surviving Spouse, an
Eligible Retirement Plan is an individual retirement account or individual
retirement annuity.
<PAGE>
(C) Distributee: A Distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's Surviving Spouse and the
Employee's or former Employee's Spouse or former Spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Section
414(p), are Distributees with regard to the interest of the Spouse or former
Spouse.
(D) Direct Rollover: A Direct Rollover is a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
ARTICLE VII
Death Benefits
7.1 Payment of Account Balances
7.1.1 The benefits payable to the Beneficiary of a Participant who dies
while an Employee shall be the Account Balance of all of his or her Accounts
including, if applicable, the proceeds of any life insurance contract in
effect on the Participant's life in accordance with Section 7.3. The
benefits payable to the Beneficiary of a Participant who dies after
terminating Employment shall be the vested Account Balance of all of his or
her Accounts. Except as otherwise provided in this Article VII, a
Beneficiary may request that he or she be paid his or her benefits as soon as
practicable after the Participant's death.
7.1.2 If a Participant dies before distribution of his or her entire
interest in the Plan has been completed, the remaining interest shall,
subject to Section 7.2.5, be distributed to the Participant's Beneficiary in
the form, at the time and from among the methods specified in Section 6.1.1
as elected by the Beneficiary in writing filed with the Administrator. If an
election is not received by the Administrator within 90 days following the
date the Administrator is notified of the Participant's death, the
distribution shall be made, if to a Surviving Spouse, in accordance with
Section 7.2.5(B), and, if to some other Beneficiary, to the Beneficiary in a
lump-sum.
7.1.3 The value of the benefits payable to a Beneficiary shall be determined
in accordance with Section 10.6.2. If the value of such death benefit is
$3,500 or less, distribution of such benefit shall be made in a lump-sum as
soon as practicable following the death of the Participant.
7.2 Beneficiaries
7.2.1 The Administrator shall provide each Participant, within the period
described in Section 7.2.1(A) for such Participant, a written explanation of
the death benefit in such terms and in such a manner as would be comparable
to the explanation provided for meeting the requirements applicable to a
Qualified Joint and Survivor Annuity. This Section 7.2.1 shall not be
applicable if Section 6.1.2 applies to a Participant.
(A) The period for providing a written explanation of the death benefit for a
Participant ends on the latest of the following to occur:
(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 ending after the Employee becomes a Participant; or
(iii) a reasonable period ending after Code Section 417 first applies to the
Participant.
Notwithstanding the foregoing, notice must be provided within a reasonable
period ending after termination of Employment in case of a Participant who
terminates Employment before attaining age 35 and who has a vested interest
in his or her Account.
(B) For purposes of the preceding paragraph, a reasonable period ending after
the enumerated events described in (ii) and (iii) 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. A Participant who has a vested interest in
his or her Account and who terminates Employment before the Plan in which age
35 is attained, shall be provided such notice within the two-year period
beginning one year prior to and ending one year after termination. If such a
Participant returns to Employment, the applicable period for such Participant
shall be redetermined.
7.2.2 A Participant shall designate one or more Beneficiaries to whom
amounts due after his or her death, other than under the Qualified Joint and
Survivor Annuity, shall be paid. In the event a Participant fails to make a
proper designation or in the event that no designated Beneficiary survives
the Participant, the Participant's Beneficiary shall be the Participant's
Surviving Spouse, or if the Participant has no Surviving Spouse, the legal
representative of the Participant's estate, as an asset of that estate. A
Participant's Beneficiary shall not have any right to benefits under the Plan
unless he or she shall survive the Participant.
7.2.3 Any designation of a Beneficiary incorporated into an Annuity Contract
or insurance contract shall be governed by the terms of such Annuity Contract
or insurance contract. Any other designation of a Beneficiary must be filed
with the Administrator, in a time and manner designated by such
Administrator, in order to be effective. Any such designation of a
Beneficiary may be revoked by filing a later designation
<PAGE>
or an instrument of revocation with the Administrator, in a time and manner
designated by the Administrator.
7.2.4 Effective after December 31, 1984, a married Participant whose
designation of a Beneficiary is someone other than his or her Spouse,
including a Beneficiary referred to in the first sentence of Section 7.2.3,
or the change of any such Beneficiary to a new Beneficiary other than the
Participant's Spouse, shall not be valid unless made in writing and consented
to by the Participant's Spouse in such terms and in such a manner as would be
comparable to the consent provided for a waiver of the Qualified Joint and
Survivor Annuity. The Spouse's consent to such designation must be made in
the manner described in Section 6.2.4.
7.2.5 Notwithstanding any other provision of the Plan to the contrary:
(A) If the Participant dies after his or her Benefit Commencement Date, but
before distribution of his or her benefit has been completed, the remaining
portion of such benefit may continue in the form and over the period in which
the distributions were being made, but in any event must continue to be made
at least as rapidly as under the method of distribution being used prior to
the Participant's death.
(B) If the Participant dies leaving a Surviving Spouse before his or her
Benefit Commencement Date, the Participant's benefit shall be payable to the
Participant's Surviving Spouse in the form of an annuity for the life of the
Surviving Spouse. The preceding sentence shall not apply if, within 90 days
following the date the Administrator is notified of the Participant's death,
his or her Surviving Spouse elects, by written notice to the Administrator,
any other form of benefit payment specified in Section 6.1.1, or the such
Surviving Spouse has already consented in a manner described in Section 6.2.4
to a distribution to an alternate Beneficiary designated by the Participant.
If the Plan is a profit-sharing plan which meets the requirements of Section
6.1.2., the Surviving Spouse shall receive his or her distribution in the
form of a lump-sum unless she or he elects within 90 days following the date
the Administrator is notified of the Participant's death, any other form of
benefit payment specified in Section 6.1.1, or the Participant's Surviving
Spouse has already consented in a manner described in Section 6.2.4 to a
distribution to an alternate Beneficiary designated by the Participant. If
the Participant's benefit is $3,500 or less, distribution shall be made in
the form of a lump-sum comprised of the assets in the Account immediately
prior to the distribution if the Account consists of Participant-Directed
Assets. If the Account does not consist of Participant-Directed Assets, the
distribution shall be in cash. If the Participant's benefit is distributable
in the form of an annuity for the life of the Surviving Spouse, the Surviving
Spouse may elect to have such annuity distributed immediately.
(C) If the Participant dies before his or her Benefit Commencement Date, the
distribution of the Participant's entire interest shall be completed by
December 31 of the calendar year containing the fifth anniversary of the
Participant's death except to the extent that an election is made by the
designated Beneficiary involved to receive distributions in accordance with
(i) or (ii) of this subsection (C) below:
(i) if any portion of the Participant's interest is payable to a designated
Beneficiary who is an individual, distributions may be made in substantially
equal installments over the life or Life Expectancy, as defined in Section
5.11.1(D), of the designated Beneficiary commencing on or before December 31
of the calendar year immediately following the calendar year of the
Participant's death;
(ii) if the designated Beneficiary is the Participant's Surviving Spouse,
the date distributions are required to begin in accordance with (i) of this
subsection (C) shall not be earlier than the later of December 31 of the
calendar year in which the Participant died and December 31 of the calendar
year in which the Participant would have attained age 65; and
(iii) if the Surviving Spouse dies before payments begin subsequent
distributions shall be made as if the Surviving Spouse had been the
Participant.
(D) For purposes of this Section 7.2.5, distribution of a Participant's
interest is considered to begin on the Participant's Required Beginning Date,
as defined in Section 5.11.1(E). If distribution in the form of an annuity
irrevocably commences to the Participant before such Required Beginning Date,
the date distribution is considered to begin is the date distribution
actually commences.
(E) For purposes of this Section 7.2.5, any amount paid to a child of the
Participant will be treated as if it had been paid to the Participant's
Surviving Spouse if the amount becomes payable to such Surviving Spouse when
the child reaches the age of majority.
(F) If the Participant has not made an election pursuant to this Section
7.2.5 by the time of his or her death, the Participant's designated
Beneficiary must elect the method of distribution no later than the earlier
of (i) December 31 of the calendar year in which distributions would be
required to begin under this Section or (ii) December 31 of the calendar year
which contains the fifth anniversary of the date of death of the Participant.
If the Participant has no designated Beneficiary, or if the designated
Beneficiary does not elect a method of distribution, distribution of the
Participant's entire interest must be completed by
<PAGE>
December 31 of the calendar year containing the fifth anniversary of the
Participant's death.
7.3 Life Insurance
7.3.1 With the consent of the Administrator and upon such notice as the
Administrator may require, a Participant may direct that a portion of his or
her Account be used to pay premiums on life insurance on the Participant's
life; provided, however, that (a) the aggregate premiums paid on ordinary
life insurance must be less than 50% of the aggregate contributions allocated
to the Participant's Employer Accounts, (b) the aggregate premiums paid on
term life insurance contracts, universal life insurance contracts and all
other life insurance contracts which are not ordinary life insurance may not
exceed 25% of the aggregate contributions allocated to the Participant's
Employer Account, and (c) the sum of one-half of the premiums paid on
ordinary life insurance and the total of all other life insurance premiums
may not exceed 25% of the aggregate contributions allocated to the Employer
Account of the Participant. For purposes of these limitations, ordinary life
insurance contracts are contracts with both non-decreasing death benefits and
non-increasing premiums.
7.3.2 The Trustee shall be the owner of each life insurance contract
purchased under this Section 7.3 and the proceeds of each such contract shall
be payable to the Trustee, provided that all benefits, rights and privileges
under each contract on the life of a Participant which are available while
the Participant is living shall be exercised by the Trustee only upon and in
accordance with the written instructions of the Participant. The proceeds of
all such insurance on the life of a Participant shall be paid over by the
Trustee to the Participant's Beneficiary in accordance with this Article VII.
Under no circumstances shall the Trustee retain any part of the proceeds.
7.3.3 Any dividends or credits earned on a life insurance contract shall be
applied when received in reduction of any premiums thereon, or, if no
premiums are due, applied to increase the proceeds of the insurance contract.
7.3.4 If a Participant is found by the Administrator to be insurable only at
a substandard premium rate, the policy shall provide a reduced death benefit
using the same premium as would be required if the Participant were a
standard risk, the amount of the death benefit being determined in accordance
with the amount of the rating.
7.3.5 The cash surrender value of an insurance contract to the extent
deriving from Employer or Participant contributions, if any, shall be
included, respectively, in the Account Balance of the Account from which the
premiums were paid. Any death benefits under an insurance contract payable
before the Participant's termination of Employment will be paid to the
Trustee for addition to the relevant Account of the Participant for
distribution in accordance with Section 7.1.
7.3.6 Any other provisions herein to the contrary notwithstanding, the
purchase of life insurance for any Participant shall be subject to such
minimum premium requirements as the Trustee may determine from time to time.
7.3.7 Premiums on life insurance contracts on a Participant's life shall be
paid by the Trustee, unless directed otherwise by the Participant, first from
cash in the Participant's Employer Accounts to the extent thereof, and then
from cash in the Participant's Participant Contributions Accounts, if any, to
the extent thereof. If there is insufficient cash in either Account to pay
premiums due, the Trustee shall notify the Participant of this fact. If the
Participant does not thereafter instruct the Trustee to sell sufficient
assets in an Account of the Participant to pay premiums due on a timely
basis, the Trustee shall not be obligated to take any further action with
respect to any life insurance contract on the Participant's life, whether as
regards continuing insurance on a paid-up basis, effecting a reduction of the
insurance in force, or otherwise, except at the direction of the Participant.
7.3.8 Prior to such time as a Participant becomes entitled to receive a
distribution of any benefits under this Plan for any reason other than the
Participant's death, the Trustee shall, pursuant to the written direction of
the Participant delivered to the Administrator within such period of time as
is acceptable to the Administrator, either convert all life insurance
contracts on the Participant's life into cash or an annuity to provide
current or future retirement income to the Participant or distribute the
contracts to the Participant as a part of a benefit distribution; provided,
however, that:
(A) the contracts shall not be distributed unless, if the Participant is
married at the time the distribution of the contracts is to be made, and the
Plan is a money purchase pension plan, a target benefit plan or a
profit-sharing plan to which Section 6.1.2 does not apply, the Participant's
Spouse at that time consents to a distribution in the manner prescribed by
Section 6.2.4; and
(B) if the cash value of any contracts at the time they become distributable
to a Participant exceeds a Participant's vested interest in his or her
Employer Accounts at that time, the Participant shall be entitled to receive
a distribution of such contracts only if the Participant promptly pays such
excess in cash to the Trust Fund.
<PAGE>
Life insurance contracts on a Participant's life shall not continue to be
maintained under the Plan following the Participant's termination of
Employment or after Employer contributions have ceased.
If a Participant on whose life an insurance contract is held does not make a
timely and proper direction regarding the contract under this Section 7.3.8,
the Participant shall be deemed to have directed that the contract be
converted into cash to be distributed in the manner in which the
Participant's benefit is to be distributed.
7.3.9 Anything contained herein to the contrary notwithstanding, in the
event of any conflict between the terms of the Plan and the terms of any
insurance contract purchased under this Section 7.3, the provisions of the
Plan shall control.
ARTICLE VIII
FIDUCIARIES
8.1 Named Fiduciaries
8.1.1 The Administrator shall be a "named fiduciary" of the Plan, as that
term is defined in ERISA Section 402(a)(2), with authority to control and
manage the operation and administration of the Plan, other than authority to
manage and control Plan assets. The Administrator shall also be the
"administrator" and "plan administrator" with respect to the Plan, as those
terms are defined in ERISA Section 3(16)(A) and in Code Section 414(g),
respectively.
8.1.2 The Trustee, or Investment Committee if appointed by the Employer,
shall be a "named fiduciary" of the Plan, as that term is defined in ERISA
Section 402(a)(2), with authority to manage and control all Trust Fund assets
and to select an Investment Manager or Investment Managers. If Merrill Lynch
Trust Company is the Trustee, it shall be a nondiscretionary trustee; an
Investment Committee shall be appointed and shall be the Employer, who may
also remove such Investment Committee; and the Investment Committee shall be
the "named fiduciary" with respect to Trust Fund assets. Anything in this
Section 8.1.2. to the contrary notwithstanding, with respect to
Participant-Directed Assets, the Participant or Beneficiary having the power
to direct the investment of such assets shall be the "named fiduciary" with
respect thereto.
8.1.3 The Trustee, or Investment Committee if appointed by the Employer,
shall have the power to make and deal with any investment of the Trust Fund
permitted in Section 10.4, except Participant-Directed Assets or assets for
which an Investment Manager has such power, in any manner which it deems
advisable and shall also:
(A) establish and carry out a funding policy and method consistent with the
objectives of the Plan and the requirements of ERISA;
(B) have the power to select Annuity Contracts, if applicable;
(C) have the power to determine, if applicable, what investments specified
in Section 10.4, including, without limitation, Qualified Employer Securities
and regulated investment company shares, are available as
Participant-Directed Assets; and
(D) have all the rights, powers, duties and obligations granted or imposed
upon it elsewhere in the Plan.
8.2 Employment of Advisers
A "named fiduciary", with respect to the Plan (as defined in ERISA Section
402(a)(2)) and any "fiduciary" (as defined in ERISA Section 3(4)) appointed
by such a "named fiduciary", may employ one or more persons to render advice
with regard to any responsibility of such "named fiduciary" or "fiduciary"
under the Plan.
8.3 Multiple Fiduciary Capacities
Any "named fiduciary" with respect to the Plan (as defined in ERISA Section
402(a)(2)) and any other "fiduciary" (as defined in ERISA Section 3(4)) with
respect to the Plan may serve in more than one fiduciary capacity.
8.4 Indemnification
To the extent not prohibited by state or federal law, the Employer agrees to,
and shall indemnify and save harmless, as the case may be, each Administrator
(if a person other than the Employer), Trustee, Investment Committee and/or
any Employee, officer or director of the Employer, or an Affiliate, from all
claims for liability, loss, damage or expense (including payment of
reasonable expenses in connection with the defense against any such claim)
which result from any exercise or failure to exercise any of the indemnified
person's responsibilities with respect to the Plan, other than by reason of
gross negligence.
8.5 Payment of Expenses
8.5.1 All Plan expenses, including without limitation, expenses and fees
(including fees for legal services rendered and fees to the Trustee) of the
Sponsor, Administrator, Investment Manager, Trustee, and any insurance
company, shall be charged against and withdrawn from the Trust Fund;
provided, however, the Employer may pay any of such expenses or reimburse the
Trust Fund for any payment.
<PAGE>
8.5.2 All transactional costs or charges imposed or incurred (if any) for
Participant-Directed Assets shall be charged to the Account of the directing
Participant or Beneficiary. Transactional costs and charges shall include,
but shall not be limited to, charges for the acquisition or sale or exchange
of Participant-Directed Assets, brokerage commissions, service charges and
professional fees.
8.5.3 Any taxes which may be imposed upon the Trust Fund or the income
therefrom shall be deducted from and charged against the Trust Fund.
ARTICLE IX
PLAN ADMINISTRATION
9.1 The Administrator
9.1.1 The Employer may appoint one or more persons as Administrator, who may
also be removed by the Employer. If any individual is appointed as
Administrator, and the individual is an Employee, the individual will be
considered to have resigned as Administrator if he or she terminates
Employment and at least one other person continues to serve as Administrator.
Employees shall receive no compensation for their services rendered to or as
Administrator.
9.1.2 If more than one person is designated as Administrator, the
Administrator shall act by a majority of its members at the time in office
and such action may be taken either by a vote at a meeting or in writing
without a meeting. However, if less than three members are appointed, the
Administrators shall act only upon the unanimous consent of its members. An
Administrator who is also a Participant shall not vote or act upon any matter
relating to himself or herself, unless such person is the sole Administrator.
9.1.3 The Administrator may authorize in writing any person to execute any
document or documents on the Administrator's behalf, and any interested
person, upon receipt of notice of such authorization directed to it, may
thereafter accept and rely upon any document executed by such authorized
person until the Administrator shall deliver to such interested person a
written revocation of such authorization.
9.2 Powers and Duties of the Administrator
9.2.1 The Administrator shall have the power to construe the Plan and to
determine all questions of fact or interpretation that may arise thereunder,
and any such construction or determination shall be conclusively binding upon
all persons interested in the Plan.
9.2.2 The Administrator shall have the power to promulgate such rules and
procedures, to maintain or cause to be maintained such records and to issue
such forms as it shall deem necessary and proper for the administration of
the Plan.
9.2.3 Subject to the terms of the Plan, the Administrator shall determine
the time and manner in which all elections authorized by the Plan shall be
made or revoked.
9.2.4 The Administrator shall have all the rights, powers, duties and
obligations granted to or imposed upon it elsewhere in the Plan.
9.2.5 The Administrator shall exercise all of its responsibilities in a
uniform and nondiscriminatory manner.
9.3 Delegation of Responsibility
The Administrator may designate persons, including persons other than "named
fiduciaries" (as defined in ERISA Section 402(a)(2)) to carry out the
specified responsibilities of the Administrator and shall not be liable for
any act or omission of a person so designated.
ARTICLE X
TRUSTEE AND INVESTMENT COMMITTEE
10.1 Appointment of Trustee and Investment Committee
10.1.1 The Employer shall appoint one or more persons as a Trustee who shall
serve as such for all or a portion of the Trust Fund. By executing the
Adoption Agreement: (i) the Employer represents that all necessary action
has been taken for the appointment of the Trustee; (ii) the Trustee
acknowledges that it accepts such appointment; and (iii) both the Employer
and the Trustee agree to act in accordance with the Trust provisions
contained in this Article X.
10.1.2 An Employee appointed as Trustee or to the Investment Committee shall
receive no compensation for services rendered in such capacity and will be
considered to have resigned if he or she terminates Employment and at least
one other person continues to act as Trustee or as the Investment Committee,
as the case may be. If Merrill Lynch Trust Company is the Trustee, the
Employer shall appoint an Investment Committee and Merrill Lynch Trust
Company shall be a nondiscretionary trustee.
10.1.3 If more than one person is acting as the Trustee, or as an Investment
Committee, such Trustee, or Investment Committee, shall act by a majority of
the persons at the time so acting and such action may be taken either by a
vote at a meeting or in writing without a meeting. If less than three
members are serving, the Trustee, or Investment Committee, shall act only
upon the unanimous consent of those serving.
<PAGE>
The Trustee, or Investment Committee, may authorize in writing any person to
execute any document or documents on its behalf, and any interested person,
upon receipt of notice of such authorization directed to it, may thereafter
accept and rely upon any document executed by such authorized person until
the Trustee, or Investment Committee, shall deliver to such interested person
a written revocation of such authorization.
10.2 The Trust Fund
The Trustee shall receive such sums of money or other property acceptable to
the Trustee which shall from time to time be paid or delivered to the Trustee
under the Plan. The Trustee shall hold in the Trust Fund all such assets,
without distinction between principal and income, together with all property
purchased therewith and the proceeds thereof and the earnings and income
thereon. The Trustee shall not be responsible for, or have any duty to
enforce, the collection of any contributions or assets to be paid or
transferred to it, or for verifying whether contributions or transfers to it
are allowable under the Plan, nor shall the Trustee be responsible for the
adequacy of the Trust Fund to meet or discharge liabilities under the Plan.
10.2.1 The Trustee shall receive in cash or other assets acceptable to the
Trustee, so long as such assets received do not constitute a prohibited
transaction, all contributions paid or delivered to it which are allocable
under the Plan and to the Trust Fund and all transfers paid or delivered
under the Plan to the Trust Fund from a predecessor trustee or another trust
(including a trust forming part of another plan qualified under Code Section
401(a); provided, however, that the Trustee shall not be obligated to receive
any such contribution or transfer unless prior thereto or coincident
therewith, as the Trustee may specify, the Trustee has received such
reconciliation, allocation, investment or other information concerning, or
such direction, contribution or representation with respect to, the
contribution or transfer or the source thereof as the Trustee may require.
The Trustee shall have no duty or authority to (a) require any contributions
or transfers to be made under the Plan or to the Trustee, (b) compute any
amount to be contributed or transferred under the Plan to the Trustee, or (c)
determine whether amounts received by the Trustee comply with the Plan.
10.2.2 The Trust Fund shall consist of all money and other property received
by the Trustee pursuant to Section 10.2, increased by any income or gains on
or increment in such assets and decreased by any investment loss or expense,
benefit or disbursement paid pursuant to the Plan.
10.3 Relationship with Administrator
10.3.1 Neither the Trustee, nor the Investment Committee, if any, shall be
responsible in any respect for the administration of the Plan. Payments of
money or property from the Trust Fund shall be made by the Trustee upon
direction from the Administrator or its designee. Payments by the Trustee
shall be transmitted to the Administrator or its designee for delivery to the
proper payees or to payee addresses supplied by the Administrator or its
designee, and the Trustee's obligation to make such payments shall be
satisfied upon such transmittal. The Trustee shall have no obligation to
determine the identity of persons entitled to payments under the Plan or
their addresses.
10.3.2 Directions from or on behalf of the Administrator or its designee
shall be communicated to the Trustee or the Trustee's designee for that
purpose only in a manner and in accordance with procedures acceptable to the
Trustee. The Trustee's designee shall not, however, be empowered to
implement any such directions except in accordance with procedures acceptable
to the Trustee. The Trustee shall have no liability for following any such
directions or failing to act in the absence of any such directions. The
Trustee shall have no liability for the acts or omissions of any person
making or failing to make any direction under the Plan or the provisions of
this Article X nor any duty or obligation to review any such direction, act
or omission.
10.3.3 If a dispute arises over the propriety of the Trustee making any
payment from the Trust Fund, the Trustee may withhold the payment until the
dispute has been resolved by a court of competent jurisdiction or settled by
the parties to the dispute. The Trustee may consult legal counsel and shall
be fully protected in acting upon the advice of counsel.
<PAGE>
10.4 Investment of Assets
10.4.1 Except as provided in Section 10.4.2, investments of the Trust Fund shall
be made in the following, but only if compatible with the Sponsor's
administrative and operational requirement and framework:
(A) shares of any regulated investment company managed in whole or in part by
the Sponsor or any affiliate of the Sponsor;
(B) any property purchased through the Sponsor or any affiliate of the Sponsor,
whether or not productive of income or consisting of wasting assets, including,
without limitation by specification, governmental, corporate or personal
obligations, trust and participation certificates, leaseholds, fee titles,
mortgages and other interests in realty, preferred and common stocks,
convertible stocks and securities, shares of regulated investment companies,
certificates of deposit, put and call options and other option contracts of any
type, foreign or domestic, whether or not traded on any exchange, futures
contracts and options on futures contracts traded on or subject to the rules of
an exchange which has been designated as a contract market by the Commodity
Futures Trading Commission, an independent U.S. government agency, contracts
relating to the lending of property, evidences of indebtedness or ownership in
foreign corporations or other enterprises, or indebtedness of foreign
governments, group trust participations, limited or general partnership
interests, insurance contracts, annuity contracts, any other evidences of
indebtedness or ownership including oil, mineral or gas properties, royalty
interests or rights (including equipment pertaining thereto); and
(C) Qualifying Employer Securities or "qualifying employer real properties" (as
that term is defined in ERISA Section 407(d) to the extent permitted in Section
10.4.3).
10.4.2 (A) Up to 25% or with the written consent of the Sponsor or its
representative, an additional percentage of each Plan Year's contributions may
be invested in property as specified in Section 10.4.1(B) acquired through a
person other than the Sponsor or an affiliate of the Sponsor.
(B) Except as permitted by Section 10.4.2 and except as may result from a
Rollover Contribution or a trust to trust transfer, without the written consent
of the Sponsor or its representative, property may not be acquired through a
person other than the Sponsor or an affiliate of the Sponsor if following such
acquisitions the value of the property so acquired would exceed 25% of the value
of the Trust Fund.
10.4.3 In its sole discretion, the Investment Committee, or Trustee if there is
no Investment Committee:
(A) may permit the investment of up to 10% of the Trust Fund in Qualifying
Employer Securities or "qualifying employer real property" (as that term is
defined in ERISA Section 407(d)), to the extent such investment is compatible
with the Sponsor's administrative and operational requirements and framework;
and
(B) may determine, subject to Section 10.4.2, that a percentage of assets in
excess of 10% of the Trust Fund may be invested in Qualifying Employer
Securities or "qualifying employer real property" by a profit-sharing plan.
10.4.4 This Plan will be recognized as a Prototype Plan by the Sponsor only by
complying with the provisions of this Section 10.4.
10.5 Investment Direction, Participant-Directed Assets and Qualifying Employer
Investments
10.5.1 The Trustee, or Investment Committee if appointed, shall manage the
investment of the Trust Fund except insofar as (a) an Investment Manager has
authority to manage Trust assets, or (b) Participant-Directed Assets are
permitted as specified in the Adoption Agreement. Except as required by ERISA,
if an Investment Committee is acting, the Trustee shall invest the Trust Fund as
directed by the Investment Committee, an Investment Manager or a Participant or
Beneficiary, as the case may be, and the Trustee shall have no discretionary
control over, nor any other discretion regarding, the investment or reinvestment
of any asset of the Trust. Participant-Directed Assets shall be invested in
accordance with the direction of the Participant or, in the event of the
Participant's death before an Account is fully paid out, the Participant's
Beneficiary with respect to the assets involved; provided, however, that
Participant-Directed Assets may not be invested in "collectibles" (as defined in
Code Section 408(m)(2)). If there are Participant-Directed Assets, the
investment of these assets shall be made in accordance with such rules and
procedures established by the Administrator which must be consistent with the
rules and procedures of the Sponsor or its affiliate, as the case may be.
10.5.2 With respect to Participant-Directed Assets, neither the Administrator,
the Investment Committee nor the Trustee shall:
(A) make any investments or dispose of any investments without the direction of
the Participant or Beneficiary for whom the Participant-Directed Assets are
maintained, except as provided in Section 8.5 so as to pay fees or expenses of
the Plan;
<PAGE>
(B) be responsible for reviewing any investment direction with respect to
Participant-Directed Assets or for making recommendations on acquiring,
retaining or disposing of any assets or otherwise regarding any assets;
(C) have any duty to determine whether any investment is an authorized or
proper one; or
(D) be liable for following any investment direction or for any losses, taxes
or other consequences incurred as a consequence of investments selected by any
Participant or Beneficiary or for holding assets uninvested until it receives
proper instructions.
10.5.3 If Participant-Directed Assets are permitted, a list of the Participants
and Beneficiaries and such information concerning them as the Trustee may
specify shall be provided by the Employer or the Administrator to the Trustee
and/or such person as are necessary for the implementation of the directions in
accordance with the procedure acceptable to the Trustee.
10.5.4 It is understood that the Trustee may, from time to time, have on hand
funds which are received as contributions or transfers to the Trust Fund which
are awaiting investment or funds from the sale of Trust Fund assets which are
awaiting reinvestment. Absent receipt by the Trustee of a direction from the
proper person for the investment or reinvestment of such funds or otherwise
prior to the application of funds in implementation of such a direction, the
Trustee shall cause such funds to be invested in shares of such money market
fund or other short term investment vehicle as the Trustee, or Investment
Committee if appointed, may specify for this purpose from time to time. Any
such investment fund may be sponsored, managed or distributed by the Sponsor or
an affiliate of the Sponsor.
10.5.5 Directions for the investment or reinvestment of Trust assets of a type
referred to in Section 10.4 from the Investment Committee, an Investment Manager
or a Participant or Beneficiary, as the case may be, shall, in a manner and in
accordance with procedures acceptable to the Trustee, be communicated to and
implemented by, as the case may be, the Trustee, the Trustee's designee or, with
the Trustee's consent and if an Investment Committee is operating, a
broker/dealer designated for the purpose by the Investment Committee.
Communication of any such direction to such a designee or broker/dealer shall
conclusively be deemed an authorization to the designee or broker/dealer to
implement the direction even though coming from a person other than the Trustee.
The Trustee shall have no liability for its or any other person's following such
directions or failing to act in the absence of any such directions. The Trustee
shall have no liability for the acts or omissions of any person directing the
investment or reinvestment of Trust Fund assets or making or failing to make any
direction referred to in Section 10.5.6.
10.5.6 The voting and other rights in securities or other assets held in the
Trust shall be exercised by the Trustee provided, however, that if an Investment
Committee is appointed, the Trustee shall act as directed by such person who at
the time has the right to direct the investment or reinvestment of the security
or other asset involved.
10.5.7 With respect to any Qualifying Employer Securities allocated to an
Account, each Participant shall be entitled to direct the Trustee in writing as
to the manner in which Qualifying Employer Securities are to be voted.
10.5.8 With respect to any Qualifying Employer Securities allocated to an
Account, each Participant shall be entitled to direct the Trustee in writing as
to the manner in which to respond to a tender or exchange offer or other
decisions with respect to the Qualifying Employer Securities. The Administrator
shall utilize its best efforts to timely distribute or cause to be distributed
to each Participant such information received from the Trustee as will be
distributed to shareholders of the Employer in connection with any such tender
or exchange offer or other similar matter or any vote referred to in Section
10.5.7.
10.5.9 If an Investment Committee is appointed, notwithstanding any provision
hereof to the contrary, in the event the person with the right to direct a
voting or other decision with respect to any security, Qualifying Employer
Securities, or other asset held in the Trust does not communicate any decision
on the matter to the Trustee or the Trustee's designee by the time prescribed by
the Trustee or the Trustee's designee for that purpose or if the Trustee
notifies the Investment Committee, if applicable, either that it does not have
precise information as to the securities, Qualifying Employer Securities, or
other assets involved allocated on the applicable record date to the accounts of
all Participants and Beneficiaries or that time constraints make it unlikely
that Participant, Beneficiary or Investment Manager direction, as the case may
be, can be received on a timely basis, the decision shall be the responsibility
of the Investment Committee and shall be communicated to the Trustee on a timely
basis. In the event an Investment Committee with any right under the Plan to
direct a voting or other decision with respect to any security, Qualifying
Employer Securities, or other asset held in the Trust, does not communicate any
decision on the matter to the Trustee or the Trustee's designee by the time
prescribed by the Trustee for that purpose, the Trustee may, at the cost of the
Employer, retain an Investment Manager with full discretion to make the
decision. Except as required by ERISA, the Trustee
<PAGE>
shall (a) follow all directions above referred to in this Section and (b) shall
have no duty to exercise voting or other rights relating to any such security,
Qualifying Employer Security or other asset.
10.5.10 The Administrator shall establish, or cause to be established, a
procedure acceptable to the Trustee for the timely dissemination to each person
entitled to direct the Trustee or its designee as to a voting or other decision
called for thereby or referred to therein of all proxy and other materials
bearing on the decision.
10.5.11 Any person authorized to direct the investment of Trust assets may, if
the Trustee and the Investment Committee, if applicable, so permit, direct the
Trustee to invest such assets in a common or collective trust maintained by the
Trustee for the investment of assets of qualified trusts under section 401(a) of
the Code, individual retirement accounts under section 408(a) of the Code and
plans or governmental units described in section 818(a)(6) of the Code. The
documents governing any such common or collective trust fund maintained by the
Trustee, and in which Trust assets have been invested, are hereby incorporated
into this Article X by reference.
10.6 Valuation of Accounts
10.6.1 A Participant's Accounts shall be valued at fair market value on each
Valuation Date. Subject to Section 10.6.2(A), as of each Valuation Date, the
earnings and losses and expenses of the Trust Fund shall be allocated to each
Participant Account in the ratio that such Account Balance in that category of
Accounts bears to all Account Balances in that category. With respect to
Participant-Directed Assets, the earnings and losses and expenses (including
transactional expenses pursuant to Section 8.5.2) of such Participant-Directed
Assets shall be allocated to the Account of the Participant or Beneficiary
having authority to direct the investment of the assets in his or her Account.
10.6.2 The Valuation Date with respect to any distributions (including, without
limitation, loan distributions and purchase of annuities) from any Account upon
the occurrence of a Benefit Commencement Date or otherwise, shall be:
(A) with respect to Participant-Directed Asset, the date as of which the Account
distribution is made; and
(B) with respect to other assets, the Valuation Date immediately preceding the
Benefit Commencement Date, if applicable, or immediately preceding the proposed
date of any other distribution from an Account.
With respect to any contribution allocable to an Account which has not been made
as of a Valuation Date determined pursuant to this Section 10.6.2, the principal
amount of such contribution distributable because of the occurrence of a Benefit
Commencement Date shall be distributed as soon as practicable after the date
paid to the Trust Fund.
10.6.3 The assets of the Trust shall be valued at fair market value as
determined by the Trustee based upon such sources of information as it may deem
reliable, including, but not limited to, stock market quotations, statistical
evaluation services, newspapers of general circulation, financial publications,
advice from investment counselors or brokerage firms, or any combination of
sources. The reasonable costs incurred in establishing values of the Trust Fund
shall be a charge against the Trust Fund, unless paid by the Employer.
When the Trustee is unable to arrive at a value based upon information from
independent sources, it may rely upon information from the Employer,
Administrator, Investment Committee, appraisers or other sources, and shall not
incur any liability for inaccurate valuation based in good faith upon such
information.
10.7 Insurance Contracts
The Trustee, if an Investment Committee is not appointed, Investment Committee,
or Participant or Beneficiary with respect to Participant-Directed Assets, may
appoint one or more insurance companies to hold assets of the Plan, and may
direct, subject to Section 7.3, the purchase of insurance contracts or policies
from one or more insurance companies with assets of the Plan. Neither the
Investment Committee, Trustee nor the Administrator shall be liable for the
validity of any such contract or policy, the failure of any insurance company to
make any payments or for any act or omission of an insurance company with
respect to any duties delegated to any insurance company.
10.8 The Investment Manager
10.8.1 The Trustee, if an Investment Committee is not appointed, Investment
Committee, or the Participant or Beneficiary with respect to
Participant-Directed Assets, may, by an instrument in writing, appoint one or
more Investment Managers, who may be an affiliate of the Merrill Lynch Trust
Company, to direct the Trustee in the investment of all or a specified
portion of the assets of the Trust in property specified in Section 10.4.
Any such Investment Manager shall be directed by the Trustee, if an
Investment Committee is not appointed, Investment Committee, Participant or
Beneficiary, as the case may be, to act in accordance with the procedures
referred to in Section 10.5.5. If appointed, the Investment Committee shall
notify the Trustee in
<PAGE>
writing before the effectiveness of the appointment or removal of any Investment
Manager. If there is more than one Investment Manager whose appointment is
effective under the Plan at any one time, the Trustee shall, upon written
instructions from the Investment Committee, Participant or Beneficiary,
establish separate funds for control by each such Investment Manager. The funds
shall consist of those Trust Fund assets designated by the Investment Committee,
Participant or Beneficiary.
10.8.2 Each person appointed as an Investment Manager shall be:
(A) an investment adviser registered under the Investment Advisers Act of 1940,
(B) a bank as defined in that Act, or
(C) an insurance company qualified to manage, acquire or dispose of any asset
of the Plan under the laws of more than one state.
10.8.3 Each Investment Manager shall acknowledge in writing that it is a
"fiduciary" (as defined in ERISA Section 3(21)) with respect to the Plan. The
Trustee, or the Investment Committee if appointed, shall enter into an agreement
with each Investment Manager specifying the duties and compensation of such
Investment Manager and the other terms and conditions under which such
Investment Manager shall be retained. Neither the Trustee nor the Investment
Committee, if appointed, shall be liable for any act or omission of any
Investment Manager and shall not be liable for following the advice of any
Investment Manager with respect to any duties delegated to any Investment
Manager.
10.8.4 The Trustee, or Investment Committee if appointed, or the Participant
or Beneficiary, if applicable with respect to Participant-Directed Assets, shall
have the power to determine the amount of Trust Fund assets to be invested
pursuant to the direction of a designated Investment Manager and to set
investment objectives and guidelines for the Investment Manager.
10.8.5 Second Trust Fund. The Employer may appoint a second trustee under the
Plan with respect to assets which the Employer desires to contribute or have
transferred to the Trust Fund, but which the other Trustee does not choose to
accept: provided, however, that if a Merrill Lynch Trust Company is a Trustee,
its consent (which consent may be evidenced by its acceptance of its appointment
as Trustee) shall be required. In the event and upon the effectiveness of the
acceptance of the second Trustee's appointment, the Employer shall be deemed to
have created two trust funds under the Plan, each with its own Trustee, each
governed separately by this Article X. Each Trustee under such an arrangement
shall, however, discharge its duties and responsibilities solely with respect to
those assets of the Trust delivered into its possession and except pursuant to
ERISA, shall have no duties, responsibilities or obligations with respect to
property of the other Trust nor any liability for the acts or omissions of the
other Trustee. As a condition to its consent to the appointment of a second
trustee, the Merrill Lynch Trust Company shall assure that recordkeeping,
distribution and reporting procedures are established on a coordinated basis
between it and the second trustee as considered necessary or appropriate with
respect to the Trusts.
10.9 Powers of Trustee
10.9.1 At the direction of the person authorized to direct such action as
referred to in Section 10.5.1, but limited to those assets or categories of
assets acceptable to the Trustee as referred to in Section 10.4, or at its own
discretion if no such person is so authorized, the Trustee, or the Trustee's
designee or a broker/dealer as referred to in Section 10.5.5, is authorized and
empowered:
(A) To invest and reinvest the Trust Fund, together with the income therefrom,
in assets specified in Section 10.4;
(B)To deposit or invest all or any part of the assets of the Trust in savings
accounts or certificates of deposit or other deposits in a bank or savings and
loan association or other depository institution, including the Trustee or any
of its affiliates, provided with respect to such deposits with the Trustee or an
affiliate the deposits bear a reasonable interest rate;
(C) To hold, manage, improve, repair and control all property, real or personal,
forming part of the Trust Fund; to sell, convey, transfer, exchange, partition,
lease for any term, even extending beyond the duration of this Trust, and
otherwise dispose of the same from time to time;
(D) To have, respecting securities, all the rights, powers and privileges of an
owner, including the power to give proxies, pay assessments and other sums
deemed by the Trustee necessary for the protection of the Trust Fund; to vote
any corporate stock either in person or by proxy, with or without power of
substitution, for any purpose; to participate in voting trusts, pooling
agreements, foreclosures, reorganizations, consolidations, mergers and
liquidations, and in connection therewith to deposit securities with or transfer
title to any protective or other committee; to exercise or sell stock
subscriptions or conversion rights; and, regardless of any limitation elsewhere
in this instrument relative to investments by the Trustee, to accept and retain
as an investment any securities or
<PAGE>
other property received through the exercise of any of the foregoing powers;
(E) Subject to Section 10.5.4 hereof, to hold in cash, without liability for
interest, such portion of the Trust Fund which it is directed to so hold pending
investments, or payment of expenses, or the distribution of benefits;
(F) To take such actions as may be necessary or desirable to protect the Trust
from loss due to the default on mortgages held in the Trust including the
appointment of agents or trustees in such other jurisdictions as may seem
desirable, to transfer property to such agents or trustees, to grant to such
agents such powers as are necessary or desirable to protect the Trust Fund, to
direct such agent or trustee, or to delegate such power to direct, and to remove
such agent or trustee;
(G) To settle, compromise or abandon all claims and demands in favor of or
against the Trust Fund;
(H) To invest in any common or collective trust fund of the type referred to in
Section 10.5.8 hereof maintained by the Trustee;
(I) To exercise all of the further rights, powers, options and privileges
granted, provided for, or vested in trustees generally under the laws of the
State of New Jersey, so that the powers conferred upon the Trustee herein shall
not be in limitation of any authority conferred by law, but shall be in addition
thereto;
(J) To borrow money from any source and to execute promissory notes, mortgages
or other obligations and to pledge or mortgage any trust assets as security,
subject to applicable requirements of the Code and ERISA; and
(K) To maintain accounts at, execute transactions through, and lend on an
adequately secured basis stocks, bonds or other securities to, any brokerage or
other firm, including any firm which is an affiliate of the Trustee.
10.9.2 To the extent necessary or which it deems appropriate to implement its
powers under Section 10.9.1 or otherwise to fulfill any of its duties and
responsibilities as trustee of the Trust Fund, the Trustee shall have the
following additional powers and authority:
(A) to register securities, or any other property, in its name or in the name of
any nominee, including the name of any affiliate or the nominee name designated
by any affiliate, with or without indication of the capacity in which property
shall be held, or to hold securities in bearer form and to deposit any
securities or other property in a depository or clearing corporation;
(B) to designate and engage the services of, and to delegate powers and
responsibilities to, such agents, representatives, advisers, counsel and
accountants as the Trustee considers necessary or appropriate, any of whom may
be an affiliate of the Trustee or a person who renders services to such an
affiliate, and, as a part of its expenses under this Trust Agreement, to pay
their reasonable expenses and compensation;
(C) to make, execute and deliver, as Trustee, any and all deeds, leases,
mortgages, conveyances, waivers, releases or other instruments in writing
necessary or appropriate for the accomplishment of any of the powers listed in
this Trust Agreement; and
(D) generally to do all other acts which the Trustee deems necessary or
appropriate for the protection of the Trust Fund.
10.9.3 The Trustee shall have no duties or responsibilities other than those
specified in the Plan.
10.10 Accounting and Records
10.10.1 The Trustee shall maintain or cause to be maintained accurate records
and accounts of all Trust transactions and assets. The records and accounts
shall be available at reasonable times during normal business hours for
inspection or audit by the Administrator, Investment Committee, if appointed, or
any person designated for the purpose by either of them.
10.10.2 Within 90 days following the close of each fiscal year of the Plan or
the effective date of the removal or resignation of the Trustee, the Trustee
shall file with the Administrator a written accounting setting forth all
transactions since the end of the period covered by the last previous
accounting. The accounting shall include a listing of the assets of the Trust
showing the value of such assets at the close of the period covered by the
accounting. On direction of the Administrator, and if previously agreed to by
the Trustee, the Trustee shall submit to the Administrator interim valuations,
reports or other information pertaining to the Trust.
The Administrator may approve the accounting by written approval delivered to
the Trustee or by failure to deliver written objections to the Trustee within 60
days after receipt of the accounting. Any such approval shall be binding on the
Employer, the Administrator, the Investment Committee and, to the extent
permitted by ERISA, all other persons.
10.11 Judicial Settlement of Accounts
<PAGE>
The Trustee can apply to a court of competent jurisdiction at any time for
judicial settlement of any matter involving the Plan including judicial
settlement of the Group Trustee's account. If it does so, the Trustee must give
the Administrator the opportunity to participate in the court proceedings, but
the Trustee can also involve other persons. Any expenses the Trustee incurs in
legal proceedings involving the Plan, including attorney's fees, are chargeable
to the Trust Fund as an administrative expense. Any judgment or decree which
may be entered in such a proceeding, shall, subject to the provision of ERISA,
be conclusive upon all persons having or claiming to have any interest in the
Trust Fund or under any Plan.
10.12 Resignation and Removal of Trustee
10.12.1 The Trustee may resign at any time upon at least 30 days' written
notice to the Employer.
10.12.2 The Employer may remove the Trustee upon at least 30 days' written
notice to the Trustee.
10.12.3 Upon resignation or removal of the Trustee, the Employer shall appoint
a successor trustee. Upon failure of the Employer to appoint, or the failure of
the effectiveness of the appointment by the Employer of, a successor trustee by
the effective date of the resignation or removal, the Trustee may apply to any
court of competent jurisdiction for the appointment of a successor.
Promptly after receipt by the Trustee of notice of the effectiveness of the
appointment of the successor trustee: (a) the Trustee shall deliver to the
successor trustee such records as may be reasonably requested to enable the
successor trustee to properly administer the Trust Fund and all property of the
Trust after deducting therefrom such amounts as the Trustee deems necessary to
provide for expenses, taxes, compensation or other amounts due to or by the
Trustee not paid by the Employer prior to the delivery; and (b) except if the
second Trustee is removed or resigns, the Plan will no longer be considered a
prototype plan.
10.12.4 Upon resignation or removal of the Trustee, the Trustee shall have the
right to a settlement of its account, which settlement shall be made, at the
Trustee's option, either by an agreement of settlement between the Trustee and
the Employer or by a judicial settlement in an action instituted by the Trustee.
The Employer shall bear the cost of any such judicial settlement, including
reasonable attorneys fees.
10.12.5 The Trustee shall not be obligated to transfer Trust assets until the
Trustee is provided assurance by the Employer satisfactory to the Trustee that
all fees and expenses reasonably anticipated will be paid.
10.12.6 Upon settlement of the account and transfer of the Trust Fund to the
successor trustee, all rights and privileges under the Trust Agreement shall
vest in the successor trustee and all responsibility and liability of the
Trustee with respect to the Trust and assets thereof shall, except as otherwise
required by ERISA, terminate subject only to the requirement that the Trustee
execute all necessary documents to transfer the Trust assets to the successor
trustee.
10.13 Group Trust
10.13.1 If elected by the Employer in the Adoption Agreement, the Trustee shall
be the Trustee for this Plan and for each other qualified plan specified in the
Adoption Agreement; provided, however, that such other qualified plan is in
effect pursuant to an Adoption Agreement under this Prototype Plan. Any
reference to Trustee and to the Trust Fund in this Plan shall mean the Trustee
as the trustee of a Group Trust consisting of the assets of each such plan. The
Plan and each other qualified plan specified in the Adoption Agreement shall be
deemed to join in and adopt the Trust as the trust for each such plan. By
executing the Adoption Agreement, the Trustee accepts designation as Trustee of
this Group Trust.
10.13.2 The Trustee shall establish and maintain such accounting records for
each of the Plans as shall be necessary to reflect the interest in the Group
Trust applicable at any time or from time to time to each Plan. No part of the
corpus or income of the Group Trust allocable to an individual Plan may be used
for or diverted to any purposes other than for the exclusive benefit of
Participants and their Beneficiaries entitled to benefits under that Plan. The
allocable interest of a Plan in the Group Trust may not be assigned.
ARTICLE XI
PLAN AMENDMENT OR TERMINATION
11.1 Prototype Plan Amendment
11.1.1 The mass submitter, Merrill Lynch, Pierce, Fenner & Smith Incorporated
and any successor thereto, may amend any part of the Prototype Plan. For
purposes of sponsoring organization amendments, the mass submitter shall be
recognized as the agent of the sponsoring organization. If the sponsoring
organization does not adopt the amendments made by the mass submitter, it will
no longer be identical to or a minor modifier of the mass submitter plan.
11.1.2 An Employer shall have the right at any time, by an instrument in
writing, effective retroactively or otherwise, to (A) change the choice of
options in the Adoption Agreement, in whole or in part; (B) add overriding
language in the Adoption Agreement when such language is needed to satisfy Code
Section 415 or Code Section 416 because of the required aggregation
<PAGE>
of multiple plans; and (C) 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. No such amendment,
however, shall have any of the effects specified in Section 11.2.1. If the
adopting Employer amends the Plan or nonelective portions of the Adoption
Agreement except as previously provided, it will no longer participate in the
Prototype Plan, but will be considered to have an individually designed plan for
purposes of qualification under Code Section 401(a). In the event the Employer
is switching from an individually designed plan or from one prototype plan to
another, a list of the Section "411(d)(6) protected benefits" that must be
preserved may be attached, and such a list would not be considered an amendment
to the plan.
11.1.3 This Plan will be recognized as a Prototype Plan by the Sponsor only by
complying with the registration requirements as specified in the Adoption
Agreement.
11.2 Plan Amendment
11.2.1 Except as provided in Section 11.2.2, no amendment pursuant to Section
11.1 shall:
(A) authorize any part of the Trust Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of Participants or their
Beneficiaries;
(B) decrease the accrued benefits of any Participant or his or her Beneficiary
under the Plan; An amendment which has the effect of (1) eliminating or
reducing an Early Retirement benefit or a retirement-type subsidy, or (2)
eliminating an optional form of benefit payment, with respect to benefits
attributable to service before the amendment shall be treated as reducing
accrued benefits. In the case of a retirement-type subsidy, the preceding
sentence shall apply only with respect to a Participant who satisfies (either
before or after the amendment) the preamendment conditions for the subsidy. In
general, a retirement-type subsidy is a subsidy that continues after retirement,
but does not include a qualified disability benefit, a medical benefit, a social
security supplement, a death benefit (including life insurance), or a plant
shutdown benefit (that does not continue after retirement age).
(C) reduce the vested percentage of any Participant determined without regard
to such amendment as of the later of the date such amendment is adopted or the
date it becomes effective;
(D) eliminate an optional form of benefit distribution with respect to benefits
attributable to service before the amendment; or
(E) change the vesting schedule, or in any way amend the Plan to either
directly or indirectly affect the computation of a Participant's vested
percentage, unless each Participant having not less than 3 years of Vesting
Service is permitted to elect, within a reasonable period specified by the
Administrator after the adoption of such amendment, to have his or her vested
percentage computed without regard to such amendment.
For Participants who do not have at least one Hour of Service in any Plan Year
beginning after December 31, 1988, the preceding sentence shall be applied by
substituting "5 Years of Vesting Service" for "3 Years of Vesting Service" where
such language appears. The period during which the election may be made shall
commence with the date the amendment is adopted and shall end on the later of:
(i) 60 days after the amendment is adopted;
(ii) 60 days after the amendment becomes effective; or
(iii) 60 days after the Participant is issued written notice by the
Administrator.
11.2.2 Anything contained in this Section 11.2 to the contrary notwithstanding,
a Participant's benefit may be reduced to the extent permitted under Code
Section 412(c)(8).
11.3 Right of the Employer to Terminate Plan
11.3.1 The Employer intends and expects that from year to year it will be able
to and will deem it advisable to continue this Plan in effect and to make
contributions as herein provided. The Employer reserves the right, however, to
terminate the Plan with respect to its Employees at any time by an instrument in
writing delivered to the Administrator and the Trustee, or to completely
discontinue its contributions thereto at any time.
11.3.2 The Plan will also terminate: (A) if the Employer is a sole
proprietorship, upon the death of the sole proprietor; (B) if the Employer is a
partnership, upon termination of the partnership; (C) if the Employer is
judicially declared bankrupt or insolvent; (D) upon the sale or other
disposition of all or substantially all of the assets of the business; or (E)
upon any other termination of the business. Any successor to or purchaser of
the Employer's trade or business, after any event specified in the prior
sentence, may continue the Plan, in which case the successor or purchaser will
thereafter be considered the Employer for purposes of the Plan. Such a
successor or purchaser shall execute an appropriate Adoption Agreement if and
when requested by the Administrator.
11.3.3 Anything contained herein to the contrary notwithstanding, if the
Employer fails to attain or retain qualification of the Plan under Code
Section 401(a), the Plan will not participate in this Prototype Plan and will,
<PAGE>
instead, be considered an individually designed plan for purposes of such
qualification.
11.4 Effect of Partial or Complete Termination or Complete Discontinuance of
Contributions
11.4.1 Determination of Date of Complete
or Partial Termination. The date of complete or partial termination shall be
established by the Administrator in accordance with the directions of the
Employer (if then in existence) in accordance with applicable law.
11.4.2 Effect of Termination.
(A) As of the date of a partial termination of the Plan:
(i) the accrued benefit of each affected Participant, to the extent funded,
shall become nonforfeitable;
(ii) no affected Participant shall be granted credit based on Hours of Service
after such date;
(iii) Compensation paid to affected Participants after such date shall not be
taken into account; and
(iv) no contributions by affected Participants shall be required or permitted.
(B) As of the date of the complete termination of the Plan or of a complete
discontinuance of contributions:
(i) the accrued benefit of each affected Participant to the extent funded,
shall become nonforfeitable;
(ii) no affected Participant shall be granted credit based on Hours of Service
after such date;
(iii) Compensation paid after such date shall not be taken into account;
(iv) no contributions by affected Participants shall be required or permitted;
(v) no Eligible Employee shall become a Participant after such date; and
(vi) except as may otherwise be required by applicable law, all obligations of
the Employer and Participating Affiliates to fund the Plan shall terminate.
(C) All other provisions of the Plan shall remain in effect unless otherwise
amended.
11.4.3 Upon the complete discontinuance of profit-sharing contributions under
the Plan, at the Employer's election, either the Trust Fund shall continue to be
held and distributed as if the Plan had not been terminated (in which case such
Plan shall continue to be subject to all requirements under Title I of ERISA,
and qualification requirements under the Code) or any and all assets remaining
in the Trust Fund as of the date of such termination or discontinuance, together
with any earnings subsequently accruing thereon, shall be distributed by the
Trustee to the Participants at the Administrator's direction. Upon the complete
termination of the Plan, the Trust Fund shall be distributed to Participants
within one year after the date of termination. If the Plan does not offer an
annuity option (purchased from a commercial provider) and if the Employer or any
Affiliate does not maintain another Defined Contribution Plan (other than an
employee stock ownership plan as defined in Code Section 4975(e)(7)), the
Participant's benefit may, without the Participant's consent, be distributed to
the Participant. However, if any Affiliate maintains another Defined
Contribution Plan (other than an employee stock ownership plan as defined in
Code Section 4975(e)(7)), then the Participant's Account(s) will be transferred,
without the Participant's consent, to the other plan if the Participant does not
consent to an immediate distribution. Distributions shall be made in compliance
with the applicable provisions, including restrictions, of Articles VI and VII.
The Trust Fund shall continue in effect until all distributions therefrom are
complete. Upon the completion of such distributions, the Trustee shall be
relieved from all further liability with respect to all amounts so paid or
distributed.
11.5 Bankruptcy
In the event that the Employer shall at any time be judicially declared bankrupt
or insolvent without any provisions being made for the continuation of this
Plan, the Plan shall be completely terminated in accordance with this Article
XI.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Exclusive Benefit of Participants
Notwithstanding anything in the Plan to the contrary, the Trust Fund shall be
held for the benefit of all persons who shall be entitled to receive payments
under the Plan. Subject to Section 3.10, it shall be prohibited at any time for
any part of the Trust Fund (other than such part as is required to pay expenses)
to be used for, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries.
12.2 Plan Not a Contract of Employment
The Plan is not a contract of Employment, and the terms of Employment of any
Employee shall not be affected in any way by the Plan or related instruments
except as specifically provided therein.
12.3 Action by Employer
<PAGE>
Any action by an Employer which is a corporation shall be taken by the board of
directors of the corporation or any person or persons duly empowered to exercise
the powers of the corporation with respect to the Plan. In the case of an
Employer which is a partnership, action shall be taken by any general partner of
the partnership, and in the case of an Employer which is a sole proprietorship,
action shall be taken by the sole proprietor.
12.4 Source of Benefits
Benefits under the Plan shall be paid or provided for solely from the Trust
Fund, and neither the Employer, any Participating Affiliate, the Trustee, the
Administrator, nor any Investment Manager or insurance company shall assume any
liability under the Plan therefor.
12.5 Benefits Not Assignable
Benefits provided under the Plan may not be assigned or alienated, either
voluntarily or involuntarily. In the event that a Participant or Beneficiary
becomes individually liable with respect to any expenses listed in Section 8.5,
the provision of Section 401(a)(13) of the Code shall be applicable with respect
to any claim the Plan may have against the Participant or Beneficiary
individually with respect to such expenses. The preceding sentence shall also
apply to the creation, assignment or recognition of a right to any benefit
payable with respect to a Participant pursuant to a "domestic relations order"
(as defined in Code Section 414(p)) unless such order is determined by the
Administrator to be a "qualified domestic relations order" (as defined in Code
Section 414(p)) or, in the case of a "domestic relations order" entered before
January 1, 1985, if either payment of benefits pursuant to the order has
commenced as of that date or the Administrator decides to treat such order as a
"qualified domestic relations order" within the meaning of Code Section 414(p)
even if it does not otherwise qualify as such.
12.6 Domestic Relations Orders
Any other provision of the Plan to the contrary notwithstanding, the
Administrator shall have all powers necessary with respect to the Plan for the
proper operation of Code Section 414(p) with respect to "qualified domestic
relations orders" (or "domestic relations orders" treated as such) referred to
in Section 12.5, including, but not limited to, the power to establish all
necessary or appropriate procedures, to authorize the establishment of new
accounts with such assets and subject to such investment control by the
Administrator as the Administrator may deem appropriate, and the Administrator
may decide upon and direct appropriate distributions therefrom.
12.7 Claims Procedure
In the event that a claim by a Participant, Beneficiary, or other person for
benefits under the Plan is denied, the Administrator will so notify the
claimant, giving the reasons for the denial. This notice will also refer to the
specific provisions of the Plan on which the denial was based, will specify
whether any additional information is needed from the Participant or Beneficiary
and will explain the review procedure.
Within 60 days after receiving the denial, the claimant may submit, directly or
through a duly authorized representative, a written request for reconsideration
of the application to the Administrator. Documents or records relied on by the
claimant should be filed with the request. The person making the request may
review relevant documents and submit issues and additional comments in writing.
The Administrator will review the claim within 60 days (or 120 days if a hearing
is held because special circumstances exist) and provide a written response to
the appeal. The response will explain the reasons for the decision and will
refer to the Plan provisions on which the decision is based. The decision of
the Administrator is the final one under this claims procedure.
12.8 Records and Documents; Errors
Participants and Beneficiaries must supply the Administrator with such personal
history data as may be required by the Administrator in the operation of the
Plan. Proof of age, when required, must be established by evidence satisfactory
to the Administrator, and the records of the Employer and Participating
Affiliates concerning length of service and compensation may be accepted by the
Administrator as conclusive for the purposes of the Plan. Should any error in
the records maintained under the Plan result in any Participant or Beneficiary
receiving from the Plan more or less than he or she would have been entitled to
receive had the records been correct, the Administrator, in its discretion, may
correct such error and, as far as practicable, may adjust benefits in such
manner that the aggregate value of the benefit under the Plan shall be the
amount to which such Participant or Beneficiary was properly entitled.
12.9 Benefits Payable to Minors, Incompetents and Others
In the event any benefit is payable to a minor or to a Participant or
Beneficiary declared incompetent by a court having jurisdiction over such
matters and a guardian, committee, conservator or other legal representative of
the estate of such a person is appointed, benefits to which he or she is
entitled shall
<PAGE>
be paid to the legally appointed person. The receipt by any such person to whom
any such payment on behalf of any Participant or Beneficiary is made shall be a
sufficient discharge therefor.
12.10 Plan Merger or Transfer of Assets
12.10.1 The merger or consolidation of the Employer with any other person, or
the transfer of the assets of the Employer to any other person, or the merger of
the Plan with any other plan shall not constitute a termination of the Plan if
provision is made for the continuation of the Plan.
12.10.2 The Plan may not merge or consolidate with, or transfer any assets or
liabilities to, any other plan, unless each Participant would (if the Plan had
then terminated) receive a benefit immediately after the merger, consolidation
or transfer which is equal to or greater than the benefit he or she would have
been entitled to receive immediately before the merger, consolidation or
transfer (if the Plan had then terminated). Any merger or consolidation shall
not constitute a termination of a Plan or require the acceleration of vesting of
Participants' Account Balances.
12.11 Participating Affiliates
12.11.1 With the consent of the Employer and by duly authorized action, any
Affiliate may adopt the Plan. Such Affiliate shall determine the classes of its
Employees who shall be Eligible Employees and the amount of its contribution to
the Plan on behalf of such Employees.
12.11.2 With the consent of the Employer and by duly authorized action, a
Participating Affiliate may terminate its participation in the Plan or withdraw
from the Plan. Any such withdrawal shall be deemed an adoption by such
Participating Affiliate of a plan and trust identical to the Plan and the Trust,
except that all references to the Employer shall be deemed to refer to such
Participating Affiliate. At such time and in such manner as the Employer
directs, the assets of the Trust allocable to Employees of such Participating
Affiliate shall be transferred to the trust deemed adopted by such Participating
Affiliate.
12.11.4 A Participating Affiliate shall have no power with respect to the Plan
except as specifically provided herein.
12.12 Controlling Law
The Plan is intended to qualify under Code Section 401(a) and to comply with
ERISA, and its terms shall be interpreted accordingly. Otherwise, to the extent
not preempted by ERISA, the laws of the State of New York shall control the
interpretation and performance of the terms of the Plan.
12.13 Singular and Plural and Article and Section References
As used in the Plan, the singular includes the plural, and the plural includes
the singular, unless qualified by the context. Titles of Articles and Sections
of the Plan are for convenience of reference only and are to be disregarded in
applying the provisions of the Plan. Any reference in this Prototype Plan to an
Article or Section is to the Article or Section so specified of the Prototype
Plan, unless otherwise indicated.
<PAGE>
Exhibit 10.6.4
November 18, 1997
Data Translation, Inc.
100 Locke Drive
Marlboro, MA 01752
Attention: Alfred A. Molinari, Jr., Chairman and CEO
Re: Corporate Services Agreement
Dear Fred:
Reference is made to the Corporate Services Agreement and related side letter,
in each case dated as of December 2, 1996, between Media 100 Inc. ("Media 100")
and Data Translation, Inc. ("DTI").
Section 5.1 of the Corporate Services Agreement provides that the agreement will
remain in effect until the earlier of (a) the discontinuance or termination of
all services to be provided thereunder in accordance with its terms and (b)
December 31, 1997.
Notwithstanding the foregoing, Media 100 has requested that DTI continue to
provide, and subject to the terms and conditions set forth in the Corporate
Services Agreement, DTI has agreed to continue to provide, the following
services beyond December 31, 1997: VAX hardware, software support services; VAX
Net connections, dial-in access; VAX back-ups; and environmental stress
screening. The parties hereby acknowledge and agree that the foregoing services
are the only services currently being provided by DTI to Media 100 pursuant to
the Corporate Services Agreement, and will be the only services to be provided
thereunder from and after December 31, 1997.
The parties further agree that charges for VAX-related services shall remain
during the extended period as agreed to on December 2, 1996, and that the
charges for environmental stress screening will be a flat rate of $3,000 per
month, effective as of December 1, 1997.
In accordance with the foregoing, the parties hereby agree to modify Section 5.1
of the Corporate Services Agreement by changing the December 31, 1997 reference
therein to September 30, 1998. Except as amended hereby, the terms and
conditions of the Corporate Services Agreement, and the charges for the
continuing services thereunder, remain unchanged.
The parties acknowledge and agree that DTI may upgrade and/or add modules to its
Manman system during the term of the Corporate Services Agreement, and that to
the extent these initiatives would result in additional charges to DTI related
to customization or other work necessary to the continued provision of the
VAX-related services to Media 100 contemplated hereby, Media 100 will reimburse
DTI for such
<PAGE>
additional charges. In this regard, DTI will notify Media 100 and obtain Media
100's written consent prior to authorizing any work giving rise to such
additional charges, which consent will not be unreasonably withheld or delayed.
Please sign and return one copy of this letter which will constitute our
agreement with respect to the subject matter hereof.
Very truly yours,
MEDIA 100 INC.
By: /s/ John A. Molinari
-------------------------------
Name: John A. Molinari
Title: President and Chief Executive Officer
Agreed to and Accepted:
DATA TRANSLATION, INC.
By: /s/ Alfred A. Molinari, Jr.
---------------------------------
Name: Alfred A. Molinari, Jr.
Title: Chairman and Chief Executive Officer
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF MEDIA 100 INC.
<TABLE>
<CAPTION>
State or other
jurisdiction of
Subsidiary organization
- ----------------------------- -------------------
<S> <C>
Media 100 International, Inc. U.S. Virgin Islands
Media 100 Investments, Inc. Massachusetts
Media 100 GmbH Germany
Media 100 Ltd. United Kingdom
Media 100 S.A.R.L. France
Media 100 S.r.l. Italy
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report set forth on page F-2 of this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8, File Nos. 33-00346,
33-06609, 33-50692, 33-59937 and 333-24139.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The consolidated Balance Sheet on the Form 10-K for the period ended November
30, 1997 and the consolidated statement of operations as filed on Form 10-K for
the period ended November 30, 1997
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<CASH> 4,042
<SECURITIES> 28,892
<RECEIVABLES> 8,100
<ALLOWANCES> 411
<INVENTORY> 696
<CURRENT-ASSETS> 42,062
<PP&E> 11,728
<DEPRECIATION> 3,624
<TOTAL-ASSETS> 50,759
<CURRENT-LIABILITIES> 12,916
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 37,761
<TOTAL-LIABILITY-AND-EQUITY> 50,759
<SALES> 46,660
<TOTAL-REVENUES> 46,660
<CGS> 18,238
<TOTAL-COSTS> 18,238
<OTHER-EXPENSES> 29,425
<LOSS-PROVISION> 187
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 778
<INCOME-TAX> 161
<INCOME-CONTINUING> 617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 617
<EPS-PRIMARY> $0.07
<EPS-DILUTED> $0.07
</TABLE>