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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended September 26, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From to .
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Commission file number 0-14709
Hutchinson Technology Incorporated
(Exact name of registrant as specified in its charter)
Minnesota 41-0901840
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
40 West Highland Park
Hutchinson, Minnesota 55350
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip code)
(320) 587-3797
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(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, par
value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the common stock held by non-affiliates of the
registrant as of November 30, 1999 was $438,197,438, based on the closing sale
price for HTI's common stock on that date. For purposes of determining this
number, all officers and directors of the registrant are considered to be
affiliates of the registrant. This number is provided only for the purpose of
this report on Form 10-K and does not represent an admission by either the
registrant or any such person as to the status of such person.
As of November 30, 1999 the registrant had 24,745,440 shares of common stock
issued and outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement dated December 20, 1999 for the
annual meeting of shareholders to be held January 26, 2000 are incorporated by
reference in Part III.
FORWARD-LOOKING STATEMENTS
The information presented in this Annual Report on Form 10-K under the headings
"Item 1. Business," "Item 2. Properties" and "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" contains
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Such statements are
subject to risks and uncertainties, including those discussed under "Risk
Factors" on pages 17-23 and "Forward-Looking Statements" on page 32 of this
Annual Report on Form 10-K, that could cause actual results to differ materially
from those projected. Because actual results may differ, readers are cautioned
not to place undue reliance on these forward-looking statements.
PART I
HUTCHINSON TECHNOLOGY INCORPORATED AND SUBSIDIARIES
ITEM 1. BUSINESS
Unless otherwise indicated, references to "2000" mean HTI's fiscal year ending
September 24, 2000, references to "1999" mean HTI's fiscal year ended September
26, 1999, references to "1998" mean HTI's fiscal year ended September 27, 1998,
and references to "1997" mean HTI's fiscal year ended September 28, 1997.
OVERVIEW
Hutchinson Technology Incorporated ("HTI") was incorporated in 1965 in
Minnesota. HTI is the world's leading supplier of suspension assemblies for hard
disk drives. HTI estimates that it produces a majority of all suspension
assemblies sold to disk drive manufacturers and their suppliers, including
recording head manufacturers, worldwide. Suspension assemblies are critical
components of hard disk drives that hold the recording heads in position above
the spinning magnetic disks. HTI's suspension assemblies are manufactured with
proprietary technology and processes to uniform and precise specifications that
are critical to maintaining the necessary microscopic clearance between the head
and disk. During 1999, HTI shipped approximately 583 million suspension
assemblies of all types. HTI is a supplier to nearly all domestic and many
foreign-based users of suspension assemblies, including Alps, Applied Magnetics,
IBM and its affiliates, Maxtor, Quantum, Read-Rite, SAE Magnetics/TDK, Samsung,
Seagate Technology, Toshiba, Western Digital and Yamaha. HTI developed its
leadership position in suspension assemblies through research, development and
design activities coupled with a substantial investment in manufacturing
technologies and equipment, and has maintained this position through multiple
technological transitions in the disk drive industry over the past decade.
HTI is focused on continuing to develop suspension assemblies which address the
rapidly changing requirements of the hard disk drive industry. HTI's TSA
suspension assemblies are designed to satisfy both the new electrical
connectivity requirements of the disk drive industry as well as the changing
market demands and performance standards required by its customers. TSA
suspensions incorporate thin electrical conductors in the
<PAGE> 3
suspension itself which replace the fine wires used to connect the recording
head to the drive's electronic circuitry. HTI anticipates continuing acceptance
by the disk drive industry of its TSA suspensions, as TSA suspensions offer
customers opportunities to enhance drive performance by eliminating wires that
interfere with the recording head's flying performance. HTI's TSA suspensions
also enable customers to improve yields and throughput, eliminate manufacturing
steps and adopt automated assembly processes, all of which lower their overall
costs of production and improve production efficiencies. Volume manufacturing of
HTI's TSA suspension assemblies began in 1997. In 1999, HTI shipped
approximately 240 million TSA suspensions. HTI believes its TSA suspensions, and
related follow-on features currently in development, will become a disk drive
industry standard platform onto which multiple features can be integrated.
INDUSTRY BACKGROUND
In its June 1999 report, International Data Corporation ("IDC") estimated that
total revenue in the disk drive industry (defined as unit shipments multiplied
by the midyear average unit price paid by OEMs for quantity 1000+ contracts)
would be approximately $25.2 billion in 1999 and grow to approximately $28.4
billion in 2001. Disk drive industry growth has been driven by such factors as
the growing use of desktop PCs, workstations, portable computers and enterprise
computing and storage, the increasing amount of memory required for software
program storage and the continuing accumulation of data. In its July 1999
report, TrendFOCUS stated that desktop PCs and servers are expected to grow at
11.8% and 7.1% average annual growth rates, respectively, from 1999 to 2002.
IDC's report estimates that hard disk drive unit shipments will grow at a
compound annual growth rate of 13.3% from 1998 to 2003.
The demand for additional storage capacity is stimulated by the increasing use
of disk drives for non-computer applications such as voice mail and video data,
the expansion of storage-intensive data warehousing, Internet and intranet
applications, and the simultaneous use of multiple small disk drives, such as
systems using Redundant Arrays of Inexpensive Disks ("RAID"). According to its
June 1999 report, IDC estimated that annual shipments of disk drives would reach
approximately 166 million in 1999 and grow to approximately 212 million in 2001.
In addition, industry transitions in head technology, such as from thin film
inductive recording heads to magneto-resistive ("MR") and giant
magneto-resistive ("GMR") heads, and from nano heads to the smaller pico heads,
historically have reduced initial production yields of the head and disk drive
manufacturers. Because a significant portion of head yield reduction occurs
after the head is bonded onto the suspension assembly, low yields often result
in increased demand for suspension assemblies in order to achieve desired disk
drive shipment levels. As yields improve, as in 1999, demand for suspension
assemblies diminishes.
The disk drive industry, despite the rapid growth in recent years, is also
highly cyclical and from time to time experiences downturns. See "Risk Factors -
Fluctuations in Operating Results." Data density improvements also can result in
reducing the average number of suspensions required per drive. During 1999, HTI
estimates that rapid improvements in data density, the amount of data which can
be stored on magnetic disks, together with improvements in disk drive
manufacturing made possible by HTI's TSA suspensions themselves, have reduced
the average number of suspensions required per drive from approximately five in
1998 to approximately 4.5 in 1999. Growth in demand in 1999, consequently, was
dampened, with total HTI shipments during 1999 being approximately 583 million
suspension assemblies of all types, as compared to 516 million during 1998, and
719 million during 1997. HTI believes that ongoing technological advances will
continue to reduce the average number of disk drive components, including
suspensions, per drive.
HTI does not believe that end user demand for storage capacity, however, has
slowed significantly, as rapidly evolving technology and computer applications
continue to require storage devices with increased capacity and functionality.
HTI continually monitors technological developments in the data storage arena
and does not believe there has been a fundamental shift in technology away from
disk drive storage. On an ongoing basis, HTI reviews technological threats to
the disk drive market
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and utilizes various universities, consortiums and industry participants to
provide additional third-party insights. HTI believes disk drives will remain
the dominant data storage technology for the foreseeable future.
All hard disk drives incorporate the same basic technology. The principal
components of a hard disk drive are recording disk media, a motor assembly, the
control electronics and a head stack assembly. A head stack assembly consists of
multiple magnetic recording heads attached by suspension assemblies to the
actuator arm. Each disk drive contains one or more (up to thirteen) hard disks
attached to a motor assembly that rotates the disks at high speeds in extremely
close proximity to the magnetic recording heads, each of which is attached to a
suspension assembly. In certain low-cost drives first introduced in 1999, only
one side of one disk is used, resulting in the need for only one recording head,
and one suspension, in the drive. Typically two recording heads (one for each
side of the disk), and therefore two suspension assemblies, are used with each
disk in the disk drive.
Suspension assemblies are critical to disk drive performance and reliability.
The design of suspension assemblies is driven by the increasing performance
requirements of new disk drives, principally reduced data access time, increased
data density, smaller recording heads and technology incorporated in the type of
recording head used. Technological advances in disk drives generally require
suspension assemblies with specialized design, expanded functionality and
greater precision. One of the major determinants of disk drive performance and
data storage capacity is the microscopic height at which the magnetic head
"flies" above the disk. Suspension assemblies hold the magnetic recording heads
in position and are a significant factor in controlling the critical flying
height of the head above the disk and maintaining the position of the head on
the tracks of data. A typical nominal flying height is about one millionth of an
inch (a sheet of paper is approximately 3,000 millionths of an inch thick).
Hard disk drive storage capacity increases as data density increases.
Improvements in data density have been attained by lowering the fly height of
the recording head, using smaller recording heads with advanced air bearing
designs, improving other components such as motors and media and using new
recording head types such as those of MR and GMR design. As drive manufacturers
transition to smaller pico-sized MR and GMR heads, the process of bonding fine
electrical wires to the recording head and to the rest of the drive's electronic
circuitry has become more difficult and costly, and the wires themselves
interfere with the head's flying performance. HTI developed its TSA suspension
assemblies, which incorporate electrical conductors in the suspension itself, to
address this difficulty. TSA suspensions enable drive makers to use the smaller
pico-sized MR and GMR heads that allow for increased data density. Extensions of
the TSA suspension platform will enable drive makers to increase track and bit
density, further improving data storage capacity.
PRODUCTS
HTI's current products can be categorized as (i) suspension assemblies, and (ii)
other products, consisting primarily of etched and stamped components used in
connection with, or related to, suspension assemblies.
The following table shows, for each of 1999, 1998 and 1997, the relative
contribution to net sales in millions of dollars and percentages of each product
category:
<TABLE>
<CAPTION>
================================================================================
1999 1998 1997
--------------------------------------------------
Amount % Amount % Amount %
================================================================================
<S> <C> <C> <C> <C> <C> <C>
Suspension
Assemblies $557.8 96% $390.9 96% $448.1 99%
Other 22.5 4 16.7 4 5.1 1
Total Net Sales $580.3 100% $407.6 100% $453.2 100%
================================================================================
</TABLE>
During 1999, HTI shipped approximately 583 million suspension assemblies of all
types. HTI has developed significant proprietary capabilities in the design and
production of suspension assemblies for both current and emerging disk drive
designs. HTI has been in the forefront of industry technology transitions by
developing improved suspension assemblies in anticipation of several market
shifts to new generations of smaller magnetic heads (mini-to-micro,
micro-to-nano and nano-to-pico). To help develop prototype suspensions, HTI
maintains a test laboratory and computerized systems to simulate
<PAGE> 5
and analyze suspension designs. HTI's ability to predict and modify suspension
assembly performance is especially important in developing suspensions for high
capacity drives and drives with low access times.
CONVENTIONAL SUSPENSION ASSEMBLIES - HTI currently has the capability to produce
multiple variations of conventional suspension assemblies based on several
standard designs. This capability permits HTI to assist customers' design
efforts and to rapidly modify its standard designs to meet the varied and
changing requirements of specific customers. HTI believes that its integrated
manufacturing approach, closely coupling design, tooling and manufacturing,
gives it a competitive advantage in quickly supplying conventional suspension
prototypes and commencing volume manufacturing. This manufacturing approach also
allows HTI to rapidly shift tooling in its conventional suspension assembly
production units to respond to fluctuating product mix and thereby minimize the
size of its finished goods inventory.
TSA SUSPENSION ASSEMBLIES - HTI anticipates continuing acceptance by the disk
drive industry of its TSA suspensions, which integrate into the suspension thin
electrical conductors that connect directly with the recording head. The
integral etched copper leads of the TSA suspension are pre-positioned on the
suspension assembly from the head region through the length of the suspension
and, in some cases, along the actuator. HTI believes that this electrical
integration is a key feature of suspension assemblies as disk drive
manufacturers continue to make the transition to smaller and/or more advanced
recording heads. The process of using fine electrical wires (instead of
integrated electrical conductors) to attach the smaller head to the rest of the
drive's electronic circuitry is more difficult and costly, involving greater
risk of handling damage as well as interference by the electrical wires with the
head's performance.
Electrical integration, a key feature of HTI's TSA suspensions, reduces the
manual labor required to attach heads to suspensions and thus facilitates
automated assembly. TSA suspensions also increase the consistency of head flying
by eliminating certain wires that can impart forces that adversely affect the
recording head's flying position. HTI believes that similar benefits throughout
the head gimbal assembly and head stack assembly processes will result in
improved yields and increased throughput for its customers, which can translate
into lower capital investment, reduced labor and lower overall costs for such
customers. TSA suspensions are particularly suited for MR and GMR heads, which
constitute a major portion of the new and smaller types of recording heads that
allow increased data storage density. MR and GMR heads require at least twice as
many electrical leads as conventional recording heads. For these reasons, TSA
suspensions command a higher sale price than HTI's conventional suspensions.
Volume manufacturing of HTI's TSA suspension assemblies began in 1997. In 1999,
HTI shipped approximately 240 million TSA suspensions. TSA suspensions accounted
for approximately one percent of HTI's 1997 unit shipments, approximately 16% of
HTI's 1998 unit shipments, and approximately 41% of HTI's 1999 unit shipments.
HTI expects them to account for approximately two-thirds of its total unit
shipments during 2000. To further assure customers that the TSA suspensions they
require for their products will be readily available when and where they are
needed, HTI sells to competitive suspension assembly manufacturers
component-level parts, such as load beams, base plates and flexures for both
conventional and TSA suspensions.
TSA suspension assemblies are adaptable to future developments in disk drive
design and manufacturing. Variations of TSA suspension assemblies now in
development by HTI offer promising solutions to the challenges posed by
increasing data density to increase disk drive capacity. As the number of data
tracks per disk increases to achieve increased data density, recording heads
must be positioned above data tracks with more precision than current disk drive
technology allows. HTI's new "aTSA" suspension incorporates a second stage
actuator to provide the precision required to properly position the head over a
data track as track densities increase. Similarly, an increase in data density
achieved by increasing the number of data bits recorded per linear inch on each
data track will require preamplification to improve data transfer signals as bit
density increases. Electrical termination
<PAGE> 6
pads are incorporated in HTI's new "cTSA" suspension to provide a means of
positioning a preamplifier closer to the recorded data to reduce the signal to
noise problem. Additional variations for other TSA suspension products also are
in development.
OTHER PRODUCTS - HTI manufactures a small amount of etched and stamped
components used in connection with or related to suspension assemblies. HTI also
is engaged in the development of product opportunities in the medical devices
market, including a monitor that measures tissue oxygen saturation. HTI does not
expect any significant medical-related revenue in 2000. See "Risk Factors -
Product Development and Introduction."
MANUFACTURING
HTI's manufacturing strategy focuses on enhancing its ability to reliably
produce suspension assemblies in high volume and with the precision required by
its customers. HTI has developed advanced process and measurement systems and
automated production equipment, and has invested in additional manufacturing
plants and equipment. HTI also has adopted an integrated manufacturing approach
that closely couples design, tooling and manufacturing. This integrated approach
has facilitated the development, implementation and high-volume production of
new suspension assembly products.
A suspension assembly consists of two or three components that are laser welded
together. TSA suspension assemblies also incorporate electrical leads which
provide electrical connection from the recording head to the disk drive's
electronic circuitry. Alignment, adjustment and freedom from imperfections and
contaminants are of critical importance. HTI's products require several
manufacturing processes, each dependent on different technical disciplines, to
ensure the high degree of precision and process control necessary to meet strict
customer tolerances and other requirements. HTI has developed sophisticated
proprietary manufacturing processes and controls, and related equipment, which
are essential to the precision and reliability of its products. The
manufacturing processes employed by HTI include photoetching, stamping, plasma
etching, plating, precision forming, laser welding and ultra-cleaning. The
photoetching of the components, the laser-welding operations which fuse the
components together and subsequent processing steps are subject to stringent
specifications and controls. HTI monitors and controls these processes through
real-time statistical process analysis to track critical parameters and take
corrective action as required.
HTI's critical raw material needs are available through multiple sources of
supply, with the following exceptions. Certain types of photoresist, a liquid
compound used in the photoetching process, and the stainless steel, copper and
polyimide materials that meet HTI's strict specifications, are each currently
available from only one supplier. To protect against the adverse effect of a
short-term supply disruption, HTI maintains several weeks' supply of these
materials. See "Risk Factors - Availability of Certain Materials."
HTI's production processes require the storage, use and disposal of a variety of
chemicals that are considered hazardous under applicable federal and state laws.
Accordingly, HTI is subject to a variety of regulatory requirements for the
handling of such materials. See "Risk Factors - Manufacturing Risks."
RESEARCH AND DEVELOPMENT
HTI participates in an industry that is subject to rapid technological change,
and its ability to remain competitive depends on, among other things, its
ability to anticipate such change and to continue its close working
relationships with the engineering staffs of its customers. As a result, HTI has
devoted and will continue to devote substantial resources to product development
and process engineering efforts. As of September 26, 1999, HTI employed 847
engineers and technicians who are responsible for implementing new technologies
as well as process and product development and improvements. Expenditures for
these activities in 1999, 1998 and 1997 amounted to approximately $56,638,000,
$52,235,000 and $48,204,000, respectively. Of those amounts, HTI classified
approximately $23,106,000, $20,360,000 and $20,185,000, respectively, as
research and development expenses.
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HTI's current research and development efforts are principally directed to
continuing the development of its TSA suspension assemblies and related
follow-on features to meet ongoing technological advances in the disk drive
industry, including changing head size, improved data density, performance
standards and electrical connectivity requirements for disk drives.
HTI entered into a Technology Transfer and Development Agreement (the
"Technology Sharing Agreement") and a non-exclusive Patent License Agreement
(the "Patent License Agreement") with IBM during fiscal 1995. Under the
Technology Sharing Agreement, IBM made available to HTI the results of many
years of research by IBM into the new integrated lead suspension. HTI itself had
devoted substantial efforts independent of IBM to the research and development
of TSA suspensions, and contributed its existing TSA suspension technology to
the joint effort. In 1999, HTI completed payments totaling $8,000,000 to IBM,
all of which have been recorded as an expense by HTI. In addition, certain
royalties have been paid and may be payable in the future by HTI to IBM under
the Technology Sharing Agreement.
HTI also is engaged in the development of product opportunities in the medical
devices market, including a monitor that measures tissue oxygen saturation. In
1999, HTI finalized the design of a second-generation monitor that incorporates
several design improvements to enhance the monitor's operation in clinical
settings. This monitor currently is the subject of clinical trials at several
hospitals, and HTI expects to submit this product for FDA market approval in
2000. For 1999, 1998 and 1997, research and development expenses allocated to
medical devices were approximately $2,757,000, $3,190,000 and $2,725,000,
respectively. See "Risk Factors - Product Development and Introduction."
CUSTOMERS AND MARKETING
HTI's products are sold principally through its own nine-member account
management team operating primarily from its headquarters in Hutchinson,
Minnesota. Through a subsidiary, HTI has one account manager and five technical
representatives in Asia. HTI's products are sold to original equipment
manufacturers for use in their products and to subassemblers who sell to
original equipment manufacturers. HTI's account management team is organized by
individual customer and contacts are typically initiated with both the
customer's purchasing agents and its engineers. HTI's engineers and account
management team together actively participate in the selling process and in
maintaining customer relationships.
In 1999, HTI implemented the use of "just-in-time" (JIT) inventory hubs in Hong
Kong, the People's Republic of China and Thailand, near the major production
centers of certain individual customers. As customers have shifted to
build-to-order manufacturing, HTI's account management team, together with HTI
personnel assigned to each JIT hub, regularly exchange information with each
customer to assure that the customer's inventory requirements are met.
HTI is a supplier to nearly all domestic and many foreign-based manufacturers of
hard disk drives and recording heads used in such drives. The following table
shows HTI's five largest customers for 1999 as a percentage of net sales.
<TABLE>
<S> <C>
IBM and affiliates..................... 23%
SAE Magnetics, Ltd/TDK................. 21
Seagate Technology, Inc................ 16
Yamaha Corporation..................... 12
Alps Electric Co., Ltd................. 10
</TABLE>
Sales to HTI's five largest customers constituted 82%, 84% and 86% of net sales,
respectively, for 1999, 1998 and 1997. Significant portions of HTI's revenue may
be indirectly attributable to large manufacturers of disk drives, such as
Quantum Corporation, Toshiba Corporation and Western Digital Corporation, which
may purchase recording head assemblies from several different recording head
manufacturers that utilize HTI's suspension assemblies.
HTI expects to continue to depend upon a limited number of customers for a
substantial majority of its sales, given the relatively small number of hard
disk drive and recording head manufacturers. HTI's results of operations could
be adversely affected by reduced requirements of its major customers.
<PAGE> 8
Sales to foreign-based enterprises totaled $272,129,000, $167,767,000 and
$88,471,000 for 1999, 1998 and 1997, respectively. Sales to foreign subsidiaries
of U.S. corporations totaled $144,120,000, $47,885,000 and $83,753,000 for 1999,
1998 and 1997, respectively. The majority of these sales were to the Pacific Rim
region. In addition, HTI has significant sales to U.S. corporations which use
HTI's products in their offshore manufacturing sites.
BACKLOG
HTI's sales are generally made pursuant to purchase orders rather than long-term
contracts. HTI's backlog of purchase orders was approximately $85,837,000 at
September 26, 1999, as compared to $101,541,000 at September 27, 1998. Such
purchase orders may be changed or cancelled by customers on short notice without
penalty. In addition, HTI believes that it is a common practice for disk drive
manufacturers to place orders in excess of their needs during growth periods.
Accordingly, HTI does not believe that backlog should be considered indicative
of sales for any future period.
COMPETITION
HTI believes that the principal factors of competition in the suspension
assembly market include time to market, product quality, design expertise,
reliability of volume supply and price. HTI estimates that it produces a
majority of all suspension assemblies sold to disk drive manufacturers and their
suppliers, including recording head manufacturers, worldwide. HTI's principal
competitors are K. R. Precision Co., Magnecomp Corporation and Nippon Hatsujo
Kabusikigaisha. Fujitsu Limited, a drive manufacturer, fabricates its own
suspension assemblies for use in its own products. Certain other users of
suspension assemblies also may develop fabrication abilities. The electrical
interconnect features of HTI's TSA suspensions also face competition from
wireless interconnection technologies that are alternatives to conventional
wiring, such as deposition circuitry and flexible circuitry which are also being
considered for and used in drive production. Although there can be no assurance
that the number of competitors will not increase in the future or that users of
suspension assemblies will not develop internal capabilities to manufacture
suspension assemblies, HTI believes that the number of entities that have the
technical capability and capacity for producing precision suspension assemblies
in large volumes will remain small.
Other types of data storage systems, such as semiconductor (flash) memory, tape
memory and laser (optical and CD) drives, may become competitive with certain
hard disk drive applications, and thereby affect the demand for certain of HTI's
products. However, given the current state of the technologies, flash memories
are not expected to be price competitive with disk drives and optical and tape
memories are inherently much slower than disk drives. Accordingly, HTI believes
that such technologies will not materially impact the market for hard disk
drives in the near future.
INTELLECTUAL PROPERTIES
Certain equipment, processes, information and knowledge generated by HTI and
utilized in the manufacture of its products are regarded as proprietary by HTI
and are protectable under applicable trade secret, copyright and unfair
competition laws. In addition, if HTI believes it has made inventions in
manufacturing equipment, products and processes for making products where
patents might enhance HTI's position, patents have been and will continue to be
pursued in the U.S. and in other countries. As of September 26, 1999, HTI held
76 U.S. patents and 11 foreign patents, and had 60 patent applications pending
in the U.S. and 43 patent applications pending in other countries. Within HTI,
intellectual property protection of trade secrets is achieved through physical
security measures at HTI's facilities as well as through non-disclosure and
non-competition agreements with all employees and non-disclosure agreements with
consultants, strategic suppliers and customers. See "Risk Factors - Intellectual
Properties."
<PAGE> 9
HTI has entered into licensing and cross-licensing agreements under HTI's
patents and patent applications allowing certain competitors to produce certain
of HTI's products in return for either royalty payments or cross-license rights.
HTI and certain users of HTI's products have from time to time received, and may
in the future receive, communications from third parties asserting patents
against HTI or its customers that may relate to certain of HTI's manufacturing
equipment or products or to products that include HTI's products as a component.
Although HTI to date has not been a party to any such material intellectual
property litigation, certain of its customers have been sued on patents having
claims closely related to products HTI sells. HTI expects that, as the number of
patents issued continues to increase, and as HTI grows, the volume of
intellectual property claims could increase. See "Risk Factors - Intellectual
Properties."
EMPLOYEES
As of September 26, 1999, HTI had 7,701 regular employees, 3,476 of whom were
working at HTI's Hutchinson, Minnesota plant, 1,688 of whom were working at
HTI's Sioux Falls, South Dakota plant, 2,306 of whom were working at HTI's Eau
Claire, Wisconsin plant, 213 of whom were working at HTI's Plymouth, Minnesota
plant, and 18 of whom were working overseas. HTI's ability to conduct its
business would be impaired if a significant number of its specialized employees
were to leave and could not be replaced by comparable personnel. However,
turnover of specialized employees, including key management personnel,
historically has been low. The locations of HTI's plants and the broad span and
complexity of technology encompassed by HTI's products and processes limit the
number of qualified engineering and other candidates for key positions. HTI
expects that internal training will continue to be the primary avenue for the
development of key employees.
None of HTI's employees is subject to a collective bargaining agreement, and HTI
has experienced no work stoppages. HTI believes that its employee relations are
good.
RISK FACTORS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS - This Annual Report on
Form 10-K contains forward- looking statements that have been made pursuant to
the provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are not historical facts, but rather are based on our
current expectations, estimates and projections about the disk drive industry,
and our beliefs and assumptions. We intend words such as "anticipates,"
"expects," "intends," "plans," "believes," "estimates" and similar expressions
to identify forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks, uncertainties and other
factors, some of which are beyond our control and are difficult to predict.
These factors could cause actual results to differ materially from those
expressed or forecasted in the forward-looking statements. These risks and
uncertainties are described in the following risk factors and elsewhere in this
Annual Report on Form 10-K. We caution you not to place undue reliance on these
forward-looking statements, which reflect our management's view only as of the
date of this Annual Report on Form 10-K. We are not obligated to update these
statements or publicly release the result of any revisions to them to reflect
events or circumstances after the date of this Annual Report on Form 10-K or to
reflect the occurrence of unanticipated events.
FLUCTUATIONS IN OPERATING RESULTS - Our past operating results have fluctuated
from fiscal period to period. We expect our future operating results also to
fluctuate from fiscal period to period. These fluctuations may be caused by:
- changes in overall demand for our products
- technological changes that reduce the number of suspensions per drive
required by driver makers
- changes in our manufacturing process, or problems related to
implementing a new manufacturing process
- introducing new products desired by our industry
- changes in the specific products our customers buy
- changes in our selling prices
- changes in our production capacity, and using our
capacity efficiently
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- changes in our infrastructure costs, and how we control them
- changes in our manufacturing yields
- long disruptions in operations at any of our plants for any reason
- changes in the cost of, or limits on, available materials and labor
- increased costs when we start producing new products, and achieving
high-volume production quickly and profitably
We typically allow our customers to change or cancel orders without penalty up
until approximately two weeks before scheduled shipment. We therefore plan our
production and inventory based primarily on forecasts of customer demand. Our
forecasts, and customer demand, often fluctuate significantly from week to week.
In 1999, data density improvements, together with improvements in disk drive
manufacturing made possible by HTI's TSA suspensions themselves, resulted in
drive manufacturers reducing the suspensions required per drive more quickly
than we anticipated, offsetting somewhat the continuing growth in demand for
storage and, consequently, demand for disk drive components. Our operating
results in 1999 did not show the growth we expected. We believe data density
improvements will continue to impact our operating results, despite the shift in
customer demand toward TSA suspensions. If customer demand for suspension
assemblies weakens, or if one or more customers reduce, delay or cancel orders,
our business, financial condition and results of operations could be materially
adversely affected.
Our gross margins have fluctuated and will continue to fluctuate from fiscal
period to period. These fluctuations may be caused by:
- whether we use our capacity efficiently
- changes in overall demand for our products
- changes in the specific products our customers buy
- changes in our selling prices
- changes in our manufacturing yields
- increased costs when we start producing new products
- changes in the cost of, or limits on, available materials
We rapidly expanded our TSA suspension production capacity in 1998, but our
high-volume production of TSA suspensions was not profitable in that fiscal
year. Our production inefficiencies resulted in significantly lower gross
margins, which adversely affected our operating results. We produced TSA
suspension assemblies profitably in 1999, primarily due to higher volumes and
productivity gains. Our margins in the last half of 1999, however, were reduced
by weaker than expected demand, resulting in excess TSA manufacturing capacity,
and an expected decline in TSA prices as certain TSA suspension products
matured.
Our selling prices are subject to pricing pressure from our customers and market
pressure from our competitors. Our selling prices change if our pricing
strategies change. Our selling prices also are affected by changes in overall
demand for our products, changes in the specific products our customers buy and
a product's life cycle. A typical life cycle for our products begins with higher
pricing when a product is introduced, decreasing prices when it is mature, and
slightly increasing pricing as it is phased out. To offset price decreases
during a product's life, we rely primarily on higher sales volume. We also rely
on improving our manufacturing yield to reduce the cost of manufacturing our
mature products. If we cannot reduce our manufacturing costs during a product's
life cycle, or at all, our business, financial condition and results of
operations could be materially adversely affected.
Many of our products are shipped overseas, specifically to the Pacific Rim
region. The revenue we earn from these products qualifies for favorable tax
treatment due to our Foreign Sales Corporation. If we stop shipping products
overseas, or if the tax laws change to eliminate the tax benefits of having a
Foreign Sales Corporation, HTI's business, financial condition and results of
operations could be materially adversely affected.
DEPENDENCE ON HARD DISK DRIVE INDUSTRY - Almost all of our sales depend on the
hard disk drive industry. Sales of suspension assemblies accounted for 96% of
our net sales in 1999, 96% of our net sales in 1998 and 99% of our net sales in
1997. The hard disk drive industry is intensely competitive and our technology
changes rapidly. The
<PAGE> 11
industry's demand for components also fluctuates. The hard disk drive industry
is highly cyclical, with periods of increased demand and rapid growth followed
by periods of oversupply and subsequent contraction. These cycles may affect
suppliers to this industry because hard disk drive manufacturers tend to order
more components than they may need during growth periods, and sharply reduce
orders for components during periods of contraction.
Yield improvements by head manufacturers and technological advances, such as
rapid improvements in data density, also may result in lower drive component
demand. Our results of operations have been adversely affected at various times
during slowdowns in hard disk drive industry demand for components. In 1999, our
results of operations did not show the growth we had anticipated due to improved
yields at our customers and increases in data densities that reduced the
industry's demand for components. Our results of operations could be materially
adversely affected if the reduction in the industry's component demand continues
long-term or a future significant slowdown in the industry occurs.
PRODUCT DEVELOPMENT AND INTRODUCTION - Our continued success depends on our
ability to develop and rapidly bring to volume production new product platforms
and new products that meet increasingly higher performance specifications.
A number of risks are inherent in this process. Increasingly higher performance
specifications, as well as transitions to new product platforms, initially can
lower our overall manufacturing yields and efficiencies. This in turn can cause
product shipments to be delayed or missed. Higher manufacturing costs also may
be incurred. Manufacturing processes may need to be changed or new processes
developed. If processes change, equipment may need to be replaced, modified or
designed, built and installed. These changes may require additional capital.
We may need to increase our research and development and engineering expenses to
support technological advances and to introduce and manufacture new products.
We expect these expenses to increase for the following new products:
- suspensions that incorporate second stage actuators to improve head
positioning over increasingly tighter data tracks on each disk
- suspensions on which a preamplifier may be mounted to improve data
transfer signals from the disk
- suspensions with higher performance specifications than our customers
currently require
- suspensions for use with new smaller-sized femto heads
If we fail to introduce successfully new products on a regular and timely basis,
demand for our existing products could decline, and our business, financial
condition and results of operations could be materially adversely affected. If a
competitor introduced a new suspension assembly design, we may not be able to
respond to the new design effectively. If the new design was widely accepted by
the disk drive industry, our business, financial condition and results of
operations could be materially adversely affected.
We have invested substantial amounts of financial, management, engineering and
manufacturing resources to develop and introduce our TSA suspension assemblies.
If continuing market acceptance and/or production of our TSA suspension
assemblies is delayed for any reason or if continued widespread market
acceptance of the TSA product platform is not achieved, our business, financial
condition and results of operations could be materially adversely affected.
We must qualify our products with our customers. The qualification process for
disk drive products can be complex and difficult. Our management cannot be sure
that our TSA suspensions will continue to be selected for design into our
customers' products. If we are unable to obtain additional customer
qualifications, or if we cannot qualify our products for high-volume production
quantities, or at all, our business, financial condition and results of
operations could be materially adversely affected.
We are developing products for the medical devices market, including a monitor
that measures tissue oxygen saturation. In 1999, we finalized the design of a
second-generation monitor that incorporates several design
<PAGE> 12
improvements to enhance the monitor's operation in clinical settings. This
monitor currently is the subject of clinical trials at several hospitals, and we
expect to submit this product for FDA market approval in 2000. Our efforts,
however, may not result in marketable products. Even if we are able to develop
marketable products, they may not generate significant revenue.
CAPITAL NEEDS; CAPACITY MANAGEMENT - We believe that we will need significant
funds over the next several years to achieve our long-term strategic objectives,
and to maintain and enhance our competitive position. These funds will be used
for capital expenditures, research and development, working capital and debt
service. Our business is highly capital intensive. We required particularly high
levels of capital expenditures as we moved from conventional suspension assembly
production to high-volume TSA suspension production. We have made substantial
investments in sophisticated manufacturing technologies and automated production
equipment for our suspension assemblies. We have added significant manufacturing
capacity that has increased our fixed costs over the past two fiscal years. We
have constructed plants in Eau Claire, Wisconsin and Sioux Falls, South Dakota
and expanded our plant in Hutchinson, Minnesota. Our total capital expenditures
were approximately $83,000,000 in 1997, $207,000,000 in 1998 and $121,000,000 in
1999. We also entered into operating leases for production and other equipment
with costs of approximately $29,000,000 in 1997, $47,000,000 in 1998 and
$10,000,000 in 1999.
We currently anticipate spending approximately $90,000,000 during 2000 primarily
for continued improvements to our equipment to meet advanced product
specifications and for tooling for new TSA programs. We anticipate that we will
continue to make significant capital expenditures beyond 2000 to continue to
invest in new technologies, production capacity and infrastructure to
accommodate anticipated market growth. If we are unable to obtain funds in the
future, we may have to delay or change our plans. These delays or changes in our
plans could materially adversely affect HTI's business, financial condition and
results of operations.
We have at times increased our production capacity and the overhead that
supports production based on anticipated market demand. Anticipated market
demand, however, has not always developed as rapidly as expected. As a result,
we have periodically underutilized our capacity. This underutilization has at
times decreased our profitability. In the second half of 1999, weaker demand,
together with additions to our TSA manufacturing equipment and improvements in
our TSA suspension production efficiency, resulted in underutilization of our
manufacturing capacity, and consequently, lower profitability.
The following factors complicate accurate capacity planning for market demand:
- the pace of technological change
- variability in our manufacturing yields
- long lead times for most of our plant and equipment expenditures,
requiring major financial commitments well in advance of actual
production requirements
Our failure to plan our capacity requirements accurately, or our failure to put
in place the technologies and capacity necessary to meet market demand, could
adversely affect our business, financial condition and results of operations. In
1999, we began construction of an additional manufacturing building for our
trace process at our Eau Claire site. As a result of faster than expected
improvements in our TSA suspension manufacturing efficiency and weaker TSA
suspension demand in the second half of 1999, we have postponed completion of
building construction, and the building of related equipment, so as to minimize
the impact of excess manufacturing capacity on our results of operations.
Our ability to execute our long-term strategy may depend to a significant degree
on our ability to obtain additional long-term debt and equity capital. We have
no commitments for additional borrowings or for sales of equity. We cannot
determine the precise amount and timing of our funding needs at this time. We
may be unable to obtain any such future additional financing on terms acceptable
to us or at all. We may need to refinance our indebtedness to repay it at
maturity. We may need to obtain additional capital on favorable terms to
refinance our indebtedness.
<PAGE> 13
The following factors could affect our ability to obtain additional financing on
favorable terms, or at all:
- changes in interest rates
- general economic conditions and conditions in the disk drive industry
- the perception in the capital markets of our business
- our results of operations
- our ratio of debt to equity
- our financial condition
- our business prospects
In addition, certain covenants relating to our existing indebtedness limit our
ability to incur additional indebtedness. If we are unable to obtain sufficient
capital in the future, we may have to curtail our capital expenditures, slow
plant construction and expansion, and reduce research and development
expenditures. Any such actions could have a material adverse effect on our
business, financial condition and results of operations.
MANUFACTURING RISKS - We manufacture a wide variety of suspension assemblies
with different selling prices and manufacturing costs. Our product mix varies
weekly as market demand changes. Any substantial variation in product mix can
lead to changes in utilization of our equipment and tooling, inventory
obsolescence and overstaffing in certain areas, all of which could adversely
impact our business, financial condition and results of operations.
Rapid technological change in the disk drive industry has led to numerous
suspension assembly design changes and tighter performance specifications. The
resulting suspension assemblies initially are more difficult to manufacture and
typically require additional capital expenditures and increased development and
support expenses. Manufacturing yields and efficiencies also vary from product
to product. Newer products typically have lower initial manufacturing yields and
efficiencies as we commence volume manufacturing and thereafter ramp to full
production.
During 1998, we did not produce TSA suspensions profitability as we ramped to
high-volume production. We produced TSA suspensions at positive gross margins at
the end of the 1998 fourth quarter, however, and profitably in 1999, primarily
due to higher volumes and productivity gains. We cannot be sure that we will
attain our output goals and be profitable with regard to TSA suspension products
in the future.
As we grow, we may need to transfer production of certain suspension assemblies
from one manufacturing site to another. In the past, such transfers have lowered
initial yields and/or manufacturing efficiencies. This results in higher
manufacturing costs. Our manufacturing plants are located in Minnesota, South
Dakota and Wisconsin, all of which can experience severe weather. Severe weather
has, at times, resulted in lower production and decreased our shipments.
Our ability to conduct business would be impaired if our work force were to be
unionized or if a significant number of our specialized employees were to leave
and could not be replaced by comparable personnel. The locations of our plants
and the broad span and technological complexity of our products and processes
limit the number of satisfactory engineering and other candidates for key
positions.
Our production processes require us to store, use and dispose of chemicals that
are considered hazardous under applicable federal and state laws. We must handle
these chemicals in accordance with a variety of regulatory requirements. If an
accident occurred and resulted in significant personal injury or environmental
damage, our business, financial condition and results of operations could be
materially adversely affected.
CUSTOMER CONCENTRATION - Our sales are concentrated in a small customer base.
Although we supply nearly all domestic and many foreign-based manufacturers of
hard disk drives, and manufacturers of recording heads used in hard disk drives,
sales to our five largest customers constituted 82% of net sales for 1999, 84%
of net sales for 1998 and 86% of net sales for 1997. Over the years, the disk
drive industry has experienced numerous consolidations. This has resulted in
fewer, but larger, customers for our products. The loss of one or more of our
major customers for any reason, including the development by any one customer of
the capability to produce suspension assemblies in high volume for their own
products, or the failure of a customer to pay their account balance with us,
could have a material adverse effect on our results of operations.
<PAGE> 14
INTELLECTUAL PROPERTIES - We attempt to protect our intellectual property rights
through patents, copyrights, trade secrets and other measures. We may not,
however, be able to protect our technology adequately. In addition, competitors
may be able to develop similar technology independently. Our success depends in
large part on trade secrets relating to our proprietary manufacturing processes.
We seek to protect these trade secrets and our other proprietary technology in
part by requiring each of our employees to enter into non-disclosure and
non-competition agreements. In these agreements, the employee agrees to maintain
the confidentiality of all of our proprietary information and, subject to
certain exceptions, to assign to us all rights in any proprietary information or
technology made or contributed by the employee during his or her employment. In
addition, we regularly enter into non-disclosure agreements with third parties,
such as consultants, suppliers and customers. These agreements may, however, be
breached, and we may not have an adequate remedy for any such breach. In
addition, our competitors may otherwise learn or independently develop our trade
secrets.
We believe that the patents we hold and may obtain are valuable, but that they
will not independently determine our success. Moreover, patents may not be
issued for our pending patent applications, and our issued patents may not be
broad enough to protect our technology. We compete in an industry with rapid
development and technological innovation. We cannot be sure that our future
technology will be protectable, or that any patent issued to us will not be
challenged, invalidated, circumvented or infringed. In addition, we have only
limited patent rights outside the United States, and the laws of certain foreign
countries may not protect our intellectual property rights to the same extent as
do the laws of the United States.
We and certain users of our products have received, and may receive,
communications from third parties asserting patents against us or our customers
that may relate to our manufacturing equipment or to our products or to products
that include our products as a component. We have not been a party to any such
material intellectual property litigation to date. Certain of our customers,
however, have been sued on patents having claims closely related to products we
sell. If any third party makes a valid infringement claim against us and a
license were not available on terms acceptable to us, our business, financial
condition and results of operations could be adversely affected. We expect that,
as the number of patents issued continues to increase, and as we grow, the
volume of intellectual property claims made against us could increase. We may
need to engage in litigation to:
- enforce patents issued or licensed to us
- protect trade secrets or know-how owned by us
- determine the enforceability, scope and validity of the intellectual
property rights of others
We could incur substantial costs in such litigation or other similar legal
actions, which could have a material adverse effect on our business, financial
condition and results of operations.
AVAILABILITY OF CERTAIN MATERIALS - We currently can obtain certain types of
photoresist, a liquid compound used in the photoetching process, and the
stainless steel, copper and polyimide materials that meet our strict
specifications from only one supplier of each such material. The supplier of
stainless steel periodically resets the price of the product we purchase based
on fluctuations in the value of the Japanese yen. When it does so, our costs for
raw materials may increase. If we could not obtain the materials referred to
above in the necessary quantities, with the necessary quality and at reasonable
prices, our business, financial condition and results of operations could be
materially adversely affected.
COMPETITION - Certain of our customers are using or are considering development
of wireless interconnection technologies that compete with our TSA suspension
assemblies. We cannot be sure that our customers will select TSA suspensions for
design into their products instead of alternative wireless interconnection
technologies, such as deposition circuitry and flexible circuitry. If our
customers accept technologies that compete with TSA suspensions, our business,
financial condition and results of operations may be adversely affected.
Future technological innovations may reduce demand for disk drives. Data storage
alternatives that compete with disk drive-based data storage do exist. These
storage alternatives include semiconductor (flash) memory, tape memory and laser
(optical and CD) drives. The current core
<PAGE> 15
technology for hard disk drive data storage has been the dominant technology in
the industry for many years. This technology could be replaced by an alternate
technology in the future. Our business, financial condition and results of
operations could be materially adversely affected if technology is adopted by
the computer industry that replaces disk drives as a computer data storage
medium.
VOLATILITY OF SECURITIES - The securities of companies in the disk drive
industry (including our securities) generally have volatile market prices. If
our revenue or earnings in any fiscal quarter fail to meet the investment
community's expectations, the market price of our securities could fall. In
addition, the market for our securities has experienced significant price and
volume fluctuations that are unrelated to our operating results. Future
announcements about us and general market conditions may affect the market price
of our securities significantly. Future trading prices of our securities may
depend on factors beyond our influence such as perceptions of our business and
the disk drive industry generally, prevailing interest rates and the market for
similar securities. The volatility of market prices for our securities may limit
our ability in the future to raise additional capital.
LEVERAGE; ABILITY TO SERVICE DEBT - Our ratio of total debt to total
capitalization at September 26, 1999 was 32.1%. Our ability to satisfy our
obligations to pay interest and to repay debt is dependent on our future
performance. Our performance is subject to prevailing economic conditions and
financial, business and other factors, including factors beyond our control. To
the extent that a substantial portion of our cash flow from operations is used
to pay the principal of, and interest on, our indebtedness, such cash flow will
not be available to fund future operations and capital expenditures. Our debt
level also may limit our ability to obtain additional financing to fund future
capital expenditures, research and development, working capital, debt service
and other general corporate requirements. It could also make us more vulnerable
to general economic downturns and competitive pressures. We cannot be sure that
our operating cash flow will be sufficient to fund our future capital
expenditure and debt service requirements or to fund future operations.
RESTRICTIVE COVENANTS - We have entered into a number of financing agreements
that contain restrictive financial covenants. These covenants require us to
maintain cash availability and to meet certain minimum financial ratios,
including, in certain cases, fixed charge coverage, interest coverage and total
debt to total capitalization ratios. As of September 26, 1999, we were in
compliance with all such covenants. Our ability to comply with these covenants
depends upon our future operating performance. Our future operating performance
depends, in part, on general industry conditions and other factors beyond our
control. We cannot be sure that we will be able to comply with these covenants.
If we fail to comply with these covenants in the future, we may not be
successful in renegotiating the financing agreements or otherwise obtaining
relief from the covenants. If we default under some or all of the financing
agreements, our lenders may require that we immediately repay the full
outstanding amount we owe to them. In such event, we may have to pursue
alternative financing arrangements. If we are not in compliance with financial
covenants in our financing agreements at the end of any fiscal quarter, our
future results of operations and liquidity could be materially adversely
affected.
YEAR 2000 ISSUES - Although we have completed our Year 2000 remediation, there
are risks if our efforts did not identify all Year 2000 compliance issues.
Certain of our business systems may require further updating to continue to
function properly beyond 1999. We believe that we have allocated adequate
resources for this purpose and we do not expect to incur significant expenses to
address this issue. We may not identify all Year 2000 compliance problems in our
systems before they occur, however, or we may not be able to remedy
successfully any problems that we do discover. The expenses of our efforts to
address such problems, or the expenses or liabilities to which we may become
subject as a result of such problems, could have a material adverse effect on
our business, financial condition and results of operations. In addition, the
revenue stream and financial stability of our customers may be adversely
impacted by Year 2000 compliance problems, which could cause fluctuations in our
revenue and operating results. See our discussion of the Year 2000 issue
included in Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," on page 26.
<PAGE> 16
ITEM 2. PROPERTIES
HTI owns four buildings on a site of approximately 163 acres in Hutchinson,
Minnesota. This site includes executive offices and a manufacturing plant,
development center and training center, with an aggregate of approximately
751,000 square feet of floor area among all four buildings. HTI also leases a
20,000 square foot warehouse, 34,000 square feet of office space and a
fabrication shop of approximately 12,000 square feet near the Hutchinson site.
HTI operates a manufacturing plant in Sioux Falls, South Dakota, owned by HTI,
of approximately 299,000 square feet.
HTI operates a manufacturing plant in Eau Claire, Wisconsin, in connection with
which it leases a building of approximately 156,000 square feet. HTI also
operates a photoetching plant in Eau Claire, owned by HTI, of approximately
320,000 square feet. HTI began construction in 1999 of an additional
manufacturing plant of approximately 262,000 square feet at the Eau Claire site.
Completion of the building construction has been postponed, due to productivity
gains in TSA manufacturing and weaker TSA suspension demand in the second half
of 1999.
HTI leases a building of approximately 100,000 square feet located in Plymouth,
Minnesota for stamping operations, office space and a logistic center, and has
leased approximately 45,000 square feet of space located in Eden Prairie,
Minnesota for offices and a computer center. HTI also leases sales offices in
Singapore, Japan and the People's Republic of China.
HTI believes that its existing facilities will be adequate to meet its currently
anticipated requirements.
ITEM 3. LEGAL PROCEEDINGS
HTI is a party to certain claims arising in the ordinary course of business. In
the opinion of management, the outcome of such claims will not materially affect
HTI's current or future financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of HTI are as follows:
<TABLE>
<CAPTION>
Name Age Position
- -----------------------------------------------------------------------
<S> <C> <C>
Jeffrey W. Green 59 Chairman of the Board
and Director
Wayne M. Fortun 50 President, Chief Executive Officer
and Director
John A. Ingleman 53 Vice President, Chief Financial
Officer and Secretary
Rebecca A. Albrecht 46 Vice President of Human Resources
Beatrice A. Graczyk 51 Vice President and
Chief Operating Officer
Richard C. Myers 59 Vice President of Administration
Richard J. Penn 43 Vice President of Sales
and Marketing
R. Scott Schaefer 46 Vice President and
Chief Technical Officer
</TABLE>
Mr. Green is a co-founder of HTI and has served as a director since HTI's
formation in 1965. Mr. Green has been Chairman of the Board since January 1983,
and served as HTI's Chief Executive Officer from January 1983 to May 1996. Mr.
Green is also a director of Medwave, Inc. and Applied Biometrics, Inc.
Mr. Fortun was elected President and Chief Operating Officer in 1983, Chief
Executive Officer in May 1996, and is now President and Chief Executive Officer.
He has served as a director of HTI since 1983. He is also a director of G&K
Services, Inc. and Excelsior-Henderson Motorcycle Manufacturing Company. Mr.
Fortun has been with HTI since 1975.
<PAGE> 17
Mr. Ingleman was elected Vice President in January 1982, Chief Financial Officer
in January 1988, and Secretary in January 1992. Mr. Ingleman served as HTI's
Treasurer from January 1982 through January 1996. Mr. Ingleman has been with HTI
since 1977.
Ms. Albrecht was elected Vice President in January 1995 and is now Vice
President of Human Resources. Previously she had been Director of Human
Resources since 1988. Ms. Albrecht has been with HTI since 1983.
Ms. Graczyk was elected Vice President in May 1990, and in March 1999 was
elected Vice President and Chief Operating Officer. Ms. Graczyk has been with
HTI since 1970.
Mr. Myers was elected Vice President in January 1988 and has been Vice President
of Administration since January 1995. Mr. Myers has been with HTI since 1977.
Mr. Penn was elected Vice President in January 1996 and is now Vice President of
Sales and Marketing. Previously he had been Director of Sales and Marketing
since December 1994. Mr. Penn has been with HTI since 1981.
Mr. Schaefer was elected Vice President in May 1990 and is now Vice President
and Chief Technical Officer. Mr. Schaefer has been with HTI since 1979.
Executive officers are elected annually by the Board of Directors and serve a
one-year period or until their successors are elected.
None of the above executive officers is related to each other or to any director
of HTI.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
HTI's common stock, $.01 par value, trades on The Nasdaq National Market under
the symbol HTCH. For price information regarding HTI's common stock, see Note 11
to the consolidated financial statements contained in Item 14 herein. As of
November 30, 1999, HTI's common stock was held by 1,029 shareholders of record.
DIVIDENDS
HTI has never paid any cash dividends on its common stock. HTI currently intends
to retain all earnings for use in its business and does not anticipate paying
cash dividends in the foreseeable future. Any future determination as to payment
of dividends will depend upon the financial condition and results of operations
of HTI and such other factors as are deemed relevant by the Board of Directors.
HTI's loan agreements contain certain covenants limiting, among other things,
HTI's ability to pay cash dividends or make other distributions. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity, Capital Resources and Other Matters", and Note 2 to the
consolidated financial statements contained in Item 14 herein.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data required pursuant to this Item appears on pages
48-49 of this Annual Report on Form 10-K.
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of operations of
HTI should be read in conjunction with the selected historical consolidated
financial data and consolidated financial statements and notes thereto appearing
elsewhere in this Annual Report on Form 10-K.
GENERAL
Since the late 1980's we have derived virtually all of our revenue from the sale
of suspension assemblies to a small number of customers. We currently sell a
variety of conventional and TSA suspension assemblies based on several standard
designs. Suspension assemblies are a critical component of hard disk drives and
our results of operations are highly dependent on the hard disk drive industry.
The hard disk drive industry is intensely competitive and highly cyclical and
our results of operations have been adversely affected from time to time due to
hard disk drive industry slowdowns, technological changes that impact industry
component demand and during our own product transitions.
During the past two years, some of the major personal computer makers
transitioned to build-to-order manufacturing, decreasing required disk drive
inventory levels. In addition, improvements in data density of hard disk drives
have somewhat offset the growth in the number of disks per drive, resulting in
drive manufacturers reducing the suspensions required per drive more quickly
than we had anticipated. Results for 1999, therefore, did not show the growth we
expected. We believe improvements in data density will continue, and we
therefore anticipate 2000 to show only modest unit growth.
Our gross margins have fluctuated and will continue to fluctuate based upon a
variety of factors such as the level of utilization of our production capacity,
changes in demand, product mix, selling prices, manufacturing yields, increases
in production and engineering costs associated with production of new products
and changes in the cost or limitations in the availability of materials. We
rapidly expanded our TSA suspension assembly production capacity in 1998 and in
the first half of 1999, and capacity exceeded demand during the second half of
1999 as a result of the factors discussed above. As we continue to make
improvements in production efficiencies, we expect our excess equipment capacity
to continue for the next 12 to 18 months. Profitable production of TSA
suspension assemblies was achieved during 1999 primarily due to higher volumes
and productivity gains. TSA suspension margins in the last half of 1999,
however, were negatively impacted by lower than expected TSA suspension demand
and an expected decline in TSA prices as certain TSA products matured.
Our ability to introduce new products on a timely basis is an important factor
in our continued success. New products have lower manufacturing yields and are
produced in lower quantities than more mature products. Manufacturing yields
generally improve as the product matures and production volumes increase.
Manufacturing yields also vary depending on the complexity and uniqueness of
product specifications. Because our business is capital intensive and requires a
high level of fixed costs, gross margins are also extremely sensitive to changes
in volume. Small variations in capacity utilization or manufacturing yields
generally have a significant impact on gross margins.
We typically allow customers to change or cancel orders on short notice without
penalty. We plan our production and inventory based primarily on forecasts of
customer demand rather than on order backlog. Both customer demand and the
resulting forecasts often fluctuate substantially. During 1999, we also began to
implement the use of "just-in-time" (JIT) inventory hubs to better service our
customers. This also has affected our forecasts of customer demand, as we are
still becoming accustomed to forecasting customer pulls out of the hubs. These
factors, among others, create an environment where scheduled production and
capacity utilization can vary significantly from week to week, leading to
variability in gross margins.
Growth in our net sales depends, in part, on the successful management of our
suspension assembly production capacity, our manufacturing work force and our
corporate infrastructure. During 1999, we consolidated some of our manufacturing
operations to make better use of existing equipment and support staff across all
of our plants and
<PAGE> 19
to reduce costs. In the first quarter of 2000, we eliminated positions and thus
reduced our workforce as part of our effort to streamline operations and align
costs and capacity with anticipated demand. In 1999, we also brought together
product and process development functions in a separate, dedicated development
center located at our Hutchinson site to enable us to shorten prototype
development cycles and achieve high volume output per manufacturing unit more
quickly.
To meet anticipated future demand for TSA suspension assemblies, we continued to
expand TSA suspension assembly production capacity during the first half of
1999. In 1999, we began construction of an additional manufacturing building for
our trace process at our Eau Claire site. As a result of faster than expected
improvements in our TSA suspension manufacturing efficiency and weaker TSA
suspension demand in the second half of 1999, we have postponed completion of
the building construction, and the building of related equipment, so as to
minimize the impact of excess manufacturing capacity on our results of
operations. We currently anticipate spending approximately $90,000,000 for
capital expenditures during 2000 primarily for continued improvements to our
equipment to meet advanced product specifications and for tooling for new TSA
programs.
MARKET TRENDS
We expect the expanding use of personal computers, enterprise computing and
storage, increasingly complex software and the emergence of new applications for
disk storage, such as digital video recording and digital cameras, will continue
to increase disk drive production for the foreseeable future. We also believe
demand for disk drives will continue to be subject, as it has in the past, to
rapid short-term changes resulting from, among other things, increases in data
density and other technological advances, changes in disk drive inventory
levels, responses to competitive price changes and unpredicted high or low
market acceptance of new drive models.
As in past years, disk drives continue to be the storage device of choice for
applications requiring low access times and higher capacities because of their
speed and low cost per megabyte of stored data. The cost of storing data on disk
drives continues to decrease primarily due to increasing data density, the
amount of data which can be stored on magnetic disks. Accelerated improvements
in data density within the past year have resulted in lower requirements of
suspension assemblies per drive. These improvements have been attained by
lowering the fly height of the read/write head, using smaller read/write heads
with advanced air bearing designs, improving other components such as motors and
media, and using new read/write head types such as those of magneto-resistive
(MR) and giant magneto-resistive (GMR) design. The move to MR and GMR heads,
which require more electrical leads, and the transition to smaller or pico-sized
heads, which are more sensitive to mechanical variation, have compelled drive
manufacturers to use newer suspension technologies, such as our TSA suspension
assemblies. We anticipate continuing acceptance by the disk drive industry of
our TSA suspension assemblies and expect that TSA suspension assemblies will
account for approximately two-thirds of our unit shipments in 2000.
The continual pursuit of increasing data density may lead to further value-added
features for TSA suspensions. The aTSA suspension incorporates a second stage
actuator on the suspension to improve head positioning over increasingly tighter
data tracks. The cTSA suspension allows for attachment of preamplifiers near the
head to improve data transfer signals.
The introduction of new types or sizes of read/write heads and new disk drive
designs tends to initially decrease customers' yields with the result that we
may experience temporary elevations of demand for some types of suspension
assemblies. The advent of new heads and new drive designs may require rapid
development and implementation of new suspension types which temporarily may
reduce our manufacturing yields and efficiencies. There can be no assurance that
we will not continue to be affected by such changes.
We generally experience fluctuating selling prices due to product maturity,
competitive pricing pressures and new product offerings. While many of our
current products are reaching or are in the mature phase of their life cycles
and thus are experiencing declining selling prices, our newer products have
initially much higher selling prices.
<PAGE> 20
1999 OPERATIONS
The following table sets forth our Consolidated Statements of Operations as a
percentage of net sales and the percentage change in the amount of such items
from period to period.
<TABLE>
<CAPTION>
Percentage of Net Sales Percentage Change
===================================================================================================================
1999 1998 1997 1999 TO 1998 1998 to 1997
===================================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales 100% 100% 100% 42% (10)%
Cost of sales 84 101 74 18 22
- -------------------------------------------------------------------------------------------------------------------
Gross profit (loss) 16 (1) 26 2,676 (103)
Research and development expenses 4 5 4 13 1
Selling, general and administrative expenses 8 10 10 15 (7)
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 4 (16) 12 136 (224)
Other income 2 1 1 136 3
Interest expense (2) (1) (1) 143 45
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 4 (16) 12 134 (222)
Provision (benefit) for income taxes 1 (4) 3 128 (244)
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) 3 (12) 9 136 (216)
===================================================================================================================
</TABLE>
Net sales for 1999 were $580,270,000, an increase of $172,654,000 or 42%
compared to 1998. This increase was primarily due to a higher average sell price
and increased suspension assembly sales volume.
Gross profit for 1999 was $93,666,000, compared to a gross loss of $3,636,000
for 1998, and gross profit (loss) as a percent of net sales increased from (1)%
to 16%. This increase was primarily due to higher TSA suspension assembly sales
volume, partially offset by higher manufacturing costs associated with increased
TSA suspension assembly production.
Research and development expenses for 1999 were $23,106,000 compared to
$20,360,000 for 1998. A majority of the research and development expenses were
used for further TSA product development and for the development of HTI's
medical product.
Selling, general and administrative expenses for 1999 were $47,227,000, an
increase of $6,099,000 or 15% compared to 1998. The increased expenses were due
primarily to increased profit sharing costs of $3,556,000, increased labor
expenses of $2,139,000 and increased depreciation and lease expenses of
$1,127,000. As a percent of net sales, selling, general and administrative
expenses decreased from 10% to 8%.
Other income, net, for 1999 was $10,052,000, an increase of $5,791,000 compared
to 1998. The increase was primarily due to an increase of $5,254,000 in interest
income as a result of a higher average investment balance.
Interest expense for 1999 was $11,067,000, an increase of $6,509,000 compared to
1998, primarily due to higher average outstanding debt and lower capitalization
of interest of $1,656,000.
The income tax provision for 1999 was based on an effective tax rate for the
year of 21% which was below the statutory federal rate primarily due to the
large portion of sales that qualify for the benefit of our Foreign Sales
Corporation.
Net income for 1999 was $17,638,000, compared to a net loss of $48,411,000 for
1998. As a percent of net sales, net income increased from (12)% to 3% primarily
due to a higher average sell price and higher sales volume, noted above.
<PAGE> 21
1998 OPERATIONS
Net sales for 1998 were $407,616,000, a decrease of $45,616,000 or 10% compared
to 1997. This decrease was primarily due to decreased suspension assembly
volume.
Gross loss for 1998 was $3,636,000, compared to a gross profit of $117,279,000
for 1997, and gross profit (loss) as a percent of net sales decreased from 26%
to (1)%. This decrease was primarily due to lower conventional suspension
assembly sales volume and higher manufacturing costs associated with increased
TSA suspension assembly production.
Research and development expenses for 1998 were $20,360,000 compared to
$20,185,000 for 1997. A majority of the research and development expenses were
used for further TSA product development and for development of HTI's medical
product.
Selling, general and administrative expenses for 1998 were $41,128,000, a
decrease of $3,250,000 or 7% compared to 1997. The decreased expenses were due
primarily to decreased profit sharing and other incentive compensation costs of
$9,349,000 and decreased recruitment and relocation costs of $886,000, partially
offset by increased labor expenses of $2,597,000, higher depreciation and lease
expense of $1,929,000, fees related to certain financing agreements of
$1,535,000 and higher bad debt provision of $1,476,000. As a percent of net
sales, selling, general and administrative expenses remained at 10%.
Interest expense for 1998 was $4,558,000, an increase of $1,415,000 compared to
1997, primarily due to higher average outstanding debt, offset by higher
capitalization of interest of $3,820,000.
The income tax benefit for 1998 was based on an effective tax rate for the year
of 26% which was below the statutory federal rate primarily due to tax credits
and the large portion of sales that qualify for the benefit of HTI's Foreign
Sales Corporation.
Net loss for 1998 was $48,411,000, compared to net income of $41,909,000 for
1997. As a percent of net sales, net income decreased from 9% to (12)% primarily
due to the lower sales volume and higher manufacturing costs, noted above.
1997 OPERATIONS
Net sales for 1997 were $453,232,000, an increase of $100,046,000 or 28%
compared to 1996. This increase was primarily due to increased suspension
assembly volume.
Gross profit for 1997 was $117,279,000, an increase of $37,709,000 or 47%
compared to 1996, and gross profit as a percent of net sales increased from 23%
to 26%. This increase was primarily due to higher sales volume and improved
manufacturing efficiencies.
Research and development expenses for 1997 were $20,185,000 compared to
$27,651,000 for fiscal 1996. The prior year amount includes a $5,500,000 charge
related to a technology sharing agreement with IBM and higher development
expenses related to production of TSA prototype suspensions.
Selling, general and administrative expenses for 1997 were $44,378,000, an
increase of $10,662,000 or 32% compared to 1996. The increased expenses were due
primarily to increased profit sharing and other incentive compensation costs of
$7,443,000 and a $1,855,000 increase in labor expenses. As a percent of net
sales, selling, general and administrative expenses remained at 10%.
Other income, net, for 1997 was $4,143,000, an increase of $2,985,000 compared
to 1996. The increase is primarily due to an increase of $3,631,000 in interest
income as a result of a higher average investment balance, partially offset by a
$443,000 increase in royalties paid under licensing agreements.
Interest expense for 1997 was $3,143,000, an increase of $1,035,000 compared to
1996, primarily due to higher average outstanding debt, offset by higher
capitalization of interest of $1,740,000.
The income tax provision for 1997 was based on an effective tax rate for the
year of 22% which was below the statutory federal rate primarily due to the
large portion of sales that qualifies for the benefit of HTI's Foreign Sales
Corporation.
Net income for 1997 was $41,909,000, an increase of $28,107,000 compared to
1996. As a percent of net sales, net income increased from 4% to 9% primarily
due to the higher sales volume and improved manufacturing efficiencies, noted
above.
<PAGE> 22
LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS
LIQUIDITY AND CAPITAL RESOURCES - Our principal sources of liquidity are cash
and cash equivalents, securities available for sale, cash flow from operations
and additional financing capacity. On December 31, 1998, we signed a financing
agreement with The CIT Group/Business Credit, Inc., establishing a $50,000,000
credit facility secured by our accounts receivable and inventory. At September
26, 1999, we had an outstanding letter of credit under this facility of
$1,000,000 as security for our variable rate demand note. No other amounts were
outstanding under the credit facility at September 26, 1999.
Our cash and cash equivalents increased to $98,820,000 at September 26, 1999
compared to $58,942,000 at September 27, 1998. The increase is primarily a
result of the stock offering, noted below, and cash flow from operations, offset
partially by capital expenditures. We generated cash from operating activities
of $81,176,000 in 1999, used cash from operating activities of $12,824,000 in
1998 and generated cash flow from operating activities of $76,816,000 in 1997.
Cash used for capital expenditures totaled $120,596,000 in 1999 compared to
$206,888,000 in 1998 and $82,639,000 in 1997. The expenditures in 1999 were
primarily related to continued expansion of TSA suspension assembly production
capacity. We currently anticipate spending approximately $90,000,000 during 2000
primarily for continued improvements to our equipment to meet advanced product
specifications and for tooling for new TSA programs. Financing of these capital
expenditures will be principally from internally generated funds, cash balances
and/or additional financing capacity.
In February 1999, we issued 4,800,000 shares of our common stock through a
public offering. We received net proceeds of $209,136,000 and expect to use the
funds for general corporate purposes. Pending such uses, we have invested the
net proceeds from the offering in short-term income-producing investments.
Certain of our existing financing agreements contain financial covenants and
covenants which may restrict our ability to enter into certain types of
financing. As of September 26, 1999, we were in compliance with all such
covenants. If we are not in compliance with financial covenants in our financing
agreements at the end of any fiscal quarter, our future financial results and
liquidity could be materially adversely affected.
We currently believe that our cash and cash equivalents, securities available
for sale, cash generated from operations and credit facility will be sufficient
to meet our operating expenses, debt service requirements and capital
expenditures through 2000. We may require significant additional financing to
meet our capital requirements beyond 2000, dependent on market conditions. We
will pursue additional debt or equity financing to supplement our current
capital resources if needed. Our ability to obtain additional financing will
depend upon a number of factors, including our future performance and financial
results and general economic and capital market conditions. We cannot be sure
that we will be able to raise additional capital on reasonable terms or at all.
YEAR 2000 ISSUE - The Year 2000 issue is the result of computer programs,
microprocessors and embedded date-reliant systems using two digits rather than
four to define the applicable year. If not corrected, date-related information
and data could cause many programs or systems to fail or to generate erroneous
information. Our products have no inherent time or date function. Our products
will operate regardless of the Year 2000 issue. However, we use computer systems
and programs that will be affected by Year 2000 issues.
In 1997, we began a comprehensive Year 2000 readiness program. The program
addressed: (i) business software and hardware; (ii) manufacturing software and
hardware used in the design and/or manufacturing of suspension assemblies; and
(iii) suppliers. Although we do not currently expect any significant disruption
to our operations due to Year 2000 issues, we cannot be sure that we have
assessed, identified or corrected all Year 2000 issues.
We completed remediation of our key business software in November 1997. These
key applications include purchased applications that address, but are not
limited to: (i) sales and order processing; (ii) resource planning and
scheduling; (iii) procurement; (iv) inventory control; (v) shipping;
<PAGE> 23
and (vi) financial accounting and reporting. We completed additional testing of
these systems during the second quarter of 1999 using "data-aging" software, and
we completed implementation of Year 2000 compliance follow-up measures in
connection with such testing by June 30, 1999.
We completed an enterprise-wide inventory in May 1998 of all other business
software and hardware with potential Year 2000 issues. The inventory included
approximately 460 purchased and internally-developed business software programs
or packages. We consider 350 of these software programs or packages critical.
The inventory also included over 3,000 pieces of hardware, including personal
computers, servers and network devices. We have analyzed all of the critical
business software and hardware included in the inventory for the existence and
extent of Year 2000 issues. As of September 30, 1999, remediation was complete
for all critical business software and hardware included in the inventory.
We completed an enterprise-wide inventory in May 1998 of all manufacturing
software, hardware and embedded-chip technology with potential Year 2000 issues.
The inventory included: (i) all equipment and software used to design, build and
test tools and machines; (ii) all tools and machines used to design, build and
test suspension assemblies; and (iii) software and equipment for all facility
systems. As of June 30, 1999, we had completed analysis of the entire inventory
for the existence and extent of Year 2000 issues. As of September 30, 1999,
remediation was complete for all manufacturing software, hardware and
embedded-chip technology.
We have assessed our suppliers whose failure to become Year 2000 compliant in a
timely manner, if at all, could have a material adverse effect on us. We
distributed questionnaires on Year 2000 compliance status (and follow-up
letters, as necessary) to over 200 of our suppliers. As of September 30, 1999,
all of the suppliers queried had responded to us, and follow-up activities were
pursued as required to evaluate, or mitigate, potential risks associated with
such suppliers due to Year 2000 issues. All analysis and follow-up activities
with these suppliers are complete. We also have developed contingency plans for
all other suppliers for whom there is uncertainty regarding Year 2000
compliance.
As of September 30, 1999, we had incurred approximately $400,000 in expenses for
Year 2000 efforts. We currently estimate incurring an additional $200,000 in
expenses for Year 2000 efforts. The projected costs of our Year 2000 readiness
efforts are based on our best estimates, which were derived using assumptions
about future events. These estimates may change as our efforts proceed and
actual results could differ significantly from current plans.
Although we have completed our Year 2000 remediation, there are risks if our
efforts did not address all business issues. A failure in remedying a Year 2000
issue, caused by computer hardware or software errors, or our failure to be, or
suppliers who may not be, Year 2000 compliant could, in a worst case, interrupt
our business. Any interruption in our business could have a material adverse
effect on our business, financial condition and results of operations depending
upon the extent and duration of the interruption.
We have completed a corporate contingency plan and are implementing this plan to
ensure that back-up processes are in place. We also have developed contingency
plans for specific business areas and assets, but we cannot be sure that any
such plans will address all risks that may actually arise.
OTHER MATTERS - We are involved in certain legal matters which may result in
additional future cash requirements. See the discussion of these matters in Note
6, "Commitments and Contingencies," in the notes to the consolidated financial
statements.
We will be subject to certain recent accounting pronouncements. See the
discussion of these matters in Note 1, "Summary of Significant Accounting
Policies," in the notes to the consolidated financial statements.
INFLATION
We believe inflation has not had a material effect on our operations or on our
financial condition. There can be no assurance, however, that our business will
not be affected by inflation in the future.
<PAGE> 24
FORWARD-LOOKING STATEMENTS
The statements on pages 2 through 7 of this Annual Report about demand for disk
drives and suspension assemblies, including TSA suspensions, manufacturing
capacity, anticipated capital expenditures, TSA suspension and related product
development and production and medical product development, the statements under
the headings "General" and "Market Trends" about demand for and shipments of
disk drives and suspension assemblies, including TSA suspensions, manufacturing
capacity and yields and selling prices, the statements under the headings
"General" and "Liquidity, Capital Resources and Other Matters" about anticipated
operating results, cost reduction efforts, capital expenditures and capital
resources, and the statements above under the heading "Liquidity, Capital
Resources and Other Matters" about Year 2000 readiness and expenditures, are
forward-looking statements based on current expectations. These statements are
subject to risks and uncertainties, including slower or faster customer
acceptance of our new products, fluctuating order rates, difficulties in
producing our TSA suspensions and variations of our TSA suspensions,
difficulties in managing capacity, changes in manufacturing efficiencies,
difficulties in obtaining covenant amendments in our existing financing
agreements, difficulties in implementing Year 2000 compliance and the other
risks and uncertainties discussed above. These factors may cause our actual
future results to differ materially from historical earnings and from the
financial performance we presently anticipate.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
HTI is exposed to market risk due to changes in interest rates in connection
with its long-term debt obligations. HTI does not enter into derivative or other
financial instruments for trading or speculative purposes.
HTI's Financing Agreement with The CIT Group/Business Credit, Inc.
("Agreement") carries interest rate risk that is generally related to either
LIBOR or the prime rate. If either of these rates were to change while HTI was
borrowing under the Agreement, interest expense would increase or decrease
accordingly. At September 26, 1999, there were no outstanding borrowings under
the Agreement. HTI's variable rate demand note ("Note") also carries interest
rate risk that is generally related to the 91-day U.S. treasury bill interest
rate. At September 26, 1999, the outstanding principal amount of the Note was
$1,000,000, which was subject to an interest rate of 3.9%.
HTI has no earnings or cash flow exposure due to market risk on its other
long-term debt obligations which are subject to fixed interest rates. Interest
rate changes, however, would affect the fair market value of this fixed rate
debt. At September 26, 1999, HTI had fixed rate debt of $218,733,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and notes thereto required pursuant to this Item begin
on page 36 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference is the information appearing under the headings
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance," pages 4-5 and 14, in HTI's Proxy Statement dated December 20, 1999.
See also Part I hereof under the heading "Item X. Executive Officers of the
Registrant."
<PAGE> 25
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the information appearing under the headings
"Summary Compensation Table" and "Option Tables", pages 10-12, and the
information regarding compensation of non-employee directors on page 5, in HTI's
Proxy Statement dated December 20, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the information appearing under the heading
"Security Ownership of Principal Shareholders and Management," pages 2-3, and
the information appearing in the tables and notes on pages 11-12, in HTI's Proxy
Statement dated December 20, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS ANNUAL REPORT ON FORM 10-K:
1. Consolidated Financial Statements:
Consolidated Statements of Operations for the fiscal years ended September
26, 1999, September 27, 1998 and September 28, 1997
Consolidated Balance Sheets as of September 26, 1999 and September 27, 1998
Consolidated Statements of Cash Flows for the fiscal years ended September
26, 1999, September 27, 1998 and September 28, 1997
Consolidated Statements of Shareholders' Investment for the fiscal years
ended September 26, 1999, September 27, 1998 and September 28, 1997
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
2. Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore
have been omitted.
(B) EXHIBITS:
Unless otherwise indicated, all documents incorporated herein by reference to a
document filed with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended, are located under SEC file number
0-14709.
3.1 Restated Articles of Incorporation of HTI, as amended by Articles of
Amendment dated 1/27/88 and as amended by Articles of Amendment dated
1/21/97 (incorporated by reference to Exhibit 3.1 to HTI's Quarterly
Report on Form 10-Q for the quarter ended 6/29/97).
3.2 Restated By-Laws of HTI (incorporated by reference to Exhibit 3.2 to
HTI's Quarterly Report on Form 10-Q for the quarter ended 12/29/96).
4.1 Instruments defining the rights of security holders, including an
indenture. The Registrant agrees to furnish the Securities and Exchange
Commission upon request copies of instruments with respect to long-term
debt.
4.2 Indenture dated as of 3/18/98 between HTI and U.S. Bank National
Association, as Trustee (incorporated by reference to Exhibit 4.6 to
HTI's Registration Statement on Form S-3, Registration No. 333-50143).
<PAGE> 26
4.3 Purchase Agreement dated 3/12/98 by and among HTI, NationsBanc Montgomery
Securities LLC and First Chicago Capital Markets, Inc. (incorporated by
reference to Exhibit 4.7 to HTI's Registration Statement on Form S-3,
Registration No. 333-50143).
4.4 Shelf Registration Agreement dated as of 3/18/98 by and among HTI,
NationsBanc Montgomery Securities LLC and First Chicago Capital Markets,
Inc. (incorporated by reference to Exhibit 4.8 to HTI's Registration
Statement on Form S-3, Registration No. 333-50143).
10.1 Lease with Right of Refusal between Donald Wendorff and Laura Wendorff,
Lessors, and HTI, Lessee, dated 9/6/95 (incorporated by reference to
Exhibit 10.2 to HTI's Annual Report on Form 10-K for the fiscal year
ended 9/24/95).
10.2 Office/Warehouse Lease between OPUS Corporation, Lessor, and HTI, Lessee,
dated 12/29/95 (incorporated by reference to Exhibit 10.2 to HTI's
Quarterly Report on Form 10-Q for the quarter ended 3/24/96), and First
Amendment to Office/Warehouse Lease dated 4/30/96 (incorporated by
reference to Exhibit 10.2 to HTI's Quarterly Report on Form 10-Q for the
quarter ended 6/23/96).
#10.3 Hutchinson Technology Incorporated 401-K Plan (As Amended and Restated
Effective 7/1/99) and related 401-K Trust.
#10.4 Directors' Retirement Plan effective as of 1/1/92 (incorporated by
reference to Exhibit 10.12 to HTI's Annual Report on Form 10-K for the
fiscal year ended 9/27/92) and Amendment effective as of 11/19/97
(incorporated by reference to Exhibit 10.5 to HTI's Quarterly Report on
Form 10-Q for the quarter ended 12/28/97).
#10.5 Description of Bonus Program for Key Employees of Hutchinson Technology
Incorporated (incorporated by reference to Exhibit 10.13 to HTI's Annual
Report on Form 10-K for the fiscal year ended 9/27/92).
#10.6 1988 Stock Option Plan (incorporated by reference to Exhibit 10.8 to
HTI's Annual Report on Form 10-K for the fiscal year ended 9/25/88),
Amendment to the 1988 Stock Option Plan (incorporated by reference to
Exhibit 10.5 to HTI's Annual Report on Form 10-K for the fiscal year
ended 9/26/93), and Amendment to the 1988 Stock Option Plan (incorporated
by reference to Exhibit 10.5 to HTI's Quarterly Report on Form 10-Q for
the quarter ended 3/26/95).
*10.7 Technology Transfer and Development Agreement, effective as of 9/1/94,
between Hutchinson Technology Incorporated and International Business
Machines Corporation (incorporated by reference to Exhibit 10.10 to HTI's
Quarterly Report on Form 10-Q/A for the quarter ended 6/25/95), and
Amendment dated 12/11/95 to the Technology Transfer and Development
Agreement between International Business Machines Corporation and
Hutchinson Technology Incorporated executed 6/15/95 (incorporated by
reference to Exhibit 10.8 to HTI's Quarterly Report on Form 10-Q for the
quarter ended 12/24/95).
*10.8 Patent License Agreement, effective as of 9/1/94, between Hutchinson
Technology Incorporated and International Business Machines Corporation
(incorporated by reference to Exhibit 10.11 to HTI's Quarterly Report on
Form 10-Q/A for the quarter ended 6/25/95).
10.9 Lease Agreement between Meridian Eau Claire LLC and Hutchinson Technology
Incorporated, dated 5/1/96 (incorporated by reference to Exhibit 10.10 to
HTI's Quarterly Report on Form 10-Q for the quarter ended 6/23/96).
10.10 Master Lease Agreement dated as of 12/19/96 between General Electric
Capital Corporation, as Lessor ("GE"), and Hutchinson Technology
Incorporated, as Lessee (incorporated by reference to Exhibit 10.11 to
HTI's Quarterly Report on Form 10-Q for the quarter ended 12/29/96),
Amendment dated 6/30/97 to the Master Lease Agreement
<PAGE> 27
between GE and Hutchinson Technology Incorporated (incorporated by
reference to Exhibit 10.11 to HTI's Quarterly Report on Form 10-Q for the
quarter ended 12/28/97), letter amendment dated 3/5/98 to the Master
Lease Agreement between GE and Hutchinson Technology Incorporated
(incorporated by reference to Exhibit 10.11 to HTI's Quarterly Report on
Form 10-Q for the quarter ended 3/29/98), and letter amendment dated
9/25/98 to the Master Lease Agreement between GE and Hutchinson
Technology Incorporated (incorporated by reference to Exhibit 10.11 to
HTI's Annual Report on Form 10-K for the fiscal year ended 9/27/98).
#10.11 Hutchinson Technology Incorporated 1996 Incentive Plan (incorporated by
reference to Exhibit 10.12 to HTI's Quarterly Report on Form 10-Q for the
quarter ended 12/29/96).
#10.12 Hutchinson Technology Incorporated Incentive Bonus Plan (incorporated by
reference to Exhibit 10.13 to HTI's Quarterly Report on Form 10-Q for the
quarter ended 12/28/97).
11.1 Statement Regarding Computation of Per Share Earnings.
21.1 List of Subsidiaries.
23.1 Consent of Independent Public Accountants.
27.1 Financial Data Schedule.
*Exhibits 10.8 and 10.9 contain portions for which confidential treatment has
been granted by the Securities and Exchange Commission.
#Management contract, compensatory plan or arrangement required to be filed as
an exhibit to this Form 10-K.
(C) REPORTS ON FORM 8-K
No reports were filed on Form 8-K during the fourth quarter of the fiscal year
ended September 26, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, on December 14, 1999.
HUTCHINSON TECHNOLOGY INCORPORATED
By /s/ Wayne M. Fortun
----------------------------------------------------------------------------
Wayne M. Fortun
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on December 14, 1999.
/s/ Wayne M. Fortun
- --------------------------------------------------------------------------------
Wayne M. Fortun, President and Chief Executive Officer
(Principal Executive Officer) and Director
/s/ John A. Ingleman
- --------------------------------------------------------------------------------
John A. Ingleman, Vice President, Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
/s/ W. Thomas Brunberg
- --------------------------------------------------------------------------------
W. Thomas Brunberg, Director
/s/ Archibald Cox, Jr.
- --------------------------------------------------------------------------------
Archibald Cox, Jr., Director
/s/ Harry C. Ervin, Jr.
- --------------------------------------------------------------------------------
Harry C. Ervin, Jr., Director
/s/ Jeffrey W. Green
- --------------------------------------------------------------------------------
Jeffrey W. Green, Director
/s/ Russell Huffer
- --------------------------------------------------------------------------------
Russell Huffer, Director
/s/ Steven E. Landsburg
- --------------------------------------------------------------------------------
Steven E. Landsburg, Director
/s/ Richard B. Solum
- --------------------------------------------------------------------------------
Richard B. Solum, Director
<PAGE> 28
CONSOLIDATED STATEMENTS OF OPERATIONS
Hutchinson Technology Incorporated and Subsidiaries
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEARS ENDED
=======================================================================================================
SEPTEMBER 26, 1999 SEPTEMBER 27, 1998 SEPTEMBER 28, 1997
=======================================================================================================
<S> <C> <C> <C>
Net sales $ 580,270 $ 407,616 $ 453,232
Cost of sales 486,604 411,252 335,953
- -------------------------------------------------------------------------------------------------------
Gross profit (loss) 93,666 (3,636) 117,279
Research and development expenses 23,106 20,360 20,185
Selling, general and administrative expenses 47,227 41,128 44,378
- -------------------------------------------------------------------------------------------------------
Income (loss) from operations 23,333 (65,124) 52,716
Other income, net 10,052 4,261 4,143
Interest expense (11,067) (4,558) (3,143)
- -------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 22,318 (65,421) 53,716
Provision (benefit) for income taxes 4,680 (17,010) 11,807
- -------------------------------------------------------------------------------------------------------
Net income (loss) $ 17,638 $ (48,411) $ 41,909
=======================================================================================================
Basic earnings (loss) per share $ 0.77 $ (2.46) $ 2.29
=======================================================================================================
Diluted earnings (loss) per share $ 0.75 $ (2.46) $ 2.21
=======================================================================================================
Weighted average common shares outstanding 22,958 19,709 18,272
=======================================================================================================
Weighted average common
and diluted shares outstanding 23,575 19,709 18,978
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 29
CONSOLIDATED BALANCE SHEETS
Hutchinson Technology Incorporated and Subsidiaries
<TABLE>
<CAPTION>
(Dollars in thousands)
====================================================================================================
ASSETS SEPTEMBER 26, 1999 SEPTEMBER 27, 1998
====================================================================================================
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 98,820 $ 58,942
Securities available for sale 139,402 11,921
Trade receivables, net 72,716 65,798
Other receivables 9,050 12,337
Inventories 40,984 25,780
Prepaid taxes and other expenses 17,814 19,507
- ----------------------------------------------------------------------------------------------------
Total current assets 378,786 194,285
Property, plant and equipment, at cost:
Land, buildings and improvements 129,755 123,599
Equipment 429,443 319,162
Construction in progress 61,187 104,145
Less: Accumulated depreciation (267,449) (211,617)
- ----------------------------------------------------------------------------------------------------
Net property, plant and equipment 352,936 335,289
Other assets 20,127 19,904
- ----------------------------------------------------------------------------------------------------
$ 751,849 $ 549,478
====================================================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
====================================================================================================
Current liabilities:
Current maturities of long-term debt $ 4,171 $ 4,613
Accounts payable and accrued expenses 43,635 59,812
Accrued compensation 17,014 24,371
GE lease accrual 4,519 4,375
- ----------------------------------------------------------------------------------------------------
Total current liabilities 69,339 93,171
Long-term debt, less current maturities 65,562 68,247
Convertible subordinated notes 150,000 150,000
Other long-term liabilities 1,989 1,230
Commitments and contingencies ( Notes 5 and 6 )
Shareholders' investment:
Common stock $.01 par value, 45,000,000 shares authorized,
24,744,000 and 19,780,000 issued and outstanding 247 198
Additional paid-in capital 363,399 152,957
Retained earnings 101,313 83,675
- ----------------------------------------------------------------------------------------------------
Total shareholders' investment 464,959 236,830
- ----------------------------------------------------------------------------------------------------
$ 751,849 $ 549,478
====================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 30
CONSOLIDATED STATEMENTS OF CASH FLOWS
Hutchinson Technology Incorporated and Subsidiaries
<TABLE>
<CAPTION>
(In thousands)
Fiscal years ended
==================================================================================================================
OPERATING ACTIVITIES: SEPTEMBER 26, 1999 SEPTEMBER 27, 1998 SEPTEMBER 28, 1997
==================================================================================================================
<S> <C> <C> <C>
Net income (loss) $ 17,638 $ (48,411) $ 41,909
Adjustments to reconcile net income (loss) to cash
provided by (used for) operating activities:
Depreciation and amortization 93,797 50,901 38,565
Deferred taxes 3,257 (7,350) (2,608)
Changes in operating assets and liabilities (Note 7) (33,516) (7,964) (1,050)
- ------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) operating activities 81,176 (12,824) 76,816
- ------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
==================================================================================================================
Capital expenditures (120,596) (206,888) (82,639)
Funding from GE lease receivable -- 35,303 9,915
Increase in GE lease receivable -- (4,230) (35,746)
Purchases of marketable securities (193,352) (13,313) (31,343)
Sales of marketable securities 65,871 21,602 14,196
- ------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (248,077) (167,526) (125,617)
- ------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
==================================================================================================================
Proceeds from issuance of long-term debt 1,500 -- 25,000
Repayments of long-term debt (4,627) (5,334) (5,751)
Net proceeds from issuance of convertible
subordinated notes -- 145,320 --
Net proceeds from issuance of common stock 209,906 966 105,008
- ------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 206,779 140,952 124,257
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 39,878 (39,398) 75,456
Cash and cash equivalents at beginning of year 58,942 98,340 22,884
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 98,820 $ 58,942 $ 98,340
==================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 31
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
Hutchinson Technology Incorporated and Subsidiaries
<TABLE>
<CAPTION>
(In thousands)
==================================================================================================================
Common Stock
------------------------ Additional
Shares Amount paid-in capital Retained earnings
==================================================================================================================
<S> <C> <C> <C> <C>
Balance, September 29, 1996 16,356 $ 164 $ 43,343 $ 90,177
Exercise of stock options 268 2 4,711 -
Issuance of common stock 3,001 30 102,877 -
Retirements of common stock (6) - (255) -
Net income - - - 41,909
- ------------------------------------------------------------------------------------------------------------------
Balance, September 28, 1997 19,619 196 150,676 132,086
Exercise of stock options 169 2 2,524 -
Issuance of common stock 1 - 12 -
Retirements of common stock (9) - (255) -
Net loss - - - (48,411)
- ------------------------------------------------------------------------------------------------------------------
Balance, September 27, 1998 19,780 198 152,957 83,675
Exercise of stock options 167 1 1,954 -
Issuance of common stock 4,801 48 208,608 -
Retirements of common stock (4) - (120) -
Net income - - - 17,638
- ------------------------------------------------------------------------------------------------------------------
Balance, September 26, 1999 24,744 $ 247 $ 363,399 $ 101,313
==================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hutchinson Technology Incorporated and Subsidiaries
(Columnar dollar amounts in thousands, except per share amounts)
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Hutchinson Technology Incorporated and its subsidiaries (the
"Company"), all of which are wholly-owned. All significant intercompany accounts
and transactions have been eliminated in consolidation.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Ultimate results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board released Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS 133 is effective for fiscal years beginning after June
15, 2000. The Company has not yet determined the timing of adoption of SFAS 133.
While the Company does not expect the adoption to materially impact its results
of operations or financial position, adoption of SFAS 133 could increase
volatility in earnings for periods subsequent to adoption.
FISCAL YEAR - The Company's fiscal year is the fifty-two/ fifty-three week
period ending on the last Sunday in September. The fiscal year ended September
26, 1999 is a fifty-two week period, the fiscal year ended September 27, 1998 is
a fifty-two week period and the fiscal year ended September 28, 1997 is a
fifty-two week period.
REVENUE RECOGNITION - The Company recognizes revenue upon the shipment of
completed products to the customer.
CASH AND CASH EQUIVALENTS - Cash equivalents consist of all highly liquid
investments with original maturities of ninety days or less.
SECURITIES AVAILABLE FOR SALE - Securities available for sale consist of
investments with original maturities greater than ninety days which are intended
to be held less than one year. Securities available for sale consisted of U.S.
government securities and corporate debt securities with a market value and cost
of approximately $139,402,000 at September 26, 1999 and $11,921,000 at September
27, 1998.
TRADE RECEIVABLES - The Company grants credit to customers, but generally does
not require collateral or any other security to support amounts due. Trade
receivables are net of allowances of $6,395,000 at September 26, 1999 and
$5,207,000 at September 27, 1998.
INVENTORIES - All inventories are stated at the lower of last-in, first-out
("LIFO") cost or market. Inventories consist of the following at September 26,
1999 and September 27, 1998:
<TABLE>
<CAPTION>
=============================================
1999 1998
=============================================
<S> <C> <C>
Raw materials $ 15,728 $ 9,320
Work in process 13,749 12,740
Finished goods 11,672 3,908
LIFO reserve (165) (188)
- ---------------------------------------------
$ 40,984 $ 25,780
=============================================
</TABLE>
<PAGE> 33
PROPERTY AND DEPRECIATION - Property, plant and equipment are stated at cost.
Costs of renewals and betterments are capitalized and depreciated. Maintenance
and repairs are charged to expense as incurred.
Buildings and leasehold improvements are depreciated on a straight-line basis
and equipment is depreciated using a 150% declining balance method for financial
reporting purposes. Property is depreciated using primarily accelerated methods
for tax reporting purposes. Estimated useful lives for financial reporting
purposes are as follows:
<TABLE>
<S> <C>
Buildings 25 to 35 years
Leasehold Improvements 5 to 10 years
Equipment 2 to 8 years
</TABLE>
Property, plant and equipment are net of reserves of $7,295,000 at September
26,1999 and $3,947,000 at September 27, 1998.
ENGINEERING AND PROCESS DEVELOPMENT - The Company's engineers and technicians
are responsible for the implementation of new technologies as well as process
and product development and improvements. Expenditures related to these
activities totaled $56,638,000 in 1999, $52,235,000 in 1998 and $48,204,000 in
1997. Of these amounts, approximately $23,106,000 in 1999, $20,360,000 in 1998
and $20,185,000 in 1997 are classified as research and development expenses.
INCOME TAXES - Deferred taxes are provided at currently enacted tax rates on all
significant temporary differences.
NET INCOME PER SHARE - The Company follows the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share". Basic earnings
(loss) per share is computed by dividing net income (loss) available to common
shareholders by the weighted average number of common shares outstanding during
the year. Diluted earnings (loss) per share is computed under the treasury stock
method and is calculated to compute the dilutive effect of potential common
shares. A reconciliation of these amounts is as follows:
<TABLE>
<CAPTION>
===============================================================================
1999 1998 1997
===============================================================================
<S> <C> <C> <C>
Weighted average common shares
outstanding 22,958 19,709 18,272
Dilutive potential common shares 617 - 706
- -------------------------------------------------------------------------------
Weighted average common and
diluted shares outstanding 23,575 19,709 18,978
- -------------------------------------------------------------------------------
Basic earnings (loss) per share $ 0.77 $(2.46) $2.29
- -------------------------------------------------------------------------------
Diluted earnings (loss) per share $ 0.75 $(2.46) $2.21
===============================================================================
</TABLE>
Potential common shares of 5,291,000 and 5,875,000 were excluded from the
computation of diluted earnings (loss) per share for 1999 and 1998, as inclusion
of these shares would have been antidilutive.
NOTE 2
FINANCING ARRANGEMENTS
LONG-TERM DEBT
<TABLE>
<CAPTION>
======================================================================================
1999 1998
======================================================================================
<S> <C> <C>
Senior unsecured notes, 8.35%,
payable in varying annual installments
through July 2003 $ 25,000 $ 25,000
Senior unsecured note, 8.57%,
payable in varying annual installments
through November 2004 25,000 25,000
Senior unsecured notes, 7.96%,
payable in varying semiannual installments
through February 2004 16,875 20,625
6% Convertible Subordinated Notes
due 2005 150,000 150,000
Other long-term debt 2,858 2,235
- --------------------------------------------------------------------------------------
219,733 222,860
Less: Current maturities (4,171) (4,613)
- --------------------------------------------------------------------------------------
$ 215,562 $ 218,247
======================================================================================
</TABLE>
In March 1998, the Company completed a private placement of $150,000,000
aggregate principal amount of 6% Convertible Subordinated Notes due 2005 (the
"Convertible Notes") with interest payable semiannually
<PAGE> 34
commencing September 15, 1998. The Convertible Notes are convertible, at the
option of the holder, into Common Stock of the Company at any time prior to
their stated maturity, unless previously redeemed or repurchased, at a
conversion price of $28.35 per share. Beginning March 20, 2001, the Convertible
Notes are redeemable, in whole or in part, at the option of the Company at
103.43% of their principal amount, and thereafter at prices declining to 100% at
any time on and after March 15, 2005. In addition, upon the occurrence of
certain events, each holder of the Convertible Notes may require the Company to
repurchase all or a portion of such holder's Convertible Notes at a purchase
price equal to 100% of the principal amount thereof, together with accrued and
unpaid interest and liquidated damages, if any, to the date of the repurchase.
The Convertible Notes were issued by the Company and were sold in transactions
exempt from registration under the Securities Act of 1933, as amended. The
Company filed a Registration Statement registering the Convertible Notes and the
shares of Common Stock of the Company into which the Convertible Notes are
convertible.
The Company's financing agreements contain certain restrictive covenants which
require the Company, among other things, to maintain specified levels of net
income, cash and/or cash available from a credit facility, working capital,
tangible net worth and financial ratios, and also impose limitations on capital
expenditures, additional indebtedness, leases, guarantees, and the payment of
dividends. Effective September 26, 1999, the Company was in compliance with all
such covenants.
Maturities of long-term debt for the five years subsequent to September 26, 1999
are as follows:
<TABLE>
==============================
<S> <C>
2000 $ 4,171
2001 12,467
2002 16,640
2003 16,646
2004 7,236
Thereafter 162,573
- ------------------------------
$219,733
==============================
</TABLE>
NOTE 3
INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
==========================================================
1999 1998 1997
==========================================================
<S> <C> <C> <C>
Current:
Federal $1,023 $ (9,660) $ 12,795
State -- -- 1,620
Deferred 3,657 (7,350) (2,608)
- ----------------------------------------------------------
$4,680 $(17,010) $ 11,807
==========================================================
</TABLE>
The deferred benefit is composed of the following:
<TABLE>
<CAPTION>
=======================================================================================
1999 1998 1997
=======================================================================================
<S> <C> <C> <C>
Asset bases, lives and
depreciation methods $ 2,709 $ 2,459 $ (1,206)
Reserves and accruals
not currently deductible 1,659 (5,709) (1,402)
Tax credits and net operating loss
carryforwards (6,759) (19,066) 133
Valuation allowance and other 6,048 14,966 (133)
- ---------------------------------------------------------------------------------------
$ 3,657 $ (7,350) $ (2,608)
=======================================================================================
</TABLE>
A reconciliation of the federal statutory tax rate to the effective tax rate is
as follows:
<TABLE>
<CAPTION>
======================================================================
1999 1998 1997
======================================================================
<S> <C> <C> <C>
Statutory federal income tax rate 35% (34)% 35%
Effect of:
State income taxes, net of federal
income tax benefits 1 (4) 2
Tax benefits of the Foreign Sales
Corporation (6) (4) (11)
Valuation allowance on net
operating loss carryforwards
and/or use of tax credits (9) 16 (4)
- ----------------------------------------------------------------------
21% (26)% 22%
======================================================================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At September 26, 1999,
the Company had unused tax credits and net operating loss carryfowards of
$28,669,000, of which $8,113,000 can be carried forward indefinitely and
$20,556,000 which
<PAGE> 35
expire at various dates through 2014. A valuation allowance of $21,619,000 has
been recognized to offset the related deferred tax assets due to the uncertainty
of realizing the benefit of certain tax credits and net operating loss
carryforwards. The following is a table of the significant components of the
Company's deferred tax assets:
<TABLE>
<CAPTION>
====================================================================================
September 26, September 27,
1999 1998
====================================================================================
<S> <C> <C>
Current deferred tax assets:
Receivable reserves $ 2,489 $ 2,021
Inventories 8,887 9,818
Accruals and other reserves 4,642 5,838
Tax credits 498 239
- ------------------------------------------------------------------------------------
Total current deferred tax assets $ 16,516 $ 17,916
Long-term deferred tax assets (liabilities):
Property, plant and equipment (209) 2,500
Tax credits 12,903 8,734
Valuation allowance (21,619) (15,571)
Net operating loss carryforwards 15,268 12,937
- ------------------------------------------------------------------------------------
Total long-term deferred tax assets $ 6,343 $ 8,600
- ------------------------------------------------------------------------------------
Total deferred tax assets $ 22,859 $ 26,516
====================================================================================
</TABLE>
NOTE 4
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS - The fair value is based on quoted market prices.
SECURITIES AVAILABLE FOR SALE - The fair value of these instruments is based on
quoted market prices.
LONG-TERM DEBT - The fair value of the Company's long-term debt, except for the
convertible subordinated notes, is estimated based on the discounted value of
the future cash flows expected to be paid on the loans. The discount rate used
to estimate the fair value of the loans is the rate currently available to the
Company for loans with similar terms and maturities. The fair value of the
Company's convertible subordinated notes is estimated based on the closing
market price of the notes as of the end of the year.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
=================================================================================
1999 1998
--------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
=================================================================================
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 98,820 $ 98,820 $ 58,942 $ 58,942
Securities available
for sale 139,402 139,402 11,921 11,921
Long-term debt 69,733 69,548 72,860 71,278
Convertible subordinated
notes 150,000 173,949 150,000 131,755
=================================================================================
</TABLE>
NOTE 5
EMPLOYEE BENEFITS
STOCK OPTIONS - The Company has two stock option plans under which up to
6,000,000 common shares are reserved for issuance and of which options
representing 3,573,885 common shares have been granted as of September 26, 1999.
Options may be granted to any employee, including officers and directors of the
Company, and certain non-employees, at a price not less than the fair market
value of the Company's common stock at the date the options are granted. Options
generally expire ten years from the date of grant or at an earlier date as
determined by the committee of the Board of Directors that administers the
plans. Options granted under the plans generally are exercisable one year from
the date of grant.
<TABLE>
<CAPTION>
================================================================================
1996 Plan 1988 Plan
================================================================================
<S> <C> <C>
Balance, September 29, 1996 -- 1,519,626
Granted at $17.33 -- 543,000
Granted at $29.38 to $36.67 18,500 --
Exercised at $4.25 to $16.33 -- (267,630)
Expired -- (8,235)
- --------------------------------------------------------------------------------
Balance, September 28, 1997 18,500 1,786,761
Granted at $20.19 to $27.75 232,270 139,065
Exercised at $13.81 to $33.88 -- (168,261)
Expired (1,510) (2,700)
- --------------------------------------------------------------------------------
Balance, September 27, 1998 249,260 1,754,865
Granted at $26.63 to $46.63 317,505 --
Exercised at $2.00 to $34.25 (8,080) (159,305)
Expired (3,260) (17,245)
- --------------------------------------------------------------------------------
Balance, September 26, 1999 555,425 1,578,315
================================================================================
</TABLE>
<PAGE> 36
The Company follows Accounting Principles Board Opinion No. 25, under which no
compensation cost has been recognized in connection with stock option grants
pursuant to the stock option plans. Had compensation cost been determined
consistent with Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"), the Company's pro forma net income
(loss) and pro forma net income (loss) per share would have been as follows:
<TABLE>
<CAPTION>
===============================================================================================
1999 1998 1997
===============================================================================================
<S> <C> <C> <C>
Net income (loss):
As reported $ 17,638 $ (48,411) $ 41,909
Pro forma 12,489 (54,303) 36,020
- -----------------------------------------------------------------------------------------------
Net income (loss) per common
and common equivalent share:
As reported - basic $ 0.77 $ (2.46) $ 2.29
Pro forma - basic $ 0.54 $ (2.76) $ 1.97
As reported - diluted $ 0.75 $ (2.46) $ 2.21
Pro forma - diluted $ 0.53 $ (2.76) $ 1.90
===============================================================================================
</TABLE>
In determining compensation cost pursuant to SFAS 123, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for various
grants during 1999: risk-free interest rate of 4.8%; expected life of six years;
and expected volatility of 61%. The following weighted average assumptions were
used for grants in 1998: risk-free interest rate of 5.8%; expected life of six
years; and expected volatility of 69%. The following weighted average
assumptions were used for grants in 1997: risk-free interest rates of 5.85% to
6.25%; expected life of six years; and expected volatility of 68% to 71%.
EMPLOYEE BENEFIT PLANS - The Company has a defined contribution plan covering
its employees. The Company's contributions to the plan were $11,324,000 in 1999,
$9,239,000 in 1998 and $7,762,000 in 1997.
The Company sponsors a self-insured comprehensive medical and dental plan for
qualified employees that is funded by contributions from both the Company and
plan participants. Contributions are made through a Voluntary Employee's Benefit
Association Trust. The Company recognized expense related to these plans of
$22,574,000 in 1999, $19,109,000 in 1998 and $15,377,000 in 1997.
NOTE 6
COMMITMENTS AND CONTINGENCIES
The Company is committed under various operating lease agreements. Total rent
expense under these operating leases was $26,726,000 in 1999, $22,099,000 in
1998 and $12,487,000 in 1997. Future minimum payments for all operating leases
with initial or remaining terms of one year or more subsequent to September 26,
1999 are as follows:
<TABLE>
================================================
<S> <C>
2000 $22,086
2001 20,326
2002 20,406
2003 19,163
2004 and thereafter 33,869
================================================
</TABLE>
In 1997, the Company signed a Master Lease Agreement with General Electric
Capital Corporation ("GE"), providing for leasing of up to $55,000,000 of
manufacturing equipment in 1997 and 1998. The full amount was entered into as
leases.
The Company and certain users of the Company's products have from time to time
received, and may in the future receive, communications from third parties
asserting patents against the Company or its customers that may relate to
certain of the Company's manufacturing equipment or products or to products that
include the Company's products as a component. Although the Company to date has
not been a party to any such material intellectual property litigation, certain
of its customers have been sued on patents having claims closely related to
products sold by the Company. In the event any third party were to make a valid
infringement claim and a license were not available on terms acceptable to the
Company, the Company's operating results could be adversely affected. The
Company expects that, as the number of patents issued continues to increase, and
as the Company grows, the volume of intellectual property claims could increase.
The Company is a party to certain other claims arising in the ordinary course of
business. In the opinion of management, the outcome of such claims will not
materially affect the Company's current or future financial position or results
of operations.
<PAGE> 37
NOTE 7
SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
====================================================================================================
1999 1998 1997
====================================================================================================
<S> <C> <C> <C>
Changes in operating assets
and liabilities:
Receivables, net $ (3,631) $(23,164) $ (3,934)
Inventories (15,204) 1,409 (9,954)
Prepaid and other expenses (2,827) (5,054) (2,520)
Accounts payable and
accrued liabilities (12,613) 21,444 17,081
Other non-current liabilities 759 (2,599) (1,723)
- ----------------------------------------------------------------------------------------------------
$(33,516) $ (7,964) $ (1,050)
====================================================================================================
Cash paid for:
Interest (net of amount capitalized) $ 9,685 $ 3,486 $ 2,520
Income taxes 3,775 2,345 13,891
====================================================================================================
</TABLE>
Capitalized interest was $5,110,000 in 1999, $6,766,000 in 1998 and $2,946,000
in 1997
NOTE 8
SALE OF COMMON STOCK
In February 1999, the Company issued 4,800,000 shares of its common stock
through a public offering. The Company received net proceeds of $209,136,000
which are being used for general corporate purposes.
In February 1997, the Company issued 3,000,000 shares of its common stock
through a public offering. The Company received net proceeds of $102,900,000 and
used the funds for general corporate purposes, primarily expenditures for
manufacturing and support equipment, construction of the Company's Eau Claire,
Wisconsin and Sioux Falls, South Dakota plants and an expansion of the Company's
Hutchinson, Minnesota plant.
NOTE 9
STOCK SPLIT
The Company split its common stock three-for-one, effective at the close of
business on February 11, 1997. The Company also changed the par value of its
common stock to $.01 per share. Common share and earnings per share amounts in
the accompanying consolidated statements have been retroactively adjusted to
reflect the stock split and par value change.
NOTE 10
SEGMENT REPORTING
In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company has one reportable segment:
suspension assemblies. The suspension assembly segment consists of conventional
and TSA suspensions sold to a small number of disk drive and recording head
manufacturers.
The accounting policies of the segment are the same as those described in the
summary of significant accounting policies.
Detailed revenue by product sold were as follows:
<TABLE>
<CAPTION>
======================================================================
1999 1998 1997
======================================================================
<S> <C> <C> <C>
Conventional suspensions $178,092 $241,256 $433,993
TSA suspensions 373,307 144,046 12,766
Other 28,871 22,314 6,473
- ----------------------------------------------------------------------
$580,270 $407,616 $453,232
======================================================================
</TABLE>
Sales to foreign locations were as follows:
<TABLE>
<CAPTION>
======================================================================
1999 1998 1997
======================================================================
<S> <C> <C> <C>
Foreign-based enterprises $272,129 $167,767 $ 88,471
Foreign subsidiaries of
U.S. corporations 144,120 47,885 83,753
- ----------------------------------------------------------------------
$416,249 $215,652 $172,224
======================================================================
</TABLE>
The majority of these foreign location sales were to the Pacific Rim region. In
addition, the Company had significant sales to U.S. corporations which used the
Company's products in their offshore manufacturing sites.
<PAGE> 38
Revenue and long-lived assets by geographic area are as follows:
<TABLE>
<CAPTION>
=================================================================================================
1999 1998 1997
=================================================================================================
<S> <C> <C> <C>
Revenue:
United States $168,717 $195,075 $281,517
Hong Kong 132,601 115,990 70,044
Thailand 117,774 40,473 62,862
Japan 72,523 24,557 16,375
China 47,880 25,767 63
Mexico 24,135 -- --
Indonesia 16,282 -- --
Other foreign countries 358 5,754 22,371
- -------------------------------------------------------------------------------------------------
$580,270 $407,616 $453,232
=================================================================================================
Long-lived assets:
United States $352,901 $335,208 $175,139
Other foreign countries 35 81 114
- -------------------------------------------------------------------------------------------------
$352,936 $335,289 $175,253
=================================================================================================
</TABLE>
Sales to customers in excess of 10% of net sales are as follows:
<TABLE>
<CAPTION>
=====================================================
1999 1998 1997
=====================================================
<S> <C> <C> <C>
IBM and affiliates 23% 20% 12%
SAE Magnetics, Ltd/TDK 21 26 13
Seagate Technology, Inc. 16 18 33
Yamaha Corporation 12 10 14
Alps Electric Co., Ltd. 10 4 3
Read-Rite Corporation 6 10 14
=====================================================
</TABLE>
Sales to the Company's five largest customers constituted 82%, 84% and 86% of
net sales for 1999, 1998 and 1997, respectively.
NOTE 11
SUMMARY OF QUARTERLY INFORMATION (UNAUDITED)
The following table summarizes unaudited financial data for 1999 and 1998.
<TABLE>
<CAPTION>
===============================================================================================================================
1999 by Quarter 1998 by Quarter
-----------------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 155,275 $ 152,366 $ 131,257 $ 141,372 $ 88,982 $ 95,128 $ 107,127 $ 116,379
Gross profit (loss) 33,585 36,390 9,393 14,298 (496) (2,697) 1,655 (2,098)
Income (loss) from operations 16,714 17,169 (7,520) (3,030) (15,926) (19,639) (12,586) (16,973)
Income (loss) before income taxes 14,598 17,404 (6,955) (2,729) (15,506) (19,495) (12,510) (17,910)
Net income (loss) 11,533 13,748 (5,494) (2,149) (11,474) (14,425) (9,250) (13,262)
Net income (loss) per share-
Basic 0.58 0.61 (0.22) (0.09) (0.58) (0.73) (0.47) (0.67)
Diluted 0.52 0.54 (0.22) (0.09) (0.58) (0.73) (0.47) (0.67)
Price range per share
High 35.25 51.25 29.25 32.75 36.13 28.00 32.75 28.38
Low 11.88 19.69 18.50 21.75 18.13 19.00 21.35 12.63
===============================================================================================================================
</TABLE>
The price range per share, reflected above, is the highest and lowest bids as
quoted on The Nasdaq National Market during each quarter.
<PAGE> 39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO HUTCHINSON TECHNOLOGY INCORPORATED:
We have audited the accompanying consolidated balance sheets of Hutchinson
Technology Incorporated (a Minnesota corporation) and Subsidiaries as of
September 26, 1999 and September 27, 1998, and the related consolidated
statements of operations, shareholders' investment and cash flows for each of
the three years in the period ended September 26, 1999. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hutchinson Technology
Incorporated and Subsidiaries as of September 26, 1999 and September 27, 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended September 26, 1999 in conformity with generally
accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
November 10, 1999
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
(Dollars in thousands)
===============================================================================================================================
Balance at Additions charged to Other changes Balance at
beginning of period costs and expenses add (deduct) end of period
===============================================================================================================================
<S> <C> <C> <C> <C>
1997: Deducted from asset accounts-
Allowance for doubtful accounts receivable $ 1,716 $ 254 $ (5)(1) $ 1,965
Reserve for sales returns and allowances 432 1,348 (1,563)(2) 217
- -------------------------------------------------------------------------------------------------------------------------------
$ 2,148 $ 1,602 $ (1,568) $ 2,182
===============================================================================================================================
1998: Deducted from asset accounts-
Allowance for doubtful accounts receivable $ 1,965 $ 1,730 $ - (1) $ 3,695
Reserve for sales returns and allowances 217 5,656 (4,361)(2) 1,512
- -------------------------------------------------------------------------------------------------------------------------------
$ 2,182 $ 7,386 $ (4,361) $ 5,207
===============================================================================================================================
1999: Deducted from asset accounts-
Allowance for doubtful accounts receivable $ 3,695 $ 303 $ (927)(1) $ 3,071
Reserve for sales returns and allowances 1,512 6,089 (4,277)(2) 3,324
- -------------------------------------------------------------------------------------------------------------------------------
$ 5,207 $ 6,392 $ (5,204) $ 6,395
===============================================================================================================================
</TABLE>
(1) Uncollectible accounts receivable written off, net of recoveries
(2) Returns honored and credit memos issued
<PAGE> 40
ELEVEN-YEAR SELECTED FINANCIAL DATA
Hutchinson Technology Incorporated and Subsidiaries
<TABLE>
<CAPTION>
ANNUAL GROWTH (In thousands, except per share data and number of employees)
====================================================================================================================================
5-year 10-year FOR THE YEAR: 1999 1998 1997
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
19% 20% Net sales $ 580,270 $ 407,616 $ 453,232
19 28 Gross profit (loss) 93,666 (3,636) 117,279
Percent of net sales 16% (1)% 26%
25 -- Income (loss) from operations $ 23,333 $ (65,124) $ 52,716
Percent of net sales 4% (16)% 12%
25 -- Net income (loss) $ 17,638 $ (48,411) $ 41,909
Percent of net sales 3% (12)% 9%
32 29 Capital expenditures $ 120,596 $ 206,888 $ 82,639
22 19 Research and development expenses 23,106 20,360 20,185
31 22 Depreciation expense 92,635 50,544 38,299
47 28 Cash flow from operating activities 81,176 (12,824) 76,816
====================================================================================================================================
AT YEAR END:
====================================================================================================================================
16% 18% Receivables $ 81,766 $ 78,135 $ 86,044
34 27 Inventories 40,984 25,780 27,189
43 35 Working capital 309,447 101,114 173,156
35 28 Net property, plant and equipment 352,936 335,289 175,253
38 30 Total assets 751,849 549,478 429,839
41 26 Total debt 219,733 222,860 78,194
Total debt as a percentage of
total capitalization 32% 48% 22%
37 35 Shareholders' investment $ 464,959 $ 236,830 $ 282,958
Return on shareholders' Investment 5% (19)% 20%
11 13 Number of employees 7,701 7,764 7,181
9 8 Shares of stock outstanding 24,744 19,780 19,619
====================================================================================================================================
PER SHARE INFORMATION:
====================================================================================================================================
16% -- Net income (loss) - diluted $ 0.75 $ (2.46) $ 2.21
26 25% Shareholders' investment (book value) 18.79 11.97 14.42
Price range:
31 26 High 51.25 35.44 38.38
10 19 Low 11.88 13.81 12.75
====================================================================================================================================
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
====================================================================================================================================
1996 1995 1994 1993 1992 1991 1990 1989
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
$353,186 $299,998 $238,794 $198,734 $160,340 $143,260 $122,444 $ 92,321
79,570 73,763 39,246 44,423 40,261 27,920 26,107 7,696
23% 25% 16% 22% 25% 19% 21% 8%
$ 18,203 $ 28,921 $ 7,780 $ 9,961 $ 13,581 $ 7,265 $ 8,528 $ (7,221)
5% 10% 3% 5% 8% 5% 7% (8)%
$ 13,802 $ 21,078 $ 5,880 $ 8,554 $ 12,849 $ 4,499 $ 5,338 $ (5,693)
4% 7% 2% 4% 8% 3% 4% (6)%
$ 77,065 $ 44,472 $ 29,540 $ 46,768 $ 20,492 $ 17,747 $ 6,794 $ 9,568
27,651 15,041 8,626 9,846 5,770 4,208 3,959 4,065
33,565 28,174 23,974 15,737 12,908 11,253 9,719 12,305
39,904 57,814 11,967 22,449 19,397 16,944 15,174 6,871
====================================================================================================================================
====================================================================================================================================
$ 56,278 $ 40,683 $ 39,115 $ 22,320 $ 25,454 $ 18,499 $ 20,216 $ 15,932
17,235 13,298 9,529 7,899 5,638 4,580 5,913 3,898
62,102 54,284 51,996 26,238 49,018 18,083 22,768 15,767
121,706 93,816 77,887 72,419 41,513 34,304 27,618 30,419
238,983 190,898 151,148 116,639 109,126 65,992 64,669 55,775
58,945 37,700 40,080 12,460 16,755 19,354 20,550 21,756
31% 24% 30% 12% 18% 37% 42% 48%
$133,684 $119,745 $ 94,619 $ 88,689 $ 77,025 $ 33,512 $ 28,834 $ 23,426
11% 20% 6% 10% 23% 14% 20% (22)%
5,479 4,858 4,600 4,108 3,332 2,798 2,648 2,327
16,356 16,341 15,999 15,993 15,519 11,907 11,844 11,823
====================================================================================================================================
====================================================================================================================================
$ 0.82 $ 1.28 $ 0.36 $ 0.53 $ 0.91 $ 0.37 $ 0.45 $ (0.48)
8.17 7.33 5.91 5.55 4.96 2.81 2.43 1.98
21.83 29.67 13.29 16.58 10.67 4.58 4.50 5.08
10.25 7.67 7.25 6.83 3.17 2.04 1.67 2.08
====================================================================================================================================
</TABLE>
<PAGE> 42
<TABLE>
<S><C>
DIRECTORS EXECUTIVE MANAGEMENT TEAM
Jeffrey W. Green Jeffrey W. Green
Chairman of the Board Chairman of the Board
Hutchinson Technology Incorporated Joined HTCH in 1965.
Director since 1965.
Wayne M. Fortun Wayne M. Fortun
President and Chief Executive Officer President and Chief Executive Officer
Hutchinson Technology Incorporated Joined HTCH in 1975.
Director since 1983.
John A. Ingleman
W. Thomas Brunberg* Vice President, Chief Financial Officer
Partner and Secretary
Brunberg Thoresen Diaby & Associates, Ltd. Joined HTCH in 1977.
(Accounting Firm)
Director since 1975. Rebecca A. Albrecht
Vice President, Human Resources
Archibald Cox, Jr.+ Joined HTCH in 1983.
Chairman
Sextant Group, Inc. Beatrice A. Graczyk
(Financial Advisory Firm) Vice President and
Vice Chairman and President Chief Operating Officer
Magnequench International, Inc. Joined HTCH in 1970.
(Magnetic Material Manufacturing)
Director since 1996. Peggy J. Lietzau
Corporate Planning Director
Harry C. Ervin+ Joined HTCH in 1977.
Formerly Vice President and Investment Office
Dain Bosworth Incorporated Richard C. Myers
(Investment Banking Firm) Vice President, Administration
Director since 1969. Joined HTCH in 1977.
Russell Huffer* Richard J. Penn
Chairman and Chief Executive Officer Vice President, Sales and Marketing
Apogee Enterprises, Inc. Joined HTCH in 1981.
Director since 1999.
R. Scott Schaefer
Steven E. Landsburg+ Vice President and
Professor of Economics Chief Technical Officer
University of Rochester Joined HTCH in 1979.
Director since 1997.
Richard B. Solum*
Partner
Dorsey & Whitney LLP
(Law Firm)
Director since 1999.
* Members of the Audit Committee
+ Members of the Compensation Committee
</TABLE>
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
3.1 Restated Articles of Incorporation of HTI, as amended by Articles
of Amendment dated 1/27/88 and as amended by Articles of Amendment
dated 1/21/97 (incorporated by reference to Exhibit 3.1 to HTI's
Quarterly Report on Form 10-Q for the quarter ended
6/29/97).....................................................................Incorporated by Reference
3.2 Restated By-Laws of HTI (incorporated by reference to Exhibit 3.2
to HTI's Quarterly Report on Form
10-Q for the quarter ended 12/29/96).........................................Incorporated by Reference
4.1 Instruments defining the rights of security holders, including an
indenture. The Registrant agrees to furnish the Securities and
Exchange Commission upon request copies of instruments with respect
to long-term debt.
4.2 Indenture dated as of 3/18/98 between HTI and U.S. Bank National
Association, as Trustee (incorporated by reference to Exhibit 4.6
to HTI's Registration Statement on Form S-3, Registration No. 333-50143).....Incorporated by Reference
4.3 Purchase Agreement dated 3/12/98 by and among HTI, NationsBanc
Montgomery Securities LLC and First Chicago Capital Markets, Inc.
(incorporated by reference to Exhibit 4.7 to HTI's Registration
Statement on Form S-3, Registration No. 333-50143)...........................Incorporated by Reference
4.4 Shelf Registration Agreement dated as of 3/18/98 by and among HTI,
NationsBanc Montgomery Securities LLC and First Chicago Capital
Markets, Inc. (incorporated by reference to Exhibit 4.8 to HTI's
Registration Statement on Form S-3, Registration
No. 333-50143)...............................................................Incorporated by Reference
10.1 Lease with Right of Refusal between Donald Wendorff and Laura
Wendorff, Lessors, and HTI, Lessee, dated 9/6/95 (incorporated by
reference to Exhibit 10.2 to HTI's Annual Report on Form 10-K for
the fiscal year ended 9/24/95)...............................................Incorporated by Reference
</TABLE>
<PAGE> 44
<TABLE>
<S> <C> <C>
10.2 Office/Warehouse Lease between OPUS Corporation, Lessor, and HTI,
Lessee, dated 12/29/95 (incorporated by reference to Exhibit 10.2
to HTI's Quarterly Report on Form 10-Q for the quarter ended
3/24/96), and First Amendment to Office/Warehouse Lease dated
4/30/96 (incorporated by reference to Exhibit 10.2 to HTI's
Quarterly Report on Form 10-Q for the quarter ended 6/23/96).................Incorporated by Reference
10.3 Hutchinson Technology Incorporated 401-K Plan (As Amended and
Restated Effective 7/1/99) and related 401-K Trust................................Filed Electronically
10.4 Directors' Retirement Plan effective as of 1/1/92 (incorporated by
reference to Exhibit 10.12 to HTI's Annual Report on Form 10-K for
the fiscal year ended 9/27/92) and Amendment effective as of
11/19/97 (incorporated by reference to Exhibit 10.5 to HTI's
Quarterly Report on Form 10-Q for the quarter ended
12/28/97)....................................................................Incorporated by Reference
10.5 Description of Bonus Program for Key Employees of Hutchinson
Technology Incorporated (incorporated by reference to Exhibit 10.13
to HTI's Annual Report on Form 10-K for the fiscal year ended 9/27/92).......Incorporated by Reference
10.6 1988 Stock Option Plan (incorporated by reference to Exhibit 10.8
to HTI's Annual Report on Form 10-K for the fiscal year ended
9/25/88), Amendment to the 1988 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to HTI's Annual Report on Form 10-K for
the fiscal year ended 9/26/93), and Amendment to the 1988 Stock
Option Plan (incorporated by reference to Exhibit 10.5 to HTI's
Quarterly Report on Form 10-Q for the quarter ended 3/26/95).................Incorporated by Reference
10.7 Technology Transfer and Development Agreement, effective as of
9/1/94, between Hutchinson Technology Incorporated and
International Business Machines Corporation (incorporated by
reference to Exhibit 10.10 to HTI's Quarterly Report on Form 10-Q/A
for the quarter ended 6/25/95), and Amendment dated 12/11/95 to the
Technology Transfer and Development Agreement between International
Business Machines Corporation and Hutchinson Technology
Incorporated executed 6/15/95 (incorporated by reference to Exhibit
10.8 to HTI's Quarterly Report on Form 10-Q for the quarter
ended 12/24/95)..............................................................Incorporated by Reference
</TABLE>
<PAGE> 45
<TABLE>
<S> <C> <C>
10.8 Patent License Agreement, effective as of 9/1/94, between
Hutchinson Technology Incorporated and International Business
Machines Corporation (incorporated by reference to Exhibit 10.11 to
HTI's Quarterly Report on Form 10-Q/A for the quarter
ended 6/25/95)...............................................................Incorporated by Reference
10.9 Lease Agreement between Meridian Eau Claire LLC and Hutchinson
Technology Incorporated, dated 5/1/96 (incorporated by reference to
Exhibit 10.10 to HTI's Quarterly Report on Form 10-Q for the
quarter ended 6/23/96).......................................................Incorporated by Reference
10.10 Master Lease Agreement dated as of 12/19/96 between General
Electric Capital Corporation, as Lessor ("GE"), and Hutchinson
Technology Incorporated, as Lessee (incorporated by reference to
Exhibit 10.11 to HTI's Quarterly Report on Form 10-Q for the
quarter ended 12/29/96), Amendment dated 6/30/97 to the Master
Lease Agreement between GE and Hutchinson Technology Incorporated
(incorporated by reference to Exhibit 10.11 to HTI's Quarterly
Report on Form 10-Q for the quarter ended 12/28/97), letter
amendment dated 3/5/98 to the Master Lease Agreement between GE and
Hutchinson Technology Incorporated (incorporated by reference to
Exhibit 10.11 to HTI's Quarterly Report on Form 10-Q for the
quarter ended 3/29/98), and letter amendment dated 9/25/98 to the
Master Lease Agreement between GE and Hutchinson Technology
Incorporated (incorporated by reference to Exhibit 10.11 to HTI's
Annual Report on Form 10-K for the fiscal year ended 9/27/98)................Incorporated by Reference
10.11 Hutchinson Technology Incorporated 1996 Incentive Plan
(incorporated by reference to Exhibit 10.12 to HTI's Quarterly
Report on Form 10-Q for the quarter ended 12/29/96)..........................Incorporated by Reference
10.12 Hutchinson Technology Incorporated Incentive Bonus Plan
(incorporated by reference to Exhibit 10.13 to HTI's Quarterly
Report on Form 10-Q for the quarter ended 12/28/97)..........................Incorporated by Reference
11.1 Statement Regarding Computation of Per Share Earnings.............................Filed Electronically
21.1 List of Subsidiaries..............................................................Filed Electronically
23.1 Consent of Independent Public Accountants.........................................Filed Electronically
27.1 Financial Data Schedule...........................................................Filed Electronically
</TABLE>
<PAGE> 1
11-3-99
HUTCHINSON TECHNOLOGY INCORPORATED
401-K PLAN
(AS AMENDED AND RESTATED EFFECTIVE JULY 1, 1999)
<PAGE> 2
HUTCHINSON TECHNOLOGY INCORPORATED
401-K PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I GENERAL
Sec. 1.1 Name of Plan..................................................................................1
Sec. 1.2 Purpose.......................................................................................1
Sec. 1.3 Effective Date................................................................................1
Sec. 1.4 Company.......................................................................................1
Sec. 1.5 Construction and Applicable Law...............................................................1
Sec. 1.6 Benefits Determined Under Provisions in Effect at Termination of Employment...................1
Sec. 1.7 Effective Date of Document....................................................................1
ARTICLE II MISCELLANEOUS DEFINITIONS
Sec. 2.1 Account.......................................................................................2
Sec. 2.2 Active Participant............................................................................2
Sec. 2.3 Affiliate.....................................................................................2
Sec. 2.4 Beneficiary...................................................................................2
Sec. 2.5 Board.........................................................................................2
Sec. 2.6 Certified Earnings............................................................................2
Sec. 2.7 Code..........................................................................................3
Sec. 2.8 Common Control................................................................................3
Sec. 2.9 ERISA.........................................................................................3
Sec. 2.10 Family Member.................................................................................3
Sec. 2.11 Forfeitures...................................................................................3
Sec. 2.12 Fund..........................................................................................3
Sec. 2.13 Funding Agency................................................................................3
Sec. 2.14 Highly Compensated Employee...................................................................3
Sec. 2.15 Leased Employee...............................................................................4
Sec. 2.16 Named Fiduciary...............................................................................4
Sec. 2.17 Non-Highly Compensated Employee...............................................................4
Sec. 2.18 Normal Retirement Age.........................................................................4
Sec. 2.19 Participant...................................................................................5
Sec. 2.20 Plan Year.....................................................................................5
Sec. 2.21 Predecessor Employer..........................................................................5
Sec. 2.22 Qualified Employee............................................................................5
Sec. 2.23 Successor Employer............................................................................6
Sec. 2.24 Top-Heavy Plan................................................................................6
Sec. 2.25 Valuation Date................................................................................6
ARTICLE III SERVICE PROVISIONS
Sec. 3.1 Employment Commencement Date..................................................................7
Sec. 3.2 Termination of Employment.....................................................................7
Sec. 3.3 Hours of Service..............................................................................7
Sec. 3.4 Eligibility Computation Period................................................................8
Sec. 3.5 Year of Eligibility Service...................................................................8
Sec. 3.6 Year of Vesting Service.......................................................................8
Sec. 3.7 1-Year Break In Service.......................................................................9
Sec. 3.8 Periods of Military Service...................................................................9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV PLAN PARTICIPATION
Sec. 4.1 Entry Date...................................................................................10
Sec. 4.2 Eligibility for Participation................................................................10
Sec. 4.3 Duration of Participation....................................................................10
Sec. 4.4 No Guarantee of Employment...................................................................10
ARTICLE V CONTRIBUTIONS
Sec. 5.1 Salary Reduction Contributions...............................................................11
Sec. 5.2 Matching Contributions.......................................................................12
Sec. 5.3 Adjustment of Contributions Required by Code Section 401(k)..................................13
Sec. 5.4 Distribution of Excess Deferrals.............................................................16
Sec. 5.5 Adjustment of Contributions Required by Code Section 401(m)..................................17
Sec. 5.6 Multiple Use of the Alternative Limitations..................................................19
Sec. 5.7 Time of Contributions........................................................................20
Sec. 5.8 Allocations..................................................................................20
Sec. 5.9 Limitations on Contributions.................................................................21
ARTICLE VI LIMITATION ON ALLOCATIONS
Sec. 6.1 Limitation on Allocations....................................................................22
ARTICLE VII INDIVIDUAL ACCOUNTS
Sec. 7.1 Accounts for Participants....................................................................25
Sec. 7.2 Valuation Procedure..........................................................................25
Sec. 7.3 Investment of Accounts.......................................................................26
Sec. 7.4 Participant Statements.......................................................................28
Sec. 7.5 Rollover Accounts............................................................................28
ARTICLE VIII DESIGNATION OF BENEFICIARY
Sec. 8.1 Persons Eligible to Designate................................................................29
Sec. 8.2 Special Requirements for Married Participants................................................29
Sec. 8.3 Form and Method of Designation...............................................................29
Sec. 8.4 No Effective Designation.....................................................................29
Sec. 8.5 Successor Beneficiary........................................................................30
Sec. 8.6 Insurance Contract...........................................................................30
ARTICLE IX BENEFIT REQUIREMENTS
Sec. 9.1 Benefit on Retirement or Disability..........................................................31
Sec. 9.2 Other Termination of Employment..............................................................31
Sec. 9.3 Death........................................................................................33
Sec. 9.4 Withdrawals Before Termination of Employment.................................................33
Sec. 9.5 Loans to Participants........................................................................35
ARTICLE X DISTRIBUTION OF BENEFITS
Sec. 10.1 Time and Method of Payment...................................................................38
Sec. 10.2 Distributions From More Than One Account.....................................................42
Sec. 10.3 Distribution In Cash Only....................................................................42
Sec. 10.4 Accounting Following Termination of Employment...............................................43
Sec. 10.5 Reemployment.................................................................................43
Sec. 10.6 Source of Benefits...........................................................................43
Sec. 10.7 Incompetent Payee............................................................................43
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
Sec. 10.8 Benefits May Not Be Assigned or Alienated....................................................43
Sec. 10.9 Payment of Taxes.............................................................................43
Sec. 10.10 Conditions Precedent.........................................................................44
Sec. 10.11 Company Directions to Funding Agency.........................................................44
Sec. 10.12 Effect on Unemployment Compensation..........................................................44
Sec. 10.13 Special Distribution Events..................................................................44
ARTICLE XI FUND
Sec. 11.1 Composition..................................................................................45
Sec. 11.2 Funding Agency...............................................................................45
Sec. 11.3 Compensation and Expenses of Funding Agency..................................................45
Sec. 11.4 Funding Policy...............................................................................45
Sec. 11.5 Securities and Property of the Company.......................................................45
Sec. 11.6 No Diversion.................................................................................46
ARTICLE XII ADMINISTRATION OF PLAN
Sec. 12.1 Administration by Company....................................................................47
Sec. 12.2 Certain Fiduciary Provisions.................................................................47
Sec. 12.3 Discrimination Prohibited....................................................................48
Sec. 12.4 Evidence.....................................................................................48
Sec. 12.5 Correction of Errors.........................................................................48
Sec. 12.6 Records......................................................................................48
Sec. 12.7 General Fiduciary Standard...................................................................48
Sec. 12.8 Prohibited Transactions......................................................................48
Sec. 12.9 Claims Procedure.............................................................................48
Sec. 12.10 Bonding......................................................................................49
Sec. 12.11 Waiver of Notice.............................................................................49
Sec. 12.12 Agent For Legal Process......................................................................49
Sec. 12.13 Indemnification..............................................................................49
ARTICLE XIII AMENDMENT, TERMINATION, MERGER
Sec. 13.1 Amendment....................................................................................50
Sec. 13.2 Permanent Discontinuance of Contributions....................................................50
Sec. 13.3 Termination..................................................................................50
Sec. 13.4 Partial Termination..........................................................................50
Sec. 13.5 Merger, Consolidation, or Transfer of Plan Assets............................................51
Sec. 13.6 Deferral of Distributions....................................................................51
ARTICLE XIV TOP-HEAVY PLAN PROVISIONS
Sec. 14.1 Key Employee Defined.........................................................................52
Sec. 14.2 Determination of Top-Heavy Status............................................................52
Sec. 14.3 Minimum Contribution Requirement.............................................................54
Sec. 14.4 Participation under Defined Benefit Plan and Defined Contribution............................54
Sec. 14.5 Definition of Employer.......................................................................55
Sec. 14.6 Exception For Collective Bargaining Unit.....................................................55
ARTICLE XV MISCELLANEOUS PROVISIONS
Sec. 15.1 Insurance Company Not Responsible for Validity of Plan.......................................56
Sec. 15.2 Headings.....................................................................................56
Sec. 15.3 Capitalized Definitions......................................................................56
</TABLE>
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<TABLE>
<S> <C> <C>
Sec. 15.4 Gender.......................................................................................56
Sec. 15.5 Use of Compounds of Word "Here"..............................................................56
Sec. 15.6 Construed as a Whole.........................................................................56
</TABLE>
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HUTCHINSON TECHNOLOGY INCORPORATED
401-K PLAN
(AS AMENDED AND RESTATED EFFECTIVE JULY 1, 1999)
ARTICLE I
GENERAL
SEC. 1.1 NAME OF PLAN. The name of the discretionary contribution
profit sharing plan set forth herein is Hutchinson Technology Incorporated 401-K
Plan. It is sometimes herein referred to as the "Plan".
SEC. 1.2 PURPOSE. The Plan has been established so that eligible
employees may have an additional
source of retirement income.
SEC. 1.3 EFFECTIVE DATE. The "Effective Date" of the Plan, the date as
of which the Plan was established, is August 1, 1987.
SEC. 1.4 COMPANY. The "Company" is Hutchinson Technology Incorporated,
a Minnesota corporation, and any Successor Employer thereof.
SEC. 1.5 CONSTRUCTION AND APPLICABLE LAW. The Plan is intended to meet
the requirements for qualification under section 401(a) of the Code and the
requirements applicable to qualified cash or deferred arrangements under section
401(k) of the Code. The Plan is also intended to be in full compliance with
applicable requirements of ERISA. The Plan shall be administered and construed
consistent with said intent. It shall also be construed and administered
according to the laws of the State of Minnesota to the extent that such laws are
not preempted by the laws of the United States of America. All controversies,
disputes, and claims arising hereunder shall be submitted to the United States
District Court for the District of Minnesota, except as otherwise provided in
any trust agreement entered into with a Funding Agency.
SEC. 1.6 BENEFITS DETERMINED UNDER PROVISIONS IN EFFECT AT TERMINATION
OF EMPLOYMENT. Except as may be specifically provided herein to the contrary,
benefits under the Plan attributable to service prior to a Participant's
Termination of Employment shall be determined and paid in accordance with the
provisions of the Plan as in effect as of the date the Termination of Employment
occurred unless he or she becomes an Active Participant after that date and such
active participation causes a contrary result under the provisions hereof.
However, the provisions of this document shall apply to any such Participant to
the extent necessary to maintain the qualified status of the Plan under Code
section 401(a) or to comply with the requirements of ERISA.
SEC. 1.7 EFFECTIVE DATE OF DOCUMENT. Unless a different date is
specified for some purpose in this document, the provisions of this Plan
document are generally effective as of July 1, 1999. However, any provision
necessary to comply with a requirement of federal legislation or a Treasury
regulation which has an earlier effective date shall be effective retroactively
to the date required by the applicable law or regulation.
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ARTICLE II
MISCELLANEOUS DEFINITIONS
SEC. 2.1 ACCOUNT. "Account" means a Participant's or Beneficiary's
interest in the Fund of any of the types described in Sec. 7.1.
SEC. 2.2 ACTIVE PARTICIPANT. An employee is an "Active Participant"
only while he or she is both a Participant and a Qualified Employee.
SEC. 2.3 AFFILIATE. "Affiliate" means any trade or business entity
under Common Control with the Company, or under Common Control with a
Predecessor Employer while it is such.
SEC. 2.4 BENEFICIARY. "Beneficiary" means the person or persons
designated as such pursuant to the provisions of Article VIII.
SEC. 2.5 BOARD. The "Board" is the board of directors of the Company,
and includes any executive committee thereof authorized to act for said board of
directors.
SEC. 2.6 CERTIFIED EARNINGS. "Certified Earnings" of a Participant for
a Plan Year means the amount determined by the Company to be the total earnings
paid to the Participant by the Company during such Plan Year for service as an
Active Participant, subject to the following:
(a) Certified Earnings include Salary Reduction Contributions to this Plan
and any contributions made by salary reduction to any other plan which
meets the requirements of Code sections 125 or 401(k), whether or not
such contributions are actually excludable from the Participant's
gross income for federal income tax purposes. Certified Earnings do
not include Matching Contributions to this Plan or the annual profit
sharing bonus.
(b) Allowances or reimbursements for tuition, relocation or business
expenses, severance pay, payments or contributions to or for the
benefit of the employee under any other deferred compensation,
pension, profit sharing, insurance, or other employee benefit plan,
stock options, stock appreciation rights or cash payments in lieu
thereof, merchandise or service discounts, employee awards whether
incidental or for years of service, benefits in the form of property
or the use of property (including personal use of Company vehicles),
amounts received under any worker's compensation act, or other similar
fringe benefits shall not be included in computing Certified Earnings,
except as provided in subsection (a) or to the extent such amounts are
required to be included in determining the employee's regular rate of
pay under the Federal Fair Labor Standards Act for purposes of
computing overtime pay thereunder.
(c) Certified Earnings of a Participant for any Plan Year shall not exceed
$160,000 for Plan Years commencing after 1996 and prior to 2000, and
$170,000 for Plan Years commencing after 1999, adjusted for each Plan
Year to take into account any cost of living increase provided for
that year in accordance with regulations prescribed by the Secretary
of the Treasury. The dollar increase in effect on January 1 of any
calendar year shall apply to Plan Years beginning in that calendar
year. If a Plan Year is shorter than 12 months, the limit under this
subsection for that year shall be multiplied by a fraction, the
numerator of which is the number of months in the short Plan Year and
the denominator of which is 12.
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SEC. 2.7 CODE. "Code" means the Internal Revenue Code of 1986 as from
time to time amended.
SEC. 2.8 COMMON CONTROL. A trade or business entity (whether a
corporation, partnership, sole proprietorship or otherwise) is under "Common
Control" with another trade or business entity (i) if both entities are
corporations which are members of a controlled group of corporations as defined
in Code section 414(b), or (ii) if both entities are trades or businesses
(whether or not incorporated) which are under common control as defined in Code
section 414(c), or (iii) if both entities are members of an affiliated service
group as defined in Code section 414(m), or (iv) if both entities are required
to be aggregated pursuant to regulations under Code section 414(o). Service for
all entities under Common Control shall be treated as service for a single
employer to the extent required by the Code; provided, however, that an
individual shall not be a Qualified Employee by reason of this section. In
applying the first sentence of this section for purposes of Article VI, the
provisions of subsections (b) and (c) of section 414 of the Code are deemed to
be modified as provided in Code section 415(h).
SEC. 2.9 ERISA. "ERISA" means the Employee Retirement Income Security
Act of 1974 as from time to time amended.
SEC. 2.10 FAMILY MEMBER. Family aggregation rules ceased to apply to
this Plan effective January 1, 1997.
SEC. 2.11 FORFEITURES. "Forfeitures" means that part of the Fund so
recognized under Sec. 9.2(b)(2).
SEC. 2.12 FUND. "Fund" means the aggregate of assets described in Sec.
11.1.
SEC. 2.13 FUNDING AGENCY. "Funding Agency" is a trustee or trustees or
an insurance company appointed and acting from time to time in accordance with
the provisions of Sec. 11.2 for the purpose of holding, investing, and
disbursing all or a part of the Fund.
SEC. 2.14 HIGHLY COMPENSATED EMPLOYEE. "Highly Compensated Employee"
means an individual described as such in Code section 414(q).
(a) Unless otherwise provided in Code section 414(q), commencing January
1, 1997, each employee who meets one of the following requirements for
a calendar year is a "Highly Compensated Employee" for that year:
(1) The employee at any time during the current or prior Plan Year
was a more than 5-percent owner as defined in Code section
414(q)(2), or was the spouse, child, parent or grandparent of
such an owner to whom the owner's stock is attributed pursuant to
Code section 318 (regardless of the Compensation of the owner or
family member).
(2) The employee received Compensation from the employer in excess of
$80,000 for the prior Plan Year in the case of determinations for
Plan Years commencing prior to 2001, or in excess of $85,000 for
the prior Plan Year in the case of determinations for Plan Years
commencing during or after 2001.
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(3) The individual is a former employee who had a separation year
prior to the current Plan Year and such individual performed
services for the employer and was a Highly Compensated Employee
for either (i) such separation year, or (ii) any Plan Year ending
on or after the individual's 55th birthday. A "separation year"
is the Plan Year in which the individual separates from service
with the employer. With respect to an individual who separated
from service before January 1, 1987, the individual will be
included as a Highly Compensated Employee only if the individual
was a more than 5-percent owner or received Compensation in
excess of $50,000 during (i) the employee's separation year (or
the year preceding such separation year), or (ii) any year ending
on or after such individual's 55th birthday (or the last year
ending before such individual's 55th birthday).
(b) The dollar amount specified in paragraph (2) of subsection (a) shall
be indexed for cost of living increases for each calendar year after
1996 as provided in the applicable Treasury regulations. For any Plan
Year, the applicable dollar amount shall be the dollar amount in
effect for the calendar year in which the Plan Year commences.
(c) For purposes of this section, "employer" includes the Company and all
Affiliates, and "employee" includes Leased Employees.
(d) For purposes of this section, "Compensation" means the amount defined
as such under Sec. 6.1(f) plus the Salary Reduction Contributions to
this Plan and any other elective deferral contributions made by or on
behalf of the employee to any other plan maintained by the Company or
an Affiliate which are not includible in the gross income of the
employee under Code sections 125, 401(k), 402(h)(1)(B), or 403(b).
Commencing January 1, 1998, Compensation means the amount defined as
such under Sec. 6.1(f).
SEC. 2.15 LEASED EMPLOYEE. "Leased Employee" means any person defined
as such by Code section 414(n). In general, a Leased Employee is any person who
is not otherwise an employee of the Company or an Affiliate (referred to
collectively as the "recipient") and who pursuant to an agreement between the
recipient and any other person ("leasing organization") has performed services
for the recipient (or for the recipient and related persons determined in
accordance with Code section 414(n)(6)) on a substantially full-time basis for a
period of at least one year and such services are performed under primary
direction or control by the recipient. For purposes of the requirements listed
in Code section 414(n)(3), any Leased Employee shall be treated as an employee
of the recipient, and contributions or benefits provided by the leasing
organization which are attributable to services performed for the recipient
shall be treated as provided by the recipient. However, if Leased Employees
constitute less than 20% of the Company's non-highly compensated work force
within the meaning of Code section 414(n)(5)(C)(ii), those Leased Employees
covered by a plan described in Code section 414(n)(5) shall be disregarded.
Notwithstanding the foregoing, no Leased Employee shall be a Qualified Employee
or a Participant in this Plan.
SEC. 2.16 NAMED FIDUCIARY. The Company is a "Named Fiduciary" for
purposes of ERISA with authority to control or manage the operation and
administration of the Plan, including control or management of the assets of the
Plan. Other persons are also Named Fiduciaries under ERISA if so provided
thereunder or if so identified by the Company, by action of the Board. Such
other person or persons shall have such authority to control or manage the
operation and administration of the Plan, including control or management of the
assets of the Plan, as may be provided by ERISA or as may be allocated by the
Company, by action of the Board.
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SEC. 2.17 NON-HIGHLY COMPENSATED EMPLOYEE. "Non-Highly Compensated
Employee" means an employee of the Company who is not a Highly Compensated
Employee.
SEC. 2.18 NORMAL RETIREMENT AGE. "Normal Retirement Age" is age 65.
SEC. 2.19 PARTICIPANT. A "Participant" is an individual described as
such in Article IV.
SEC. 2.20 PLAN YEAR. A "Plan Year" is the 12-consecutive-month period
commencing on January 1.
SEC. 2.21 PREDECESSOR EMPLOYER. Any corporation, partnership, firm, or
individual, a substantial part of the assets and employees of which are acquired
by a successor is a "Predecessor Employer" if named in this section, subject to
any conditions and limitations with respect thereto imposed by this section;
provided, however, that any such corporation, partnership, firm, or individual
may be named as a Predecessor Employer only if all of its employees who at the
time of the acquisition become employees of the successor and Participants
hereunder are treated uniformly, the use of service with it does not produce
discrimination in favor of Highly Compensated Employees, and there is no
duplication of benefits for such service. To be considered a Predecessor
Employer, the acquisition of assets and employees of a corporation, partnership,
firm, or individual must be by the Company, by an Affiliate, or by another
Predecessor Employer. Notwithstanding the foregoing, an employer shall be a
Predecessor Employer if so required by regulations prescribed by the Secretary
of the Treasury. As of January 1, 1999, there are no Predecessor Employers.
SEC. 2.22 QUALIFIED EMPLOYEE. "Qualified Employee" means any regular
employee of the Company, subject to the following:
(a) Any individual classified by the Company as an intern, coop or
temporary employee is not a Qualified Employee during the period while
so classified.
(b) A nonresident alien within the meaning of Code section 7701(b)(1)(B)
while not receiving earned income (within the meaning of Code section
911(d)(2)) from the Company which constitutes income from sources
within the United States (within the meaning of Code section
861(a)(3)) is not a Qualified Employee.
(c) An employee is not a Qualified Employee unless his or her services are
performed within the continental United States (including Alaska) or
Hawaii, or the principal base of operations to which the employee
frequently returns is within the continental United States (including
Alaska) or Hawaii.
(d) Eligibility of employees in a collective bargaining unit to
participate in the Plan is subject to negotiations with the
representative of that unit. During any period that an employee is
covered by the provisions of a collective bargaining agreement between
the Company and such representative, the employee shall not be
considered a Qualified Employee for purposes of this Plan unless such
agreement expressly so provides. For purposes of this section only,
such an agreement shall be deemed to continue after its formal
expiration during collective bargaining negotiations pending the
execution of a new agreement.
(e) An employee shall be deemed to be a Qualified Employee during a period
of absence from active service which does not result from a
Termination of Employment, provided he or she is a Qualified Employee
at the commencement of such period of absence.
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(f) Notwithstanding anything herein to the contrary, an individual is not
a Qualified Employee during any period during which the individual is
classified by the Company as an independent contractor or as any other
status in which the person is not treated as a common law employee of
the Company for purposes of withholding of taxes, or is treated as an
employee of another entity, regardless of the correct legal status of
the individual. The previous sentence applies to all periods of such
service of an individual who is subsequently reclassified as an
employee, whether the reclassification is retroactive or prospective.
SEC. 2.23 SUCCESSOR EMPLOYER. A "Successor Employer" is any entity
that succeeds to the business of the Company through merger, consolidation,
acquisition of all or substantially all of its assets, or any other means and
which elects before or within a reasonable time after such succession, by
appropriate action evidenced in writing, to continue the Plan.
SEC. 2.24 TOP-HEAVY PLAN. "Top-Heavy Plan" is defined in Sec. 14.2(a).
SEC. 2.25 VALUATION DATE. "Valuation Date" means a date on which the
Fund and Accounts are valued as provided in Article VII. Each business day is a
Valuation Date.
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ARTICLE III
SERVICE PROVISIONS
SEC. 3.1 EMPLOYMENT COMMENCEMENT DATE. "Employment Commencement Date"
means the date on which an employee first performs an Hour of Service for the
Company, an Affiliate, or a Predecessor Employer. The date on which an employee
first performs an Hour of Service after a 1-Year Break in Service is also an
"Employment Commencement Date".
SEC. 3.2 TERMINATION OF EMPLOYMENT. The "Termination of Employment" of
an employee for purposes of the Plan shall be deemed to occur upon resignation,
discharge, retirement, death, failure to return to active work at the end of an
authorized leave of absence or the authorized extension or extensions thereof,
failure to return to work when duly called following a temporary layoff, or upon
the happening of any other event or circumstance which, under the policy of the
Company, an Affiliate, or a Predecessor Employer as in effect from time to time,
results in the termination of the employer-employee relationship; provided,
however, that a Termination of Employment shall not be deemed to occur upon a
transfer between any combination of the Company, Affiliates, and Predecessor
Employers. Notwithstanding the foregoing, a Termination of Employment shall be
deemed not to have occurred for purposes of entitling a Participant to
distributions from his or her 401-K Account if the Participant has not incurred
a "separation from service" or "disability" as defined in applicable
regulations, except as provided in Sec. 10.13.
SEC. 3.3 HOURS OF SERVICE. "Hours of Service" are determined according
to the following subsections with respect to each applicable computation period.
The Company may round up the number of Hours of Service at the end of each
computation period or more frequently as long as a uniform practice is followed
with respect to all employees determined by the Company to be similarly situated
for compensation, payroll, and recordkeeping purposes.
(a) Hours of Service are computed only with respect to service with the
Company, Affiliates, and Predecessor Employers and are aggregated for
service with all such employers.
(b) For any portion of a computation period during which a record of hours
is maintained for an employee, Hours of Service shall be credited as
follows:
(1) Each hour for which the employee is paid, or entitled to payment,
for the performance of duties for his or her employer during the
applicable computation period is an Hour of Service.
(2) Each hour for which the employee is paid, or entitled to payment,
by his or her employer on account of a period of time during
which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty,
military duty, or leave of absence, is an Hour of Service. No
more than 501 Hours of Service shall be credited under this
paragraph for any single continuous period (whether or not such
period occurs in a single computation period). Hours of Service
shall not be credited under this paragraph with respect to
payments under a plan maintained solely for the purpose of
complying with applicable workers' compensation, unemployment
compensation, or disability insurance laws or with respect to a
payment which solely reimburses the individual for medical or
medically related expenses incurred by the employee.
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(3) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the employer is an
Hour of Service. Such Hours of Service shall be credited to the
computation period or periods to which the award or agreement for
back pay pertains, rather than to the computation period in which
the award, agreement, or payment is made. Crediting of Hours of
Service for back pay awarded or agreed to with respect to periods
described in paragraph (2) shall be subject to the limitations
set forth therein.
(4) Hours under this subsection shall be calculated and credited
pursuant to section 2530.200b-2 of the Department of Labor
Regulations, which are incorporated herein by this reference.
(5) The Company may use any records to determine Hours of Service
which it considers an accurate reflection of the actual facts.
(c) For any portion of a computation period during which an employee is
within a classification for which a record of hours for the
performance of duties is not maintained, the employee shall be
credited with 190 Hours of Service for each month for which he or she
would otherwise be credited with at least one Hour of Service under
subsection (b).
(d) Nothing in this section shall be construed as denying an employee
credit for an Hour of Service if credit is required by any federal law
other than ERISA. The nature and extent of such credit shall be
determined under such other law.
(e) In no event shall duplicate credit as an Hour of Service be given for
the same hour.
(f) This subsection shall apply to an individual who has service as (i)
either a common law employee or a Leased Employee of (ii) either the
Company or an Affiliate. For purposes of determining Hours of Service,
such an individual shall be considered an employee of the Company or
an Affiliate during any period he or she would have been a Leased
Employee of the Company or such Affiliate but for the requirement that
he or she must have performed services for the Company or an Affiliate
on a substantially full-time basis for a period of at least one year.
SEC. 3.4 ELIGIBILITY COMPUTATION PERIOD. An employee's first
Eligibility Computation Period is the 12-consecutive-month period beginning on
his or her Employment Commencement Date. The second Eligibility Computation
Period is the Plan Year commencing in said 12-consecutive-month period. Each
subsequent Plan Year prior to the end of the Plan Year in which the employee has
a 1-Year Break In Service is an Eligibility Computation Period. If subsequent to
a 1-Year Break In Service the employee has another Employment Commencement Date,
Eligibility Computation Periods for the period beginning on such date shall be
computed as though such date were the employee's first Employment Commencement
Date.
SEC. 3.5 YEAR OF ELIGIBILITY SERVICE. A "Year of Eligibility Service"
is an Eligibility Computation Period in which an employee has at least 1000
Hours of Service.
SEC. 3.6 YEAR OF VESTING SERVICE. A "Year of Vesting Service" is a
Plan Year in which an employee has at least 1000 Hours of Service. If the
Participant has had a 1-Year Break In Service prior to the first day of the
first Plan Year beginning in 1985, or a period of five consecutive 1-Year
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Breaks In Service ending on or after that date, for purposes of determining the
vested percentage of the Participant's Accounts attributable to employer
contributions which accrued before such break, any Years of Vesting Service
after such break in service shall not be taken into account.
SEC. 3.7 1-YEAR BREAK IN SERVICE. "1-Year Break In Service" means a
Plan Year in which the employee has no Hours of Service. The 1-Year Break In
Service shall be recognized as such on the last day of such Plan Year.
(a) Notwithstanding the provisions of Sec. 3.3, for purposes of
determining whether a 1-Year Break In Service has occurred with
respect to a Plan Year beginning after 1984, an individual who is
absent from work for maternity or paternity reasons shall receive
credit for the Hours of Service which would otherwise have been
credited to such individual but for such absence, or in any case in
which such hours cannot be determined, 8 Hours of Service per day of
such absence; provided, however, that the total number of Hours of
Service recognized under this subsection shall not exceed 501 hours.
The Hours of Service credited under this subsection shall be credited
in the Plan Year in which the absence begins if the crediting is
necessary to prevent a 1-Year Break In Service in that Plan Year or,
in all other cases, in the following Plan Year.
(b) For purposes of subsection (a), an absence from work for maternity or
paternity reasons means an absence that started during a Plan Year
beginning after 1984 (i) by reason of the pregnancy of the individual,
(ii) by reason of the birth of a child of the individual, (iii) by
reason of the placement of a child with the individual in connection
with the adoption of such child by such individual, or (iv) for
purposes of caring for such child for a period beginning immediately
following such birth or placement.
SEC. 3.8 PERIODS OF MILITARY SERVICE. Notwithstanding any provision of
this Plan to the contrary, effective December 12, 1994, contributions, benefits
and service credit with respect to qualified military service will be provided
in accordance with Code section 414(u).
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ARTICLE IV
PLAN PARTICIPATION
SEC. 4.1 ENTRY DATE. Commencing July 1, 1999, "Entry Date" means
January 1 of each Plan Year and each Sunday during the Plan Year.
SEC. 4.2 ELIGIBILITY FOR PARTICIPATION. Eligibility to participate in
the Plan shall be determined as follows:
(a) An employee will become a Participant in the Plan on the earliest
Entry Date on which both of the following requirements are met:
(1) The employee is a Qualified Employee.
(2) The employee has satisfied one of the following requirements:
(A) The employee has been continuously employed by the Company
throughout the 56-day period preceding the Entry Date.
(B) The employee has completed one Year of Eligibility Service
during an Eligibility Computation Period that ended prior to
the Entry Date. For purposes of this subparagraph (B), the
Entry Dates shall be deemed to be January 1 and July 1 of
each Plan Year.
(b) If a former Participant is reemployed as a Qualified Employee, the
employee will become a Participant again on the date of rehire.
(c) If a former employee who was not previously a Participant is
reemployed as a Qualified Employee, and if the employee's original
Employment Commencement Date was at least 56 days prior to the date of
rehire, the employee shall become a Participant on the date of rehire.
(d) If an employee of the Company or an Affiliate who is neither a
Participant nor a Qualified Employee is transferred to a position in
which he or she is a Qualified Employee, and if the employee's
original Employment Commencement Date was at least 56 days prior to
the date of transfer, the employee shall become a Participant on the
date of transfer.
SEC. 4.3 DURATION OF PARTICIPATION. A Participant shall continue to be
such until the later of:
(a) The Participant's Termination of Employment.
(b) The date all benefits, if any, to which the Participant is entitled
hereunder have been distributed from the Fund.
SEC. 4.4 NO GUARANTEE OF EMPLOYMENT. Participation in the Plan does
not constitute a guarantee or contract of employment with the Company. Such
participation shall in no way interfere with any rights the Company would have
in the absence of such participation to determine the duration of an employee's
employment.
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ARTICLE V
CONTRIBUTIONS
SEC. 5.1 SALARY REDUCTION CONTRIBUTIONS. Each Active Participant may
elect to have the Company make Salary Reduction Contributions on his or her
behalf, subject to the following:
(a) The Participant may elect to have his or her current earnings reduced
by any whole percent the Participant may designate, but not exceeding
15 percent of Certified Earnings (or such other maximum percent as the
Company may prescribe from time to time). The salary reduction
election shall be in such form and executed subject to such rules as
the Company may prescribe. Each election shall apply only to earnings
which become payable after the date as of which the election is
effective pursuant to this section. Each election shall continue in
effect until a new election is made pursuant to this section.
(b) The Company will make a Salary Reduction Contribution with respect to
each Participant in its employ who elects to have earnings for that
period reduced pursuant to this section. The amount of the
contribution will be equal to the amount by which the Participant's
earnings were reduced.
(c) The salary reduction election may be effective as of the date on which
the employee becomes a Participant under Sec. 4.2(a) or the first day
of any subsequent payroll period; provided that the employee has filed
the election with the Company or its designated agent prior to the
deadline established by the Company or its designated agent for the
intended effective date. In the case of an individual who becomes a
Participant pursuant to Sec. 4.2(b), (c) or (d), the salary reduction
election may be effective as of the first day of a payroll period that
occurs as soon as administratively feasible following the date the
individual becomes a Participant, or the first day of any subsequent
payroll period, provided it is filed by the applicable deadline.
(d) An Active Participant may amend his or her salary reduction election
to increase or decrease the contribution rate, or to discontinue
making Salary Reduction Contributions effective as of the first day of
any payroll period by filing an approved amendment with the Company or
its designated agent prior to the deadline established by the Company
or its designated agent for that effective date.
(e) A Participant who has discontinued making contributions may thereafter
resume Salary Reduction Contributions as of the first day of any
payroll period by filing a new salary reduction election with the
Company or its designated agent prior to the deadline established by
the Company or its designated agent for the intended effective date.
(f) All Salary Reduction Contributions by a Participant shall cease when
the Participant ceases to be a Qualified Employee.
(g) Salary Reduction Contributions by a Participant for any calendar year
may not exceed $10,000 effective January 1, 1998, and $10,500
effective January 1, 2000, and shall cease at the point that limit is
reached during the year. The limit in the previous sentence shall be
adjusted for any cost of living increases provided for any calendar
year in accordance with regulations issued by the Secretary of the
Treasury.
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(h) Notwithstanding the foregoing provisions, if the Participant has
received a hardship distribution from this Plan in accordance with
Sec. 9.4(a) or from any other plan maintained by the Company or an
Affiliate, no Salary Reduction Contributions shall be made to this
Plan on behalf of such Participant for 12 months following the date on
which the hardship distribution was made. Furthermore, the limit under
subsection (g) for the calendar year following the year in which the
hardship withdrawal is made shall be reduced by the amount of Salary
Reduction Contributions (and any elective contributions to any other
plan maintained by the employer) for the calendar year in which the
hardship withdrawal was made.
(i) If a Participant's Salary Reduction Contributions are suspended under
subsection (h), the Participant may elect to recommence Salary
Reduction Contributions effective as of the first day of the payroll
period immediately following the end of the 12-month suspension
period, or any subsequent payroll period, by filing a new election
with the Company or its designated agent prior to the deadline
established from time to time by the Company or its designated agent
for the intended effective date.
SEC. 5.2 MATCHING CONTRIBUTIONS. The Company will make a Matching
Contribution for each eligible Participant for each calendar week according to
the following:
(a) Commencing July 1, 1999, the Matching Contribution for each eligible
Participant will be determined according to the following schedule:
<TABLE>
<CAPTION>
If the Participant contributed The Matching Contribution will
the following percent of Certified be the following percent of the
Earnings as Salary Reduction Con- Participant's Certified Earnings
tributions for the calendar week: for the calendar week
- ----------------------------------- --------------------------------
<S> <C>
Less than 1% 0%
At least 1% but less than 2% 3%
2% or more 6%
</TABLE>
(b) To be eligible to receive a Matching Contribution for a particular
calendar week, a Participant must have had in effect a salary
reduction election during the particular calendar week under which the
Participant elected Salary Reduction Contributions of at least 1% of
Certified Earnings.
(c) Notwithstanding that a Participant's actual Salary Reduction
Contributions for a particular calendar week may be reduced below 1%
of Certified Earnings because of the requirements of Sec. 5.3, Sec.
5.4 or Sec. 5.6, or because the Participant has reached the limit for
the calendar year under Sec. 5.1(g), the Participant will be deemed to
have met the "1% rule" of subsection (b) if the Participant had
previously made the requisite election and such election would have
been in effect throughout the particular calendar week for which the
Matching Contribution is to be made if those provisions did not apply.
For purposes of applying subsection (a) to calendar weeks beginning
with the week in which the Participant reaches the limit under Sec.
5.1(g) or Sec. 5.4, the Participant will be deemed to have made for
each such calendar week the Salary Reduction Contribution that would
have been made under the Participant's election in effect for the week
the limit was reached if such limits did not apply. In all events,
however, the total Matching Contribution for any Participant for a
calendar year may not exceed 6% of the limit under
-12-
<PAGE> 18
Sec. 2.6(c) on the amount of Certified Earnings that can be recognized
by the Plan for that year.
(d) No Matching Contribution will be made with respect to any amount by
which the Participant's Salary Reduction Contributions must be reduced
pursuant to Sec. 5.3 or Sec. 5.6. The previous sentence will be
applied by assuming that the Participant's Salary Reduction
Contributions for the entire Plan Year had been made equally during
each calendar week for which the Participant had in effect an election
to make such contributions. Any such Matching Contributions which are
made by the Company before the amount of the reduction is determined
shall be forfeited and shall be applied as a credit against future
Matching Contributions by the Company.
(e) Any Forfeitures occurring pursuant to Sec. 9.2(b) which are not used
to reinstate Accounts pursuant to Sec. 9.2(b) (adjusted for any
investment earnings or losses on the Plan's Forfeiture Account) shall
be credited against the future Matching Contributions due from the
Company as soon as administratively feasible after the Forfeiture
occurs.
(f) For purposes of this section, a "calendar week" means the week
utilized by the Company for determining overtime entitlements under
the Fair Labor Standards Act. As of July 1, 1999, this is the period
commencing at 12:01 a.m. on each Sunday.
SEC. 5.3 ADJUSTMENT OF CONTRIBUTIONS REQUIRED BY CODE SECTION 401(K).
If necessary to satisfy the requirements of Code section 401(k), Salary
Reduction Contributions shall be adjusted in accordance with the following:
(a) Each Plan Year, the "deferral percentage" will be calculated for each
Active Participant. Each Participant's deferral percentage is
calculated by dividing the amount referred to in paragraph (1) by the
amount referred to in paragraph (2).
(1) The total Salary Reduction Contributions (including Excess
Deferrals of Highly Compensated Employees distributed under Sec.
5.4 but excluding Excess Deferrals of Non-Highly Compensated
Employees that arise solely from contributions made under plans
of the Company or Affiliates), if any, allocated to the
Participant's Accounts with respect to the Plan Year.
(2) The Participant's Compensation with respect to the Plan Year. For
purposes of this section, a Participant's "Compensation" for the
Plan Year means compensation determined according to a definition
selected by the Company for that year which satisfies the
requirements of Code section 414(s). The same definition of
Compensation shall be used for all Participants for a particular
Plan Year, but different definitions may be used for different
Plan Years. The Company shall also determine whether Compensation
includes or does not include the Salary Reduction Contributions
to this Plan and any contributions made pursuant to a salary
reduction agreement by or on behalf of the Participant to any
other plan which meets the requirements of Code sections 125,
401(k), 402(h)(1)(B), or 403(b), and whether or not it includes
amounts paid prior to the date an individual became a
Participant. Compensation shall be subject to the limit provided
under Sec. 2.6(c).
(b) Each Plan Year, the average deferral percentage for Active
Participants who are Highly Compensated Employees and the average
deferral percentage for Active Participants
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<PAGE> 19
who are Non-Highly Compensated Employees will be calculated. A
separate average deferral percentage shall be calculated for Active
Participants in a collective bargaining unit who are required to be
disaggregated pursuant to Treasury Regulationss.
1.401(k)-1(b)(3)(ii)(B). Such Participants shall be disregarded in
calculating the average deferral percentage for Active Participants
who are not in such collective bargaining units. In each case, the
average is the average of the percentages calculated under subsection
(a) for each of the employees in the particular group. The deferral
percentage for each Participant and the average deferral percentage
for a particular group of employees shall be calculated to the nearest
one-hundredth of one percent. For the 1997 and 1998 Plan Years, the
averages used in applying this section were the averages determined
for each group for the current Plan Year. For Plan Years commencing
after 1998, the average deferral percentage for Active Participants
who are Non-Highly Compensated Employees that is used in applying this
section for a particular Plan Year shall be the percentage determined
for the preceding Plan Year, unless the Company elects to use the
percentage for the current Plan Year in accordance with applicable
regulations. If an election is made under the previous sentence to use
the percentage for the current Plan Year, it may not be changed for
later Plan Years except as provided in applicable regulations (subject
to the transition rule for the 1999 Plan Year contained in applicable
IRS Notices).
(c) If the requirements of either paragraph (1) or (2) are satisfied, then
no further action is needed under this section:
(1) The average deferral percentage for Participants who are Highly
Compensated Employees is not more than 1.25 times the average
deferral percentage for Participants who are Non-Highly
Compensated Employees.
(2) The excess of the average deferral percentage for Participants
who are Highly Compensated Employees over the average deferral
percentage for Participants who are Non-Highly Compensated
Employees is not more than two percentage points, and the average
deferral percentage for such Highly Compensated Employees is not
more than 2 times the average deferral percentage for such
Non-Highly Compensated Employees.
The requirements of this subsection (c) shall be applied separately
with respect to Participants in a collective bargaining unit who are
required to be disaggregated pursuant to Treasury Regulation ss.
1.401(k)-1(b)(3)(ii)(B).
(d) Commencing January 1, 1997, if neither of the requirements of
subsection (c) is satisfied, then the Salary Reduction Contributions
with respect to Highly Compensated Employees shall be reduced,
beginning with the contributions representing the greatest dollar
amount per Participant, to the extent necessary to make the aggregate
dollar amount of such reductions equal to the amount by which the
Salary Reduction Contributions (prior to such reduction) had exceeded
the requirements of subsection (c)(1) or (c)(2), whichever is less.
Such reduction shall be made in accordance with the methodology
prescribed at the time of the reduction by the Internal Revenue
Service under Notice 97-2 or other applicable Notices or Treasury
Regulations.
(e) At any time during the Plan Year, the Company may make an estimate of
the amount of Salary Reduction Contributions by Highly Compensated
Employees that will be permitted under this section for the year and
may reduce the percent specified in Sec. 5.1(a) for such
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<PAGE> 20
Participants to the extent the Company determines in its sole
discretion to be necessary to satisfy at least one of the requirements
in subsection (c).
(f) If Salary Reduction Contributions with respect to a Highly Compensated
Employee are reduced pursuant to subsection (d), the Excess Salary
Reduction Contributions shall be distributed, subject to the
following:
(1) For purposes of this subsection, "Excess Salary Reduction
Contributions" mean the amount by which Salary Reduction
Contributions for Highly Compensated Employees have been reduced
under subsection (d).
(2) Excess Salary Reduction Contributions (adjusted for income or
losses allocable thereto as specified in paragraph (3), if any)
shall be distributed to Participants on whose behalf such excess
contributions were made for the Plan Year no later than the last
day of the following Plan Year. Furthermore, the Company shall
attempt to distribute such amount by the 15th day of the third
month following the Plan Year for which the excess contributions
were made to avoid the imposition on the Company of an excise tax
under Code section 4979.
(3) Income or losses allocable to Excess Salary Reduction
Contributions for the Plan Year shall be determined by
multiplying the amount of income or loss for the Plan Year which
is allocable to the Participant's Salary Reduction Contributions
by a fraction. The numerator of the fraction is the Participant's
Excess Salary Reduction Contributions for the Plan Year. The
denominator of the fraction is the total balance in the
Participant's Accounts attributable to Salary Reduction
Contributions on the first day of the Plan Year, plus Salary
Reduction Contributions for the Plan Year.
(4) The amount of Excess Salary Reduction Contributions and income or
losses allocable thereto which would otherwise be distributed
pursuant to this subsection shall be reduced, in accordance with
regulations, by the amount of Excess Deferrals and income or
losses allocable thereto previously distributed to the
Participant pursuant to Sec. 5.4 for the calendar year ending
with or within the Plan Year.
(g) The deferral percentage for any Participant who is a Highly
Compensated Employee for the Plan Year, and who is eligible to
participate in two or more plans with cash or deferred arrangements
described in Code section 401(k) to which the Company or an Affiliate
contributes, shall be determined as if all employer contributions were
made under a single arrangement unless mandatorily disaggregated
pursuant to regulations under Code section 401(k). This subsection
shall be applied by treating all cash or deferred arrangements with
Plan Years ending within the same calendar year as a single
arrangement.
(h) If two or more plans which include cash or deferred arrangements are
considered as one plan for purposes of Code section 401(a)(4) or Code
section 410(b), the cash or deferred arrangements shall be treated as
one for the purposes of applying the provisions of this section unless
mandatorily disaggregated pursuant to regulations under Code section
401(k).
(i) If the entire Account balance of a Highly Compensated Employee has
been distributed during the Plan Year in which an excess arose, the
distribution shall be deemed to have been a corrective distribution of
the excess and income attributable thereto to the extent
-15-
<PAGE> 21
that a corrective distribution would otherwise have been required
under subsection (f) of this section, Sec. 5.4 or Sec. 5.5(f).
(j) A corrective distribution of excess contributions under subsection (f)
of this section, Excess Aggregate Contributions under Sec. 5.5(f), or
Excess Deferrals under Sec. 5.4 may be made without regard to any
notice or Participant or spousal consent required under Article VIII
or X.
(k) In the event of a complete termination of the Plan during the Plan
Year in which an excess arose, any corrective distribution under
subsection (f) of this section or Sec. 5.5(f) shall be made as soon as
administratively feasible after the termination, but in no event later
than 12 months after the date of termination.
(l) For Plan Years beginning prior to 1999, in the sole discretion of the
Company, the provisions of this section may be applied on an aggregate
basis to all Participants and their Salary Reduction Contributions, or
the Plan may be treated as disaggregated into separate plans under the
provisions of Code section 410(b) and Treasury Regulation
ss.ss.1.410(b)-6(b)(3) and 1.410(b)-7(c)(3), with each such plan
separately satisfying the provisions of this section. For Plan Years
commencing on or after January 1, 1999, in addition to the methods
permitted under the previous sentence, in the sole discretion of the
Company, the provisions of this section may be applied by disregarding
all eligible Participants (other than Highly Compensated Employees)
who have not met the minimum age and service requirements Of Code
section 410(a)(1)(A) to the extent permitted by Code section
401(k)(3)(F) and regulations thereunder.
SEC. 5.4 DISTRIBUTION OF EXCESS DEFERRALS. Notwithstanding any other
provisions of the Plan, Excess Deferrals for a calendar year and income or
losses allocable thereto shall be distributed no later than the following April
15 to Participants who claim such Excess Deferrals, subject to the following:
(a) For purposes of this section, "Excess Deferrals" means the amount of
Salary Reduction Contributions for a calendar year that the
Participant claims pursuant to the procedure set forth in subsection
(b) because the total amount deferred for the calendar year exceeds
$10,000 commencing in 1998 and $10,500 commencing in 2000 (indexed for
inflation for subsequent calendar years in accordance with applicable
laws and regulations) or such other limit imposed on the Participant
for that year under Code section 402(g).
(b) The Participant's written claim, specifying the amount of the
Participant's Excess Deferral for any calendar year, shall be
submitted to the Company no later than the March 1 following such
calendar year. The claim shall include the Participant's written
statement that if such amounts are not distributed, such Excess
Deferrals, when added to amounts deferred under other plans or
arrangements described in Code section 401(k), 403(b), or 408(k),
exceed the limit imposed on the Participant by Code section 402(g) for
the year in which the deferral occurred. A Participant shall be deemed
to have submitted such a claim to the extent the Participant has
Excess Deferrals for the calendar year taking into account only
contributions under this Plan and any other plan maintained by the
Company or an Affiliate.
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<PAGE> 22
(c) Excess Deferrals distributed to a Participant with respect to a
calendar year shall be adjusted to include income or losses allocable
thereto using the same method specified for excess Salary Reduction
Contributions under Sec. 5.3(f)(3).
(d) The amount of Excess Deferrals and income allocable thereto which
would otherwise be distributed pursuant to this section shall be
reduced, in accordance with applicable regulations, by the amount of
excess Salary Reduction Contributions and income allocable thereto
previously distributed to the Participant pursuant to Sec. 5.3 for the
Plan Year beginning with or within such calendar year, and by the
amount of any deferrals properly distributed as excess annual
additions under Sec. 6.1.
SEC. 5.5 ADJUSTMENT OF CONTRIBUTIONS REQUIRED BY CODE SECTION 401(M).
After the provisions of Sec. 5.3 and Sec. 5.4 have been satisfied, the
requirements set forth in this section must also be met. If necessary to satisfy
the requirements of Code section 401(m), Matching Contributions shall be
adjusted in accordance with the following:
(a) Each Plan Year, the "contribution percentage" will be calculated for
each Active Participant (other than an Active Participant who is in a
collective bargaining unit required to be disaggregated pursuant to
Treasury Regulation ss. 1.401(m)-1(b)(3)(ii)). Each Participant's
contribution percentage is calculated by dividing the amount referred
to in paragraph (1) by the amount referred to in paragraph (2).
(1) The total Matching Contributions under Sec. 5.2. The Company may
also elect to include all or part of the Salary Reduction
Contributions to be allocated to the Participant's Accounts with
respect to that Plan Year, provided that the requirements of
Treasury Regulation ss.1.401(m)-1(b) are satisfied and provided
that the requirements of Sec. 5.3 are met before such
contributions are used under this section and continue to be met
after the exclusion for purposes of Sec. 5.3 of those
contributions that are used to satisfy the requirements of this
section. However, any Matching Contributions that are forfeited,
either to correct excess contributions under subsection (f) of
this section, or because the contributions to which they relate
are Excess Salary Reduction Contributions under Sec. 5.3, Excess
Deferrals under Sec. 5.4 or excess contributions under subsection
(f) of this section, shall be disregarded.
(2) The Participant's Compensation with respect to the Plan Year For
purposes of this section, "Compensation" has the same meaning as
provided in Sec. 5.3(a)(2).
(b) Each Plan Year, the average contribution percentage of Active
Participants who are Highly Compensated Employees and the average
contribution percentage for Active Participants who are Non-Highly
Compensated Employees will be calculated. In each case, the average is
the average of the percentages calculated under subsection (a) for
each of the employees in the particular group. In calculating such
average contribution percentages, Participants employed in a
collective bargaining unit required to be disaggregated pursuant to
Treasury Regulationss. 1.401(m)-1(b)(3)(ii) shall be disregarded. The
contribution percentage for each Participant and the average
contribution percentage for a particular group of employees shall be
calculated to the nearest one-hundredth of one percent. For the 1997
and 1998 Plan Years, the averages used in applying this section were
the averages determined for each group for the current Plan Year. For
Plan Years commencing after 1998, the average contribution percentage
for Active Participants who
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<PAGE> 23
are Non-Highly Compensated Employees that is used in applying this
section for a particular Plan Year shall be the percentage determined
for the preceding Plan Year, unless the Company elects to use the
percentage for the current Plan Year in accordance with applicable
regulations. If an election is made under the previous sentence to use
the percentage for the current Plan Year, it may not be changed for
later Plan Years except as provided in applicable regulations (subject
to the transition rule for the 1999 Plan Year contained in applicable
IRS Notices).
(c) If the requirements of either paragraph (1) or (2) are satisfied, then
no further action is needed under this section:
(1) The average contribution percentage for Participants who are
Highly Compensated Employees is not more than 1.25 times the
average contribution percentage for Participants who are
Non-Highly Compensated Employees.
(2) The excess of the average contribution percentage for
Participants who are Highly Compensated Employees over the
average contribution percentage for Participants who are
Non-Highly Compensated Employees is not more than two percentage
points, and the average contribution percentage for such Highly
Compensated Employees is not more than 2 times the average
contribution percentage for such Non-Highly Compensated
Employees.
(d) Commencing January 1, 1997, if neither of the requirements of
subsection (c) is satisfied, then the Matching Contributions with
respect to Highly Compensated Employees shall be reduced, beginning
with the contributions representing the greatest dollar amount per
Participant, to the extent necessary to make the aggregate dollar
amount of such reductions equal to the amount by which the Matching
Contributions (prior to such reduction) had exceeded the requirements
of subsection (c)(1) or (c)(2), whichever is less. Such reduction
shall be made in accordance with the methodology prescribed at the
time of the reduction by the Internal Revenue Service under Notice
97-2 or other applicable Notices or Treasury Regulations.
(e) At any time during the Plan Year, the Company may make an estimate of
the amount of Matching Contributions on behalf of Highly Compensated
Employees that will be permitted under this section for the year. If
the Company determines in its sole discretion that reductions are
necessary to assure that at least one of the requirements in
subsection (c) are satisfied, the Company may take written action
amending Sec. 5.2 to reduce or eliminate Matching Contributions for
Highly Compensated Employees with respect to Certified Earnings to be
paid from the date such action is adopted to the end of the Plan Year.
(f) If contributions with respect to a Highly Compensated Employee are
reduced pursuant to subsection (d), the Excess Aggregate Contributions
shall be treated as follows:
(1) For purposes of this subsection, "Excess Aggregate Contributions"
mean the amount by which Matching Contributions must be reduced
under subsection (d).
(2) Excess Matching Contributions (adjusted for income or losses
allocable thereto) shall be forfeited (if otherwise forfeitable
under the provisions of Sec. 9.2 if the Participant were to
terminate employment on the last day of the Plan Year for which
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<PAGE> 24
the contribution was made). Excess Matching Contributions which
are non-forfeitable (adjusted for income or losses allocable
thereto) shall be distributed to Participants on whose behalf
such excess contributions were made for the Plan Year no later
than the last day of the following Plan Year. Furthermore, the
Company shall attempt to distribute such amount by the 15th day
of the third month following the Plan Year for which the excess
contributions were made to avoid the imposition on the Company of
an excise tax under Code section 4979.
(3) Income or losses allocable to Excess Aggregate Contributions
shall be determined in the same manner specified for Excess
Salary Reduction Contributions under Sec. 5.3(f)(3).
(4) Amounts forfeited by Highly Compensated Employees pursuant to
paragraph (2) shall be applied to reduce future Matching
Contributions as provided in Sec. 5.2.
(g) The contribution percentage for any Participant who is a Highly
Compensated Employee for the Plan Year, and who is eligible to make
nondeductible employee contributions or to receive matching
contributions under two or more plans described in Code section 401(a)
that are maintained by the Company or any Affiliate, shall be
determined as if all such contributions were made under a single
arrangement unless mandatorily disaggregated pursuant to regulations
under Code section 401(m).
(h) If two or more plans maintained by the Company or Affiliates are
treated as one plan for purposes of satisfying the eligibility
requirements of Code section 410(b), those plans must be treated as
one plan for purposes of applying the provisions of this section
unless mandatorily disaggregated pursuant to regulations under Code
section 401(m).
(i) For Plan Years beginning prior to 1999, in the sole discretion of the
Company, the provisions of this section may be applied on an aggregate
basis to all Participants and their Matching Contributions, or the
Plan may be treated as disaggregated into separate plans under the
provisions of Code section 410(b) and Treasury
Regulationss.ss.1.410(b)-6(b)(3) and 1.410(b)-7(c)(3), with each such
plan separately satisfying the provisions of this section. For Plan
Years commencing on or after January 1, 1999, in addition to the
methods permitted under the previous sentence, in the sole discretion
of the Company, the provisions of this section may be applied by
disregarding all eligible Participants (other than Highly Compensated
Employees) who have not met the minimum age and service requirements
of Code section 410(a)(1)(A) to the extent permitted by Code section
401(m)(5)(C) and regulations thereunder
(j) Notwithstanding the foregoing, if neither subparagraph (c)(1) of this
section nor Sec. 5.3(c)(1) was satisfied for a particular Plan Year,
the requirements set forth in Sec. 5.6 must also be satisfied.
SEC. 5.6 MULTIPLE USE OF THE ALTERNATIVE LIMITATIONS. If neither Sec.
5.3(c)(1) nor Sec. 5.5(c)(1) was satisfied for a particular Plan Year, the
following additional requirements must also be satisfied:
(a) The sum of the following two amounts must not exceed the greater of
the limit determined under subsection (b) or the limit determined
under subsection (c):
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<PAGE> 25
(1) The average deferral percentage for Highly Compensated Employees
(determined under Sec. 5.3(b) following any adjustments required
by Sec. 5.3).
(2) The average contribution percentage for Highly Compensated
Employees (determined under Sec. 5.5(b) following any adjustments
required by Sec. 5.5).
(b) The limit under this subsection is the sum of the following amounts:
(1) 1.25 multiplied by the greater of:
(A) The average deferral percentage for Non-Highly Compensated
Employees (determined under Sec. 5.3(b) following any
adjustments required by Sec. 5.3), or
(B) The average contribution percentage for Non-Highly
Compensated Employees (determined under Sec. 5.5(b)
following any adjustments required by Sec. 5.5).
(2) Two percentage points plus the lesser of:
(A) The average deferral percentage for Non-Highly Compensated
Employees, or
(B) The average contribution percentage for Non-Highly
Compensated Employees.
Notwithstanding the foregoing, the amount under this paragraph
(2) cannot exceed the lesser of (A) or (B) above, multiplied by
two, or such other limit as may be prescribed by Treasury
Regulations.
(c) The limit under this subsection (c) is the amount that would be
determined under subsection (b) by:
(1) Substituting "lesser" for "greater" in paragraph (1) of
subsection (b), and
(2) Substituting "greater" for "lesser" each place that word appears
in paragraph (2) of subsection (b).
(d) If the amount determined under subsection (a) exceeds the greater of
the limits determined under subsections (b) and (c), an additional
amount must be treated as Excess Salary Reduction Contributions and
distributed under Sec. 5.3. In addition, any Matching Contributions
attributable to those Salary Reduction Contributions shall be treated
as forfeited and shall be applied as a credit against future
contributions from the Company. Appropriate adjustments under this
subsection must be made pursuant to Treasury regulations until the sum
of the average deferral percentage and average contribution percentage
for Highly Compensated Employees is equal to the greater of the limits
determined under subsections (b) and (c).
(e) For Plan Years commencing after 1996, this section shall be applied in
accordance with the provisions of IRS Notice 97-2 or other applicable
Notices or Treasury Regulations.
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<PAGE> 26
SEC. 5.7 TIME OF CONTRIBUTIONS. Salary Reduction Contributions and
Matching Contributions for a Plan Year shall be paid to the Funding Agency no
later than the time (including extensions thereof) prescribed by law for filing
the Company's federal income tax return for the tax year in which the Plan Year
ends. Salary Reduction Contributions shall be paid to the Funding Agency no
later than 12 months following the end of the Plan Year, if earlier. In
addition, Salary Reduction Contributions or Matching Contributions shall be paid
to the Funding Agency by any earlier date that may be specified in Treasury or
Department of Labor regulations.
SEC. 5.8 ALLOCATIONS. Contributions under Sections 5.1 and 5.2 shall
be allocated to the Accounts of Participants as follows:
(a) Salary Reduction Contributions with respect to each Participant
electing deferrals pursuant to Sec. 5.1 for a Plan Year shall be
allocated to the 401-K Account of each such Participant as of the last
day of the Plan Year.
(b) Matching Contributions for a Plan Year, and the Forfeitures credited
against such Contributions, shall be allocated to the Matching Account
of each eligible Participant as of the last day of the Plan Year.
(c) Allocations shall be reflected in Accounts as provided in Article VII.
However, the Funding Agency shall treat contributions as though they
had been allocated to the Accounts as of the Valuation Date coinciding
with or next following the date they were deposited with the Funding
Agency as provided in Sec. 7.2(b) for purposes of allocating
investment gains and losses pursuant to Sec. 7.2 and Sec. 7.3.
(d) Salary Reduction Contributions and Matching Contributions for a Plan
Year which are deposited with the Funding Agency after the end of that
Plan Year but prior to the deadline specified in Sec. 5.7 shall also
be allocated to the appropriate 401-K Account or Matching Account as
of the last day of that Plan Year except to the extent the Company
determines that it is necessary to treat some or all of such
contributions as being contributions for the Plan Year in which they
are deposited with the Funding Agency in order to satisfy the
requirements of Sec. 5.3 or Sec. 5.5.
SEC. 5.9 LIMITATIONS ON CONTRIBUTIONS. In no event shall the
contributions under this Article for any Plan Year exceed the lesser of:
(a) The maximum amount allowable as a deduction in computing the Company's
taxable income for that Plan Year for federal income tax purposes.
(b) The aggregate amount of the contributions by the Company that may be
allocated to Accounts of Participants under the provisions of Article
VI.
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<PAGE> 27
ARTICLE VI
LIMITATION ON ALLOCATIONS
SEC. 6.1 LIMITATION ON ALLOCATIONS. Notwithstanding any provisions of
the Plan to the contrary, allocations to Participants under the Plan shall not
exceed the maximum amount permitted under Code section 415. For purposes of the
preceding sentence, the following rules shall apply unless otherwise provided in
Code section 415:
(a) The Annual Additions with respect to a Participant for any Plan Year
shall not exceed the lesser of:
(1) $30,000, adjusted for each Plan Year to reflect cost of living
increases for that Plan Year published by the Secretary of the
Treasury.
(2) 25% of the Compensation of such Participant for such Plan Year.
(b) If a Participant is also a participant in one or more other defined
contribution plans maintained by the Company or an Affiliate, and if
the amount of employer contributions and forfeitures otherwise
allocated to the Participant for a Plan Year must be reduced to comply
with the limitations under Code section 415, such allocations under
this Plan and each of such other plans shall be reduced pro rata in
the sequence specified in subsection (c), and pro rata within each
category within that sequence, to the extent necessary to comply with
said limitations, except that reductions to the extent necessary shall
be made in allocations under profit sharing plans and stock bonus
plans before any reductions are made under money purchase plans.
(c) If for any Plan Year the limitation described in subsection (a) would
otherwise be exceeded by contributions to this Plan with respect to
any Participant, the Participant's Annual Additions shall be adjusted
in the following sequence, but only to the extent necessary to reduce
Annual Additions to the level permitted in subsection (a):
(1) The Participant's after-tax voluntary employee contributions
under other plans for the Plan Year, if any, (adjusted for
investment gains and losses) shall be refunded to the Participant
during the Plan Year or as soon as reasonably possible following
the end of the Plan Year.
(2) The Participant's Salary Reduction Contributions for the Plan
Year, if any, shall be reduced, and that amount (adjusted for
investment gains and losses on such amount pursuant to applicable
regulations) shall be refunded to the Participant.
(3) If, after the adjustments in paragraphs (1) and (2) there is an
excess amount with respect to a Participant for a Plan Year, such
excess amount shall be held unallocated in a suspense account.
The suspense account will be applied to reduce future employer
contributions for all Participants in the current Plan Year, the
next Plan Year, and in each succeeding Plan Year, if necessary.
The suspense account will participate in the allocation of the
investment gains and losses of the Fund and the value of such
account will be considered in valuing other Accounts under the
Plan.
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<PAGE> 28
(4) Any amounts refunded under paragraphs (1) or (2) shall be
disregarded for purposes of applying the limits under Sec. 5.3,
Sec. 5.4 and Sec. 5.5.
(d) If the Participant is also a participant in one or more defined
benefit plans maintained by the Company or an Affiliate, the sum of
the Participant's defined benefit plan fraction and defined
contribution plan fraction, determined according to Code section
415(e), for any Plan Year may not exceed 1.0. If the sum of a
Participant's defined benefit fraction and defined contribution
fraction would otherwise exceed 1.0 for any Plan Year, the benefits
provided under the defined benefit plan or plans shall be reduced to
the extent necessary to reduce the sum of the fractions to 1.0. This
subsection ceases to apply effective January 1, 2000.
(e) For purposes of this section, "Annual Additions" means the sum of the
following amounts allocated to a Participant for a Plan Year under
this Plan and all other defined contribution plans maintained by the
Company or an Affiliate in which he or she participates:
(1) Employer contributions, including Salary Reduction Contributions
made under this Plan. Excess Salary Reduction Contributions, and
Excess Aggregate Contributions which are distributed under the
provisions of Article V are included in Annual Additions, but
Excess Deferrals which are distributed under Sec. 5.4 are not
included in Annual Additions.
(2) Forfeitures, if any.
(3) Voluntary non-deductible contributions, if any.
(4) Amounts attributable to medical benefits as described in Code
sections 415(1)(2) and 419A(d)(2).
An Annual Addition with respect to a Participant's Accounts shall be
deemed credited thereto with respect to a Plan Year if it is allocated
to the Participant's Accounts under the terms of the Plan as of any
date within such Plan Year.
(f) For purposes of this section, "Compensation" means an employee's
earned income, wages, salaries, 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 with the Company and Affiliates to the extent that the
amounts are includible in gross income (including, but not limited to,
commissions, compensation for services on the basis of a percentage of
profits, tips, bonuses, fringe benefits, and reimbursements or other
expense allowances under a nonaccountable plan described in Treasury
Regulation ss. 1.62-2(c)), subject to the following:
(1) Compensation excludes the Salary Reduction Contributions to this
Plan, any elective salary reduction contributions to any other
plan which meets the requirements of Code sections 125, 401(k),
402(h)(1)(B) or 403(b), any other 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, any distributions from a plan of deferred
compensation, and any other amounts which receive special tax
benefits. However, any amounts received by an employee pursuant
to an unfunded non-qualified plan of deferred compensation may be
considered as Compensation in
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<PAGE> 29
the year such amounts are includible in the employee's gross
income. Notwithstanding the foregoing, for Plan Years commencing
on or after January 1, 1998, Compensation includes the Salary
Reduction Contributions to this Plan and any other elective
deferrals which are not includible in the gross income of the
employee under Code sections 125, 401(k), 402(h)(1)(B), 403(b)
or 457.
(2) Compensation excludes amounts realized from the exercise of a
non-qualified stock option, or when restricted stock (or
property) either becomes transferable or is no longer subject to
a substantial risk of forfeiture.
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<PAGE> 30
ARTICLE VII
INDIVIDUAL ACCOUNTS
SEC. 7.1 ACCOUNTS FOR PARTICIPANTS. The following Accounts may be
established under the Plan for a Participant:
(a) A 401-K Account and a Matching Account shall be established for each
Participant who makes or receives contributions allocable to such an
Account.
(b) A Rollover Account shall be established for each Participant who makes
a Rollover Contribution, as provided by Sec. 7.5.
(c) The Funding Agency shall also maintain a Forfeiture Account for the
Plan (which may be divided into multiple subaccounts) to hold amounts
which have become Forfeitures under Sec. 9.2(b), and investment
earnings and losses allocable to such amounts, until they are used to
reinstate Accounts under Sec. 9.2(b) or applied as credits against
Matching Contributions as provided in Sec. 5.2.
More than one of any of the above types of Accounts may be established if
required by the Plan or if considered advisable by the Company in the
administration of the Plan. Except as expressly provided herein to the contrary,
the Fund shall be held and invested on a commingled basis, Accounts shall be for
bookkeeping purposes only, and the establishment of Accounts shall not require
any segregation of Fund assets.
SEC. 7.2 VALUATION PROCEDURE. As of each Valuation Date, the value of
each Account shall be adjusted to reflect the effect of distributions,
transfers, withdrawals, income, realized and unrealized profits and losses,
contributions, and all other transactions with respect to the Account since the
next preceding Valuation Date, as follows:
(a) The value of each Account determined in accordance with this section
as of the preceding Valuation Date (and adjusted as provided in
subsection (c) below) shall be adjusted to reflect any investment
gains, losses or expenses credited to or charged against the Account
by the Funding Agency pursuant to Sec. 7.3.
(b) There shall be added to the adjusted value of each Account the amount
of any contributions made for that Account pursuant to Article V which
were received by the Funding Agency during the period subsequent to
the Funding Agency's cut-off deadline on the preceding Valuation Date
and ending at the cut-off deadline on the current Valuation Date.
(c) From the value of each Account determined as of the next preceding
Valuation Date, there shall be deducted the amount of all
distributions and withdrawals, if any, made from the Account since the
preceding Valuation Date.
(d) The Plan's Forfeiture Account shall be adjusted as of each Valuation
Date to reflect any investment earnings and losses on the investments
held for that Account, transfers into that Account of amounts which
have become Forfeitures under Sec. 9.2(b), and withdrawals from that
Account to be applied as credits against Matching Contributions
pursuant to Sec. 5.2.
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<PAGE> 31
SEC. 7.3 INVESTMENT OF ACCOUNTS. Each Participant shall direct the
investment of his or her Accounts, subject to the following:
(a) The Company shall determine the class or classes of investments which
will be made available as investment options under this Plan from time
to time. The Company may in its sole discretion add additional
options, merge options, or delete existing options at any time. If one
or more existing investment options are to be replaced by one or more
new options, and the Participant does not direct how his or her
Accounts are to be invested in the new options, the transfers from old
to new options shall be made pursuant to such rules and procedures as
the Company establishes for this purpose, and the resulting
investments shall continue to be held for the Participant until the
Participant files a new investment direction.
(b) All investment directions shall be submitted to the Company, or to
such agent or agents as may be designated from time to time by the
Company for this purpose, pursuant to such procedures as the Company
or its agent may establish. Each investment direction shall remain in
effect until a new investment direction is properly made by the
Participant. An initial investment direction shall be made by the
Participant when an Account is first established for the Participant.
A Participant may change the investment of existing Account balances
and/or future contributions effective as of such dates as may be
authorized by the Company or its designated agent from time to time.
All investment directions under this subsection must be in whatever
increments for each investment option that the Company or its
designated agent may establish from time to time. Each investment
direction must be received by the Company, or by an agent appointed by
the Company for this purpose, prior to the deadline established from
time to time by the Company or its agent for the date it is to be
effective (which deadline can vary depending on the type of direction
or the manner in which the direction is made). Each such investment
direction will be implemented within a reasonable period of time, as
determined by the Company or its designated agent and by the Funding
Agency, after the direction is received by the Funding Agency.
(c) All investment directions by a Participant shall be complete as to the
terms of the investment transaction. Separate investment directions
may be made for the investment of existing Account balances and the
investment of future contributions on behalf of the Participant. No
Funding Agency shall have any obligation whatsoever to invest or
manage any assets held in a Participant's Accounts, its sole duty
being to follow within a reasonable period of time all proper
directions of the Participant which are made in accordance with the
Plan and which are not contrary to ERISA. It is intended that this
Plan will satisfy the requirements of Section 404(c) of ERISA to the
extent possible. If a Participant fails to provide directions as to
the investment of any cash held in his or her Accounts, the Company or
its designated agent may in its sole discretion designate an
investment vehicle to be used to hold such funds.
(d) All earnings and losses on the investments held for each of the
Participant's Accounts shall be credited directly to such Account, and
the Account shall be charged with all expenses attributable to such
investments. If assets of an Account are commingled for investment
with assets of other Accounts, all such Accounts shall share
proportionately in the investment experience of and expenses
chargeable to the commingled fund according to a method which the
Funding Agency determines in its sole discretion to be reasonable. The
Funding Agency may also charge to each such Account such portion of
the general expenses of the Fund as the Funding Agency determines in
its sole discretion to be reasonable. The Company may in its
discretion pay some or all of the fees and expenses that
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<PAGE> 32
would otherwise be charged to some or all of the Accounts of certain
Participants or of all Participants.
(e) Following the death of the Participant, each of his or her
Beneficiaries shall have the right to direct the investment of the
portion of the Participant's Accounts held on behalf of the
Beneficiary. An "alternate payee" pursuant to the terms of a qualified
domestic relations order shall have the right to direct the investment
of the Accounts held on behalf of the alternate payee after the order
is determined to be qualified, unless the order specifically provides
to the contrary. In each such case the directions shall be subject to
the same terms and conditions as applied to the Participant.
(f) The Funding Agency shall at all times retain title to all assets held
for Accounts, and shall have the voting power with respect to all
stock or other securities held for Accounts, unless that voting power
has been delegated in writing to an investment manager or other entity
or individual.
(g) All investment directions shall be in accordance with such rules and
regulations as the Company or the Funding Agency may establish from
time to time for this purpose. The Plan's Forfeiture Account shall be
invested in such investments as the Company may designate from time to
time for this purpose.
(h) Each Account shall be valued by the Funding Agency at fair market
value as of each Valuation Date and at such other times as may be
necessary for the proper administration of the Plan. If fair market
value of an asset is not available, it shall be deemed to be fair
value as determined in good faith by the Company or other Named
Fiduciary assigned such function, or if such asset is held in trust
and the trust agreement so provides, as determined in good faith by
the trustee. If any portion of the fund is invested in a contract
issued by an insurance company, of a type sometimes referred to as a
"guaranteed income contract", under which the insurance company pays a
guaranteed minimum rate of interest for a stated period of time, and
if no event has occurred that will result in repayment of principal at
a discounted value, the fair market value of the contract shall be
deemed to be its book value.
(i) Notwithstanding anything herein to the contrary, if the Plan receives
a recovery on an investment (including, but not limited to, a recovery
from the Federal Deposit Insurance Corporation, a state insurance
guaranty association or the Security Industry Protection Corporation,
or a recovery under federal or state securities laws) which recovery
is earmarked by the paying entity as attributable to a specific
Participant or Beneficiary, the amount recovered shall be allocated
only to the Account(s) of such Participant or Beneficiary, and the
Accounts of other Participants and Beneficiaries shall not share in
the recovery. The Company shall make appropriate adjustments in
allocations of investment earnings and losses and Account values to
reflect the provisions of this subsection.
(j) Notwithstanding the foregoing or any other provision of the Plan to
the contrary, the Company may establish rules delaying the effective
date of investment directions, or establishing blackout periods during
which investment directions, distributions, in-service withdrawals,
loans, or other transactions will not be processed, as the Company
determines is advisable for the administration of the Plan; provided,
however, that such delay or blackout period may not exceed such period
as may be permitted by regulations under Code section 411(d)(6).
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<PAGE> 33
SEC. 7.4 PARTICIPANT STATEMENTS. Each Plan Year the Company may cause
each Participant to be provided with a statement of Account balances as of the
end of the immediately preceding Plan Year.
SEC. 7.5 ROLLOVER ACCOUNTS. At the request of a Qualified Employee and
with the consent of the Company or its designated agent, the Plan may accept a
transfer to the Fund of an amount that constitutes a Rollover Contribution. The
Company or its designated agent shall grant such consent only if it determines
that the amount to be transferred will constitute a proper Rollover
Contribution. Notwithstanding any provisions of the Plan to the contrary, the
following shall apply with respect to a Rollover Contribution:
(a) A Rollover Account shall be established for each employee who makes a
Rollover Contribution. From the date the assets of the Rollover
Contribution are transferred to the Fund through the first Valuation
Date following such transfer, the Rollover Account shall be valued at
the fair market value of said assets on the date of such transfer.
(b) The employee shall be treated the same as a Participant hereunder from
the time of the transfer, but shall not actually be a Participant and
shall not be eligible to receive an allocation of employer
contributions or Forfeitures or to make employee contributions until
he or she has satisfied the requirements of Article IV.
(c) For purposes of this section, "Rollover Contribution" means a
contribution of an amount which may be rolled over to this Plan
pursuant to Code section 401(a)(31), 402(c), 403(a)(4), 408(d)(3), or
any other provision of the Code which may permit rollovers to this
Plan from time to time.
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ARTICLE VIII
DESIGNATION OF BENEFICIARY
SEC. 8.1 PERSONS ELIGIBLE TO DESIGNATE. Any Participant may designate
a Beneficiary to receive any amount payable from the Fund as a result of the
Participant's death, provided that the Beneficiary survives the Participant. The
Beneficiary may be one or more persons, natural or otherwise. By way of
illustration, but not by way of limitation, the Beneficiary may be an
individual, trustee, executor, or administrator. The Beneficiary with respect to
one Account may be different from the Beneficiary with respect to another
Account. A Participant may also change or revoke a designation previously made,
without the consent of any Beneficiary named therein.
SEC. 8.2 SPECIAL REQUIREMENTS FOR MARRIED PARTICIPANTS.
Notwithstanding the provisions of Sec. 8.1, if a Participant is married at the
time of his or her death, the Beneficiary shall be the Participant's spouse
unless the spouse has consented in writing to the designation of a different
Beneficiary, the spouse's consent acknowledges the effect of such designation,
and the spouse's consent is witnessed by a representative of the Plan or a
notary public. Such consent shall be deemed to have been obtained if it is
established to the satisfaction of the Company that such consent cannot be
obtained because there is no spouse, because the spouse cannot be located, or
because of such other circumstances as may be prescribed by federal regulations.
Any consent by a spouse shall be irrevocable. Any designation of a Beneficiary
which has received spousal consent may be changed (other than by being revoked)
without spousal consent only if the consent by the spouse expressly permits
subsequent designations by the Participant without any requirement for further
consent by the spouse. Any such consent shall be valid only with respect to the
spouse who signed the consent, or in the case of a deemed consent, the
designated spouse.
SEC. 8.3 FORM AND METHOD OF DESIGNATION. Any designation or a
revocation of a prior designation of Beneficiary shall be in writing on a form
acceptable to the Company and shall be filed with the Company. The Company and
all other parties involved in making payment to a Beneficiary may rely on the
latest Beneficiary designation on file with the Company at the time of payment
or may make payment pursuant to Sec. 8.4 if an effective designation is not on
file, shall be fully protected in doing so, and shall have no liability
whatsoever to any person making claim for such payment under a subsequently
filed designation of Beneficiary or for any other reason.
SEC. 8.4 NO EFFECTIVE DESIGNATION. If there is not on file with the
Company an effective designation of Beneficiary by a deceased Participant, the
Beneficiary shall be the person or persons surviving the Participant in the
first of the following classes in which there is a survivor, share and share
alike:
(a) The Participant's spouse.
(b) The Participant's children, except that if any of the Participant's
children predecease the Participant but leave issue surviving the
Participant, such issue shall take by right of representation the
share their parent would have taken if living.
(c) The Participant's parents.
(d) The Participant's brothers and sisters.
(e) The Participant's estate.
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Determination of the identity of the Beneficiary in each case shall be made by
the Company.
SEC. 8.5 SUCCESSOR BENEFICIARY. If a Beneficiary who survives the
Participant subsequently dies before receiving all payments to which the
Beneficiary was entitled, the successor Beneficiary, determined in accordance
with the provisions of this section, shall be entitled to the balance of any
remaining payments due. A Beneficiary who is not the surviving spouse of the
Participant may not designate a successor Beneficiary. A Beneficiary who is the
surviving spouse may designate a successor Beneficiary only if the Participant
specifically authorized such designations on the Participant's Beneficiary
designation form. If a Beneficiary is permitted to designate a successor
Beneficiary, each such designation shall be made according to the same rules
(other than Sec. 8.2) applicable to designations by Participants. If a
Beneficiary is not permitted to designate a successor Beneficiary, or is
permitted to do so but fails to make such a designation, the balance of any
payments remaining due will be payable to a contingent Beneficiary if the
Participant's Beneficiary designation so specifies, and otherwise to the estate
of the deceased Beneficiary.
SEC. 8.6 INSURANCE CONTRACT. Notwithstanding the foregoing provisions
of this Article VIII, as to benefits payable under a contract issued by an
insurance company, said contract shall govern the designation of Beneficiary
entitled to benefits thereunder except to the extent the contract is
inconsistent with the provisions of Sec. 8.2 or Sec. 10.1.
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ARTICLE IX
BENEFIT REQUIREMENTS
SEC. 9.1 BENEFIT ON RETIREMENT OR DISABILITY. If a Participant's
Termination of Employment occurs (for any reason other than death) after either
of the following events, the Participant shall be 100% vested and shall be
entitled to a benefit equal to the value of all of his or her Accounts
determined as of the Valuation Date coincident with or next following the
Termination of Employment:
(a) The Participant has reached age 65.
(b) The Participant's Termination of Employment has occurred due to a
bodily injury or disease which the Company determines, based on
competent medical evidence, makes the Participant permanently disabled
from performing the normal duties of his or her position with the
Company.
The benefit shall be paid at the times and in the manner determined under
Article X.
SEC. 9.2 OTHER TERMINATION OF EMPLOYMENT. If a Participant's
Termination of Employment occurs (for any reason other than death) under
circumstances such that the Participant is not entitled to a benefit under Sec.
9.1, the Participant shall be entitled to a benefit equal to the value of all of
his or her Accounts other than the Participant's Matching Account and also a
benefit equal to the vested percentage of the value of the Participant's
Matching Account, determined as of the Valuation Date coincident with or next
following the Termination of Employment, subject, however, to the following:
(a) The vested percentage shall depend upon the number of the
Participant's Years of Vesting Service at the time of the Termination
of Employment, as follows:
<TABLE>
<CAPTION>
Vesting Schedule
Years of Vesting Service Vested Percentage
------------------------ -----------------
<S> <C>
Less than 2 0%
2 but less than 3 25%
3 but less than 4 50%
4 but less than 5 75%
5 or more 100%
</TABLE>
(b) The portion of the Matching Account that is not vested shall be
treated as a separate subaccount of the Participant's Matching
Account. The disposition of that portion of the Matching Account shall
be as provided below:
(1) Notwithstanding anything in Sec. 10.1 to the contrary:
(A) If the remaining value of the Participant's Accounts (other
than the nonvested portion of the Matching Account) is
$3,500 or less, the entire benefit will be distributed as
soon as reasonably possible following the Termination of
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<PAGE> 37
Employment. The nonvested portion of the Matching Account
shall be recognized as a Forfeiture as of the date on which
the distribution occurs (or the date of the Termination of
Employment if the Participant is 0% vested).
(B) If the remaining value of the Participant's Accounts (other
than the nonvested portion of the Matching Account) is more
than $3,500, the Participant may elect in accordance with
Sec. 10.1 to receive the entire benefit to which he or she
is entitled only in a lump sum (or through the purchase of
an annuity contract where otherwise permitted by Sec. 10.1).
The nonvested portion of the Matching Account shall be
recognized as a Forfeiture as of the date on which the
distribution occurs.
(C) In all events, if the Participant incurs a period of five
consecutive 1-Year Breaks In Service, the nonvested portion
of the Matching Account shall be recognized as a Forfeiture
as of the date on which the break occurs. Upon a Forfeiture
under this subparagraph, subparagraph (B) shall cease to
apply to the Participant.
(2) The Participant shall lose all claim to the nonvested portion of
the Matching Account when the Forfeiture occurs. The value of the
nonvested portion of the Matching Account shall be transferred to
the Plan's Forfeiture Account as of the date on which the
Forfeiture occurs and allocated as provided in this section and
Sec. 5.2.
(3) If the Participant resumes employment covered under the Plan
before the Participant has a period of five consecutive 1-Year
Breaks In Service:
(A) Any nonvested portion of the Participant's Matching Account
which has not become a Forfeiture shall be reinstated to the
Matching Account of the Participant.
(B) If the Participant was 0% vested in a Matching Account when
the Forfeiture occurred, the Matching Account will be
restored to its value on the date the Forfeiture occurred.
(C) If the Participant received a distribution pursuant to
subparagraph (1)(A) or (B), he or she may repay to the Plan
the full amount of the distribution attributable to employer
contributions (including Salary Reduction Contributions) at
any time prior to the earlier of (i) the date he or she has
a period of five consecutive 1-Year Breaks In Service, or
(ii) the fifth anniversary of the date on which the
Participant was reemployed. If such a repayment is made, an
amount shall be restored to the Participant's Matching
Account not later than the end of the Plan Year in which the
repayment is made equal to the value of the Forfeiture on
the date the Forfeiture occurred.
(4) If a Participant referred to in paragraph (3) is not 100% vested
in the reinstated Matching Account upon a subsequent Termination
of Employment, the benefit to which the Participant is entitled
therefrom shall be determined as of the Valuation Date coincident
with or next following the subsequent Termination of Employment
as follows:
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<PAGE> 38
(A) To the value of such reinstated Account determined as of
such Valuation Date there shall be added the amount of the
benefit from the Account which the Participant received as a
result of the prior Termination of Employment.
(B) The applicable vested percentage from the vesting schedule
shall be applied to such sum.
(C) From the result obtained in (B), there shall be subtracted
the amount added to the value of the reinstated Account
under (A).
(5) The amount required to reinstate an Account pursuant to paragraph
(3) shall be provided from the following sources in the priority
indicated:
(A) Amounts forfeited under this subsection (b) held in the
Plan's Forfeiture Account.
(B) Employer contributions for the Plan Year designated for this
purpose.
(6) If an individual who was not 100% vested is reemployed after a
period of five consecutive 1-Year Breaks In Service and if at the
time of reemployment the individual still has a Matching Account
in the Plan relating to pre-break service, such Account shall be
treated as a separate Account to which no additional employer
contributions may be allocated.
(c) The benefit under this section shall be paid at the times and in the
manner determined under Article X.
SEC. 9.3 DEATH. If a Participant's Termination of Employment is the
result of death, his or her Beneficiary shall be entitled to a benefit equal to
the value of all of the Participant's Accounts determined as of the Valuation
Date coincident with or next following the date of death. Such benefit shall be
paid at the times and in the manner determined under Article X. If a
Participant's death occurs after his or her Termination of Employment,
distribution of the balance of the Participant's Accounts shall be made to the
Beneficiary in accordance with the provisions of Article X.
SEC. 9.4 WITHDRAWALS BEFORE TERMINATION OF EMPLOYMENT. A Participant
may request a cash withdrawal from his or her 401-K Account or Rollover Account
at any time prior to the date benefits first become payable to the Participant
under Sec. 9.1 or Sec. 9.2 pursuant to the following:
(a) Until the Participant reaches age 59 1/2, a withdrawal may be made
from a 401-K Account only to meet a financial hardship. Withdrawals
may be made from any Rollover Account of the Participant for any
reason, and do not require proof of financial hardship.
(1) A hardship withdrawal will be permitted from a 401-K Account only
if the Company determines that both of the following requirements
are met:
(A) The distribution must be made on account of one of the
following reasons:
(i) Expenses for medical care described in section 213(d)
of the Code incurred by the Participant, the
Participant's spouse, or any dependents
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<PAGE> 39
of the Participant, as defined in section 152 of the
Code, or expenses necessary for any of those persons
to obtain such medical care.
(ii) Costs directly related to the purchase of the principal
residence of the Participant (excluding mortgage
payments).
(iii)Payment of tuition and related educational fees for
the next 12 months of post-secondary education for the
Participant, or for his or her spouse, children or
dependents.
(iv) 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.
(B) All of the following requirements must be satisfied:
(i) The amount of the distribution cannot exceed the amount
of the immediate and heavy financial need of the
Participant. The Company may reasonably rely on the
Participant's representation as to that amount.
However, the amount of the distribution may include any
amounts determined by the Company to be necessary to
pay any federal, state or local income taxes or
penalties reasonably expected to result from the
distribution.
(ii) The Participant must have obtained all distributions,
other than hardship distributions, and all nontaxable
loans currently available under all plans maintained by
the Company or any Affiliate.
(iii)The Participant's elective contributions and employee
contributions under the Plan and all other qualified
and nonqualified plans of deferred compensation
maintained by the Company or any Affiliate will be
suspended pursuant to the terms of the plan or an
otherwise legally enforceable agreement for the
following twelve months.
(iv) For the calendar year immediately following the
calendar year of the hardship distribution, the
Participant may not make contributions under all plans
maintained by the Company or any Affiliate in excess of
the applicable limit under section 402(g) of the Code
for such next calendar year less the amount of the
Participant's elective contributions for the calendar
year of the hardship distribution.
(v) Notwithstanding the foregoing provisions of this
subparagraph (B), this subparagraph (B) will be
satisfied if the IRS issues a revenue ruling, notice,
or other document of general applicability which
establishes an alternative method under which
distributions will be deemed to be necessary to satisfy
an immediate and heavy financial need and all of the
requirements of such alternative method are met.
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<PAGE> 40
(2) With respect to any such hardship withdrawal, earnings credited
to the Participant's 401-K Account after December 31, 1988 cannot
be withdrawn under this subsection (a).
(b) After the Participant reaches age 59 1/2, a withdrawal may be made
from the Participant's 401-K Account or Rollover Account for any
reason.
(c) Requests for withdrawals under this section shall be made pursuant to
applicable rules and regulations adopted by the Company which are
uniform and non-discriminatory as to all Participants and shall be
submitted to the Company or its designated agent in such form as the
Company or its designated agent prescribes for this purpose. The
Company or its designated agent shall determine whether the
requirements of this section have been met.
(d) The Company or its designated agent shall direct the Funding Agency
respecting the payment of withdrawals under this section. Payment
shall be made to the Participant as soon as administratively feasible
following approval of the withdrawal request by the Company or its
designated agent. Withdrawals under this section shall be made first
from any Rollover Account of the Participant.
SEC. 9.5 LOANS TO PARTICIPANTS. The Company may authorize a loan to a
Participant who is an employee of the Company or an Affiliate and who makes
application therefor. Each such loan shall be subject to the following
provisions:
(a) Any such loan shall be made from the Participant's 401-K and/or
Rollover Accounts, and shall not be in an amount greater than the
total balance of such 401-K and Rollover Accounts (after subtracting
the balance of any outstanding loan).
(b) The amount of any loan to a Participant, when added to the balance of
all other loans to the Participant under this Plan and all related
plans which are outstanding on the day on which such loan is made,
shall not exceed the lesser of:
(1) $50,000, reduced by the excess (if any) of (i) the highest
outstanding balance of loans to the Participant from the Plan and
all related plans during the one-year period ending on the day
before the date the loan is made, over (ii) the outstanding
balance of loans to the Participant from the Plan and all related
plans on the date the loan is made; or
(2) 50% of the amount to which the Participant would be entitled in
the event his or her Termination of Employment were to occur on
the date the loan is made.
For purposes of this section, a related plan is any "qualified
employer plan", as defined in Code section 72(p)(4), sponsored by
the Company or any related employer, determined according to Code
section 72(p)(2)(D).
(c) The minimum amount of any loan shall be $1,000. If $1,000 is greater
than the maximum amount allowed under either subsection (a) or (b), no
loan shall be made. Only one loan may be made to a Participant during
any calendar year. Only one loan may be outstanding to a Participant
at any time.
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(d) Each loan shall be evidenced by the Participant's promissory note
payable to the order of the Funding Agency. Each loan shall be
adequately secured as determined by the Company. A loan shall be
considered adequately secured whenever the outstanding balance does
not exceed the amount in which the Participant would have a vested
interest in the event of his or her Termination of Employment.
(e) The Company shall determine the rate of interest to be paid with
respect to each loan, which shall be a reasonable rate of interest
within the meaning of Code section 4975. The rate shall be based on
the interest rates charged by persons in the business of lending money
in the region in which the Company operates for loans which would be
made under similar circumstances.
(f) Each such loan shall provide for the payment of accrued interest and
for repayment of principal in substantially equal installments not
less frequently than quarterly. There will be no penalty for
prepayment in full of any loan. Partial prepayments are not allowed.
While the Participant is employed by the Company, all loans shall be
repaid through payroll deductions each pay period to the extent
possible, except in the case of prepayments. Prepayments must be made
by cashier's check, certified check or money order. The Participant
shall execute any documents required to authorize payroll deductions.
(g) Each loan shall extend for a stated period determined by agreement of
the Participant and the Company, not exceeding five years. The
limitation in the preceding sentence shall not apply to any loan
designated by the Company as a home loan. For purposes of this
paragraph, a home loan is a loan used to acquire any dwelling unit
which within a reasonable time is to be used as the principal
residence of the Participant. The duration of home loans shall be
determined by the Company.
(h) Failure to pay any installment of interest or principal when due shall
constitute a default with respect to that payment (subject to any
applicable grace period established by the Company for correcting the
default, or any period of suspension of payments permitted under rules
established by the Company). Upon any such default, the entire loan
balance shall be declared to be in default. In all events, the entire
outstanding loan balance shall become due and payable on the date the
Participant's Termination of Employment occurs, and shall be treated
as in default if not repaid in full by the Participant within 90 days
following the Participant's Termination of Employment (or on or before
the due date of the next regularly scheduled payment on the loan, if
the Participant's Termination of Employment occurred prior to November
1, 1999). Events of default shall also include any other events
identified as such in the Participant's note. In the event of a
default on a loan, foreclosure on the note and application of the
Participant's Accounts to satisfy the note will occur on the earliest
date on which the Participant or Beneficiary is eligible to receive
payment of benefits under the Plan, but shall not occur prior to that
date.
(i) If a loan to a Participant is outstanding on the date a distribution
is to be made from the Fund with respect to the portion of the
Participant's Account or Accounts represented by the loan, the balance
of the loan, or a portion thereof equal to the amount to be
distributed, if less, shall on such date become due and payable. The
portion of the loan due and payable shall be satisfied by offsetting
such amount against the amount to be distributed to the Participant.
Alternatively, the portion of the Participant's Account or Accounts
equal
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to the outstanding balance on the loan may be distributed in kind by
distribution of the Participant's note.
(j) If a loan to a Participant is outstanding at the time of the
Participant's death, and if the loan is not repaid by the
Participant's executor or administrator, the note shall be distributed
in kind to the Participant's Beneficiary.
(k) In accordance with the foregoing standards and requirements, loans
shall be available to all Participants on a reasonably equivalent
basis.
(l) All loans shall be governed by such non-discriminatory written rules
as the Company may adopt, which shall be deemed to be a part of this
Plan. The Company shall administer the loan program under this
section, but may delegate administrative responsibilities to a
designated agent.
(m) Applications for loans shall be filed with the Company or its
designated agent in such manner as the Company may prescribe from time
to time for this purpose. The loan principal will be disbursed by the
Funding Agency within a reasonable time after the application has been
received and approved. Determinations of the maximum loan amount
permitted under this section shall be based on Account values
determined as of the most recent Valuation Date for which the values
are available at the time the loan request is processed.
(n) Each Participant receiving a loan shall be provided with any
information required to be furnished pursuant to the Federal Truth In
Lending Act, if applicable, or pursuant to any other applicable law.
(o) The portion of a Participant's Account or Accounts represented by the
outstanding loan principal shall be segregated for investment
purposes. In lieu of sharing in income or losses on investments of the
Fund, the segregated portion of the Participant's Accounts shall be
credited with all interest paid by the Participant on the loan.
Repayments of principal and interest on a loan shall be reinvested in
accordance with the investment designation in effect under Sec. 7.3
for future contributions on the date the repayment is received by the
Funding Agency. The Funding Agency may charge to the Participant's
Accounts any expenses attributable to the loan and such portion of the
general expenses of the Fund as the Funding Agency determines in its
discretion to be reasonable.
(p) If the Participant has both a 401-K Account and a Rollover Account,
loans will be taken first from the 401-K Account. The investments held
in the Participant's Accounts shall be liquidated pro rata to provide
the Fund with cash equal to the loan principal.
(q) Solely for purposes of this section, a former Active Participant (or
any Beneficiary of a deceased Participant) who is entitled to a
benefit from the Plan, and who is a "party in interest" as defined in
section 3(14) of ERISA, is considered to be an employee of the
Company.
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ARTICLE X
DISTRIBUTION OF BENEFITS
SEC. 10.1 TIME AND METHOD OF PAYMENT. The benefit to which a
Participant or Beneficiary may become entitled under Article IX shall be
distributed to that individual at such time as he or she elects and according to
the method he or she elects, subject to the following:
(a) Distributions may commence at any time after the Participant or
Beneficiary has become entitled to a benefit. Distribution shall be
made by one or a combination of the following methods, as the
Participant or Beneficiary may select:
(1) Payment in a single sum.
(2) Payment in a series of annual or more frequent installments.
(3) Purchase of a non-transferable period-certain annuity contract
providing substantially non-increasing payments.
The distribution shall occur or installments shall commence within a
reasonable time after the Participant or Beneficiary has filed a
request for payment with the Company or its designated agent,
including all forms required to process the request.
(b) Unless the Participant elects otherwise, distributions must commence
no later than the 60th day after the close of the Plan Year in which
the Participant reaches Normal Retirement Age or in which the
Participant's Termination of Employment occurs, whichever is later;
provided, however, that if the amount of the payment to be made cannot
be determined by the later of the aforesaid dates, a payment
retroactive to such date may be made no later than 60 days after the
earliest date on which the amount of such payment can be ascertained.
For purposes of this subsection, the failure of a Participant to elect
to receive a distribution shall be deemed to be an election to defer
commencement of benefit distributions.
(c) For purposes of this Sec. 10.1, commencing January 1, 1997, a
Participant's "required beginning date" is April 1 of the calendar
year following the later of (i) the calendar year in which the
Participant attained age 70 1/2, or (ii) the calendar year in which
the Participant's Termination of Employment occurs. However, clause
(ii) of the previous sentence does not apply to any Participant who is
a more than 5-percent owner of the Company (as defined in Code section
416) with respect to the Plan Year ending in the calendar year in
which the Participant attains age 70 1/2. Any Participant who had
begun receiving minimum distributions for years prior to 1997, but who
is not required to receive such distributions under the provisions of
this subsection, may file a written election with the Company to stop
those distributions until the required beginning date under this
subsection. Notwithstanding any provision of the Plan to the contrary,
a Participant may elect in writing to have distributions occur or
commence at any time on or after April 1 following the calendar year
in which the Participant attained age 70 1/2, even though the
Participant's Termination of Employment has not yet occurred.
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(d) Notwithstanding any provisions of the Plan to the contrary, a
Participant's entire benefit must be distributed, or installments must
commence, by the Participant's required beginning date unless the
Participant's death occurs before that date.
(1) Installments during the life of the Participant shall be paid no
less rapidly than by reference to one of the following periods:
(i) a period-certain not longer than the life expectancy of the
Participant, or (ii) a period-certain not longer than the joint
life and last survivor expectancy of the Participant and the
designated Beneficiary.
(2) Notwithstanding the foregoing, if the designated Beneficiary is
not the Participant's spouse, installments during the life of the
Participant shall be limited to the maximum period permitted
under Proposed Treasury Regulation ss. 1.401(a)(9)-2.
(e) If the Participant dies after his or her required beginning date and
after beginning to receive payments in installments over a
period-certain pursuant to subsection (d), the remaining payments
shall be made to the Beneficiary at least as rapidly as under the
method of distribution selected by the Participant.
(f) If the Participant dies before his or her required beginning date, the
Participant's Accounts shall be distributed to the Beneficiary not
later than December 31 of the year containing the fifth anniversary of
the Participant's death, subject to the following:
(1) Distributions to a designated Beneficiary may extend beyond five
years from the death of the Participant if they are in the form
of installment payments or payments under an annuity contract
over a period-certain not exceeding the Beneficiary's life
expectancy, provided such payments begin not later than December
31 of the year following the year in which the Participant's
death occurred.
(2) If the designated Beneficiary under paragraph (1) is the
surviving spouse of the Participant, payments pursuant to
paragraph (1) may commence at any time on or before the later of
(i) December 31 of the year in which the Participant would have
reached age 70 1/2, or (ii) December 31 of the year following the
year in which the Participant's death occurred.
If a surviving spouse who is entitled to benefits under this
subsection dies before distributions to the surviving spouse begin,
this subsection (other than paragraph (2)) shall be applied as if the
surviving spouse were the Participant, with the date of death of the
surviving spouse being substituted for the date of death of the
Participant.
(g) If more than one Beneficiary is entitled to benefits following the
Participant's death, the interest of each Beneficiary shall be
segregated into a separate Account for purposes of applying this
section.
(h) If distributions are made in installments, the amount to be
distributed each calendar year, beginning with the first calendar year
for which payments are required, must be at least equal to the
quotient obtained by dividing the entire interest of the individual on
the most recent Valuation Date preceding the calendar year (adjusted
as may be required by Treasury regulations) by the lesser of (i) the
number of years of life expectancy which remain, determined as
provided in subsection (i), or (ii) in the case of distributions to a
Participant with a designated Beneficiary other than the Participant's
spouse, the applicable
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divisor prescribed in regulations under Code section 401(a)(9)(G)
relating to incidental death benefits.
(1) For purposes of determining the amount which must be distributed
in any year, Excess Salary Reduction Contributions, Excess
Aggregate Contributions and Excess Deferrals distributed in
accordance with Article V (including income on such amounts)
shall be disregarded.
(2) For purposes of this subsection, the first calendar year for
which a distribution is required shall be determined as follows:
(A) In the case of distributions to the Participant, the first
calendar year for which a distribution is required is the
year preceding the calendar year which contains the
Participant's required beginning date.
(B) In the case of distributions to a designated Beneficiary
pursuant to subsection (f), the first calendar for which a
distribution is required is the calendar year containing the
latest date by which distribution must commence under
subsection (f).
(3) Any installment method under this section shall be selected by a
written election filed with the Company by the person entitled to
the distributions, which shall specify the method for determining
life expectancies under subsection (i). The election shall be
irrevocable after the date payments are required to commence
under subsection (d) or (f), except that the individual entitled
to payments may elect to receive a larger amount at any time.
(i) For purposes of this section, life expectancies shall be determined by
using the expected return multiples in Tables V and VI of Treasury
Regulation ss. 1.72-9, in accordance with regulations under Code
section 401(a)(9). Such determinations shall also be in accordance
with the following:
(1) For life expectancies determined for purposes of installment
distributions to the Participant as of the required beginning
date, life expectancies shall be calculated based on the
Participant's (and the designated Beneficiary's) age as of the
birthday in the calendar year preceding the calendar year in
which falls the Participant's required beginning date. For
purposes of calculating the minimum distribution for each
succeeding calendar year, one of the following methods shall
apply as selected by the Participant (or by the surviving spouse,
where applicable);
(A) If the life expectancy of the Participant (or the joint life
and last survivor expectancy of the Participant and the
designated Beneficiary who is a surviving spouse) is being
recalculated pursuant to paragraph (4), then the life
expectancy of the Participant (or the joint life and last
survivor expectancy of the Participant and the surviving
spouse) shall be recalculated using the Participant's (and
the spouse's) actual age as of the Participant's birthday
(and the spouse's birthday) in each succeeding calendar
year.
(B) If the life expectancy of the Participant (or the joint life
and last survivor expectancy of the Participant and the
designated Beneficiary) is not being
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recalculated, then the initial life expectancy (or joint
life and last survivor expectancy) shall be reduced by one
for each subsequent calendar year.
(C) If a joint life and last survivor expectancy is being
determined by recalculating one but not both of the joint
lives, then the joint life and last survivor expectancy
shall be recalculated using (i) the actual age of the
individual whose life expectancy is being recalculated as of
the individual's birthday in each succeeding calendar year
and (ii) the adjusted age of the individual whose life
expectancy is not being recalculated. For purposes of the
preceding sentence, an individual's "adjusted age" is
determined in accordance with regulations under Code section
401(a)(9).
(2) For life expectancies determined for purposes of subsection (f),
the designated Beneficiary's life expectancy shall be calculated
based on the Beneficiary's age as of the birthday in the calendar
year in which distributions are required to commence pursuant to
subsection (f). For purposes of calculating the minimum
distribution for each succeeding calendar year, one of the
following methods shall apply:
(A) If the designated Beneficiary is the Participant's surviving
spouse, and the life expectancy is being recalculated
pursuant to paragraph (4), then the surviving spouse's life
expectancy shall be recalculated using the surviving
spouse's actual age as of the surviving spouse's birthday in
each succeeding calendar year.
(B) If the designated Beneficiary's life expectancy is not being
recalculated, then the initial life expectancy shall be
reduced by one for each subsequent calendar year.
(3) If the life expectancy of a Participant (or the Participant's
spouse) is being recalculated pursuant to paragraph (4), the
recalculated life expectancy of the Participant (or spouse) will
be reduced to zero in the calendar year following the calendar
year in which the person's death occurs.
(4) The life expectancy of a Participant or the life expectancy of a
designated Beneficiary who is the Participant's spouse, or both
of their life expectancies, may be recalculated each year if so
elected by the Participant (or spouse). Such election must be
made no later than the time of the first required distribution
under subsections (d) or (f). Such election shall be irrevocable
after the date distributions must commence. If no election is
made by that date, life expectancies will not be recalculated.
(j) If benefits are to be distributed by purchase of a period-certain
annuity, the issuer may be any company engaged in the business of
writing annuity contracts. The annuity must provide for substantially
non-increasing periodic payments over a fixed period no longer than
the applicable life expectancy or joint life and last survivor
expectancy allowed under subsection (d), (e) or (f). Life expectancies
for this purpose shall be determined pursuant to subsection (i) at the
time payments begin. The annuity contract shall be endorsed to
prohibit any optional settlement which provides for payment in any
form of a life annuity or in any other form not permitted under
subsection (a). In the case of any conflict
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between the provisions of any annuity contract and the provisions of
the Plan, the provisions of the Plan shall control.
(k) For purposes of this section, "designated Beneficiary" means any
individual who is a Beneficiary pursuant to Article VIII.
(l) Notwithstanding the foregoing, if the total vested value of the
Accounts of a Participant (or a Beneficiary following the
Participant's death) is $3,500 or less following the date the
Participant's Termination of Employment or death occurs, a single-sum
distribution of the entire benefit shall be made to the Participant
(or Beneficiary) automatically as soon as administratively feasible
thereafter.
(m) Notwithstanding any provision of the Plan to the contrary,
distributions under this section shall be made in accordance with the
requirements of Code section 401(a)(9), including the incidental death
benefit requirements of Code section 401(a)(9)(G) and the regulations
thereunder. No distribution option otherwise permitted under this Plan
will be available to a Participant or Beneficiary if such distribution
option does not meet the requirements of Code section 401(a)(9),
including subparagraph (G) thereof.
(n) Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election, a distributee may elect, at
the time and in the manner prescribed by the Company, to have any
portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct
rollover. For purposes of this subsection:
(1) 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 expectancy of the distributee or the joint life
expectancies of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; and
any distribution to the extent such distribution is required
under Code section 401(a)(9).
(2) 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.
(3) A "distributee" includes a Participant or former Participant. In
addition, the Participant's or former Participant's surviving
spouse and the Participant's or former Participant'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.
(4) A "direct rollover' is a payment by the Plan to the eligible
retirement plan specified by the distributee.
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SEC. 10.2 DISTRIBUTIONS FROM MORE THAN ONE ACCOUNT. If a Participant
or Beneficiary has more than one Account and a distribution (other than a
distribution of a defaulted loan under Sec. 9.5) is to be made that is less than
the individual's entire benefit, the distribution shall be made first from any
Rollover Account, then from the 401-K Account, and finally from the Matching
Account. If the Participant or Beneficiary fails to provide instructions as to
which of the investments held for his or her Accounts are to be liquidated to
provide funds for distribution, the investments shall be liquidated on a pro
rata basis.
SEC. 10.3 DISTRIBUTION IN CASH ONLY. Distributions will be made in
cash only, except as otherwise provided in Sec. 9.5 or Sec. 10.1(a)(3).
SEC. 10.4 ACCOUNTING FOLLOWING TERMINATION OF EMPLOYMENT. If
distribution of all or any part of a benefit is deferred or delayed for any
reason, the undistributed portion of any Account shall continue to be revalued
as of each Valuation Date as provided in Article VII. Payment of the premium on
an annuity contract for a distributee shall be considered a distribution for the
purpose of such revaluations. Each distribution which requires the consent of
the Participant or Beneficiary shall be made as of a Valuation Date determined
by the Funding Agency in accordance with its normal procedures which occurs
after the date the Participant (or Beneficiary following the Participant's
death) submits a properly completed request for payment to the Company or its
designated agent and on or within a reasonable period of time prior to the date
the request is processed by the Funding Agency. Any other distributions shall be
made as of a Valuation Date selected by the Funding Agency which is on or a
reasonable period of time prior to the date the distribution is processed by the
Funding Agency.
SEC. 10.5 REEMPLOYMENT. Except where distributions are required under
Sec. 10.1, distributions from the Fund shall cease upon reemployment of a
Participant in a regular position by the Company, and shall recommence in
accordance with the provisions of this Article upon the Participant's subsequent
Termination of Employment.
SEC. 10.6 SOURCE OF BENEFITS. All benefits to which persons become
entitled hereunder shall be provided only out of the Fund and only to the extent
that the Fund is adequate therefor. No benefits are provided under the Plan
except those expressly described herein.
SEC. 10.7 INCOMPETENT PAYEE. If in the opinion of the Company a person
entitled to payments hereunder is disabled from caring for his or her affairs
because of mental or physical condition, or age, payment due such person may be
made to such person's guardian, conservator, or other legal personal
representative upon furnishing the Company with evidence satisfactory to the
Company of such status. Prior to the furnishing of such evidence, the Company
may cause payments due the person under disability to be made, for such person's
use and benefit, to any person or institution then in the opinion of the Company
caring for or maintaining the person under disability. The Company shall have no
liability with respect to payments so made. The Company shall have no duty to
make inquiry as to the competence of any person entitled to receive payments
hereunder.
SEC. 10.8 BENEFITS MAY NOT BE ASSIGNED OR ALIENATED. Except as
otherwise expressly permitted by the Plan or required by law, the interests of
persons entitled to benefits under the Plan may not in any manner whatsoever be
assigned or alienated, whether voluntarily or involuntarily, or directly or
indirectly. However, the Plan shall comply with the provisions of any court
order which the Company determines is a qualified domestic relations order as
defined in Code section 414(p). Any expenses relating to review or
administration of a domestic relations order may be charged against the Accounts
of the Participant and/or the alternate payee. Notwithstanding any provisions in
the Plan
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to the contrary, an individual who is entitled to payments from the Plan as an
"alternate payee" pursuant to a qualified domestic relations order shall receive
a lump sum payment from the Plan as soon as administratively feasible after the
Valuation Date coincident with or next following the date of the Company's
determination that the order is a qualified domestic relations order, unless the
order specifically provides for payment to be made at a later time or in a
different form permitted under Sec. 10.1.
SEC. 10.9 PAYMENT OF TAXES. The Funding Agency may pay any estate,
inheritance, income, or other tax, charge, or assessment attributable to any
benefit payable hereunder which in the Funding Agency's opinion it shall be or
may be required to pay out of such benefit. The Funding Agency may require,
before making any payment, such release or other document from any taxing
authority and such indemnity from the intended payee as the Funding Agency shall
deem necessary for its protection.
SEC. 10.10 CONDITIONS PRECEDENT. No person shall be entitled to a
benefit hereunder until his or her right thereto has been finally determined by
the Company nor until the person has submitted to the Company relevant data
reasonably requested by the Company, including, but not limited to, proof of
birth or death.
SEC. 10.11 COMPANY DIRECTIONS TO FUNDING AGENCY. The Company shall
issue such written directions to the Funding Agency as are necessary to
accomplish distributions to the Participants and Beneficiaries in accordance
with the provisions of the Plan.
SEC. 10.12 EFFECT ON UNEMPLOYMENT COMPENSATION. For purposes of any
unemployment compensation law, a distribution hereunder in one sum to the extent
attributable to employer contributions, shall be considered to be a severance
payment and shall be allocated over a period of weeks equal to the one sum
payment divided by the employee's regular weekly pay while employed by the
Company, which period shall commence immediately following the employee's
Termination of Employment.
SEC. 10.13 SPECIAL DISTRIBUTION EVENTS. Notwithstanding anything
herein to the contrary, if the agreement between the buyer and the seller in one
of the following types of transaction provides that distributions are to be made
to affected Participants, each such Participant shall receive a distribution of
his or her vested Account balance as soon as administratively feasible after
either of the following events:
(a) The disposition by the Company to an unrelated corporation of
substantially all of the assets (within the meaning of Code section
409(d)(2)) used in a trade or business if the Company continues to
maintain this Plan after the disposition, but only with respect to
employees who continue employment with the corporation acquiring such
assets.
(b) The disposition by the Company or by an Affiliate to an unrelated
entity of such corporation's interest in a subsidiary (within the
meaning of Code section 409(d)(3)) which had employees who were
covered by this Plan if such corporation continues to maintain this
Plan, but only with respect to employees who continue employment with
such subsidiary.
All distributions under this section are subject to any applicable consent
requirements under Sec. 10.1. In addition, distributions under this section must
be made in a lump sum.
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ARTICLE XI
FUND
SEC. 11.1 COMPOSITION. All sums of money and all securities and other
property received by the Funding Agency for purposes of the Plan, together with
all investments made therewith, the proceeds thereof, and all earnings and
accumulations thereon, and the part from time to time remaining shall constitute
the "Fund". The Company may cause the Fund to be divided into any number of
parts for investment purposes or any other purposes necessary or advisable for
the proper administration of the Plan.
SEC. 11.2 FUNDING AGENCY. The Fund may be held and invested as one
fund or may be divided into any number of parts for investment purposes. Each
part of the Fund, or the entire Fund if it is not divided into parts for
investment purposes, shall be held and invested by one or more trustees or by an
insurance company. The trustee or trustees or the insurance company so acting
with respect to any part of the Fund is referred to herein as the Funding Agency
with respect to such part of the Fund. The selection and appointment of each
Funding Agency shall be made by the Company. The Company shall have the right at
any time to remove a Funding Agency and appoint a successor thereto, subject
only to the terms of any applicable trust agreement or group annuity contract.
The Company shall have the right to determine the form and substance of each
trust agreement and group annuity contract under which any part of the Fund is
held, subject only to the requirement that they are not inconsistent with the
provisions of the Plan. Any such trust agreement may contain provisions pursuant
to which the trustee will make investments on direction of a third party.
SEC. 11.3 COMPENSATION AND EXPENSES OF FUNDING AGENCY. The Funding
Agency shall be entitled to receive such reasonable compensation for its
services as may be agreed upon with the Company. The Funding Agency shall also
be entitled to reimbursement for all reasonable and necessary costs, expenses,
and disbursements incurred by it in the performance of its services. Such
compensation and reimbursements shall be paid from the Fund if not paid directly
by the Company.
SEC. 11.4 FUNDING POLICY. The Company shall adopt a procedure, and
revise it from time to time as it shall consider advisable, for establishing and
carrying out a funding policy and method consistent with the objectives of the
Plan and the requirements of ERISA. It shall advise each Funding Agency of the
funding policy in effect from time to time.
SEC. 11.5 SECURITIES AND PROPERTY OF THE COMPANY. An agreement with a
Funding Agency may provide that all or any part of the Fund may be invested in
qualifying employer securities or qualifying employer real property, as those
terms are used in ERISA; provided, however, that the Company shall take any
steps necessary to assure that investments in securities of the Company or any
trade or business entity directly or indirectly controlling, controlled by, or
under Common Control with the Company do not exceed those that can be acquired
by that part of the Fund attributable to contributions by the Company (other
than Salary Reduction Contributions), as distinguished from that part of the
Fund, if any, attributable to contributions by Participants or Salary Reduction
Contributions, unless there has been compliance with any applicable securities
laws. If qualifying employer securities or qualifying employer real property are
purchased or sold as an investment of the Fund from or to a disqualified person
or party in interest, as those terms are used in ERISA, and if there is no
generally recognized market for such securities or property, the purchase shall
be for not more than fair market value and the sale shall be for not less than
fair market value, as determined in good faith by the Company or other Named
Fiduciary assigned such function, or if such assets are held in trust and the
trust agreement so provides, as determined in good faith by the trustee.
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SEC. 11.6 NO DIVERSION. The Fund shall be for the exclusive purpose of
providing benefits to Participants under the Plan and their beneficiaries and
defraying reasonable expenses of administering the Plan. Such expenses may
include premiums for the bonding of Plan officials required by ERISA. No part of
the corpus or income of the Fund may be used for, or diverted to, purposes other
than for the exclusive benefit of employees of the Company or their
beneficiaries. Notwithstanding the foregoing:
(a) If any contribution or portion thereof is made by the Company by a
mistake of fact, the Funding Agency shall, upon written request of the
Company, return such contribution or portion thereof to the Company
within one year after the payment of the contribution to the Funding
Agency; however, earnings attributable to such contribution or portion
thereof shall not be returned but shall remain in the Fund, and the
amount returned to the Company shall be reduced by any losses
attributable to such contribution or portion thereof.
(b) Contributions by the Company are conditioned upon the deductibility of
each contribution under Code section 404. To the extent the deduction
is disallowed, the Funding Agency shall return such contribution to
the Company within one year after the disallowance of the deduction;
however, earnings attributable to such contribution (or disallowed
portion thereof) shall not be returned but shall remain in the Fund,
and the amount returned to the Company shall be reduced by any losses
attributable to such contribution (or disallowed portion thereof).
In the case of any such return of contribution the Company shall cause such
adjustments to be made to the Accounts of Participants as it considers fair and
equitable under the circumstances resulting in the return of such contribution.
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ARTICLE XII
ADMINISTRATION OF PLAN
SEC. 12.1 ADMINISTRATION BY COMPANY. The Company is the
"administrator" of the Plan for purposes of ERISA. Except as expressly otherwise
provided herein, the Company shall control and manage the operation and
administration of the Plan and make all decisions and determinations incident
thereto. In carrying out its Plan responsibilities, the Company shall have
discretionary authority to construe the terms of the Plan. Except in cases where
the Plan expressly provides to the contrary, action on behalf of the Company may
be taken by any of the following:
(a) The Board.
(b) The chief executive officer of the Company.
(c) Any person or persons, natural or otherwise, or committee, to whom
responsibilities for the operation and administration of the Plan are
allocated by the Company, by resolution of the Board or by the chief
executive officer of the Company, but action of such person or persons
or committee shall be within the scope of said allocation.
SEC. 12.2 CERTAIN FIDUCIARY PROVISIONS. For purposes of the Plan:
(a) Any person or group of persons may serve in more than one fiduciary
capacity with respect to the Plan.
(b) A Named Fiduciary, or a fiduciary designated by a Named Fiduciary
pursuant to the provisions of the Plan, may employ one or more persons
to render advice with regard to any responsibility such fiduciary has
under the Plan.
(c) To the extent permitted by any applicable trust agreement or group
annuity contract a Named Fiduciary with respect to control or
management of the assets of the Plan may appoint an investment manager
or managers, as defined in ERISA, to manage (including the power to
acquire and dispose of) any assets of the Plan.
(d) At any time the Plan has more than one Named Fiduciary, if pursuant to
the Plan provisions fiduciary responsibilities are not already
allocated among such Named Fiduciaries, the Company, by action of the
Board or its chief executive officer, may provide for such allocation;
except that such allocation shall not include any responsibility, if
any, in a trust agreement to manage or control the assets of the Plan
other than a power under the trust agreement to appoint an investment
manager as defined in ERISA.
(e) Unless expressly prohibited in the appointment of a Named Fiduciary
which is not the Company acting as provided in Sec. 12.1, such Named
Fiduciary by written instrument may designate a person or persons
other than such Named Fiduciary to carry out any or all of the
fiduciary responsibilities under the Plan of such Named Fiduciary;
except that such designation shall not include any responsibility, if
any, in a trust agreement to manage or control the assets of the Plan
other than a power under the trust agreement to appoint an investment
manager as defined in ERISA.
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(f) A person who is a fiduciary with respect to the Plan, including a
Named Fiduciary, shall be recognized and treated as a fiduciary only
with respect to the particular fiduciary functions as to which such
person has responsibility.
Each Named Fiduciary (other than the Company), each other fiduciary, each person
employed pursuant to (b) above, and each investment manager shall be entitled to
receive reasonable compensation for services rendered, or for the reimbursement
of expenses properly and actually incurred in the performance of their duties
with the Plan and to payment therefor from the Fund if not paid directly by the
Company. Notwithstanding the foregoing, no person so serving who already
receives full-time pay from any employer or association of employers whose
employees are Participants, or from an employee organization whose members are
Participants, shall receive compensation from the Plan, except for reimbursement
of expenses properly and actually incurred. Furthermore, no Participant,
Beneficiary, or "alternate payee" under a qualified domestic relations order who
is eligible to direct the investment of his or her Accounts shall receive any
compensation or reimbursement of expenses with respect to such investing.
SEC. 12.3 DISCRIMINATION PROHIBITED. No person or persons in
exercising discretion in the operation and administration of the Plan shall
discriminate in favor of Highly Compensated Employees.
SEC. 12.4 EVIDENCE. Evidence required of anyone under this Plan may be
by certificate, affidavit, document, or other instrument which the person acting
in reliance thereon considers to be pertinent and reliable and to be signed,
made, or presented to the proper party.
SEC. 12.5 CORRECTION OF ERRORS. It is recognized that in the operation
and administration of the Plan certain mathematical and accounting errors may be
made or mistakes may arise by reason of factual errors in information supplied
to the Company or Funding Agency. The Company shall have power to cause such
equitable adjustments to be made to correct for such errors as the Company in
its discretion considers appropriate. Such adjustments shall be final and
binding on all persons. Any return of a contribution due to a mistake in fact
will be subject to Sec. 11.6.
SEC. 12.6 RECORDS. The Company, each fiduciary with respect to the
Plan, and each other person performing any functions in the operation or
administration of the Plan or the management or control of the assets of the
Plan shall keep such records as may be necessary or appropriate in the discharge
of their respective functions hereunder, including records required by ERISA or
any other applicable law. Records shall be retained as long as necessary for the
proper administration of the Plan and at least for any period required by ERISA
or other applicable law.
SEC. 12.7 GENERAL FIDUCIARY STANDARD. Each fiduciary shall discharge
its duties with respect to the Plan solely in the interests of Participants and
their beneficiaries and with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent person acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims.
SEC. 12.8 PROHIBITED TRANSACTIONS. A fiduciary with respect to the
Plan shall not cause the Plan to engage in any prohibited transaction within the
meaning of ERISA.
SEC. 12.9 CLAIMS PROCEDURE. The Company shall establish a claims
procedure consistent with the requirements of ERISA. Such claims procedure shall
provide adequate notice in writing to any Participant or beneficiary whose claim
for benefits under the Plan has been denied, setting forth
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the specific reasons for such denial, written in a manner calculated to be
understood by the claimant and shall afford a reasonable opportunity to a
claimant whose claim for benefits has been denied for a full and fair review by
the appropriate Named Fiduciary of the decision denying the claim.
SEC. 12.10 BONDING. Plan personnel shall be bonded to the extent
required by ERISA. Premiums for such bonding may, in the sole discretion of the
Company, be paid in whole or in part from the Fund. Such premiums may also be
paid in whole or in part by the Company. The Company may provide by agreement
with any person that the premium for required bonding shall be paid by such
person.
SEC. 12.11 WAIVER OF NOTICE. Any notice required hereunder may be
waived by the person entitled thereto.
SEC. 12.12 AGENT FOR LEGAL PROCESS. The Company shall be the agent for
service of legal process with respect to any matter concerning the Plan, unless
and until the Company designates some other person as such agent.
SEC. 12.13 INDEMNIFICATION. In addition to any other applicable
provisions for indemnification, the Company agrees to indemnify and hold
harmless, to the extent permitted by law, each director, officer, and employee
of the Company against any and all liabilities, losses, costs, or expenses
(including legal fees) of whatsoever kind and nature which may be imposed on,
incurred by, or asserted against such person at any time by reason of such
person's services as a fiduciary in connection with the Plan, but only if such
person did not act dishonestly, or in bad faith, or in willful violation of the
law or regulations under which such liability, loss, cost, or expense arises.
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ARTICLE XIII
AMENDMENT, TERMINATION, MERGER
SEC. 13.1 AMENDMENT. Subject to the non-diversion provisions of Sec.
11.6, the Company, by action of the Board, or by written action of a person so
authorized by resolution of the Board, may amend the Plan at any time and from
time to time. No action by a person other than the Board shall be an amendment
of the Plan unless it specifically references the Plan and states that it alters
the terms or conditions of the Plan. No amendment of the Plan shall have the
effect of changing the rights, duties, and liabilities of any Funding Agency
without its written consent. Also, no amendment shall divest a Participant or
Beneficiary of Accounts accrued prior to the amendment or decrease a
Participant's accrued benefit except to the extent permitted by Code section
411(d)(6).
(a) Promptly upon adoption of any amendment to the Plan, the Company will
furnish a copy of the amendment, together with a certificate
evidencing its due adoption, to each Funding Agency then acting.
(b) If an amendment to the Plan changes the vesting schedule of the Plan,
each Participant having not less than three years of service by the
end of the election period with respect to such amendment shall be
permitted within such election period to elect to have his or her
vested percentage computed under the Plan without regard to such
amendment. Each election shall be made in writing by filing with the
Company within the election period a form available from the Company
for the purpose. The election period shall be a reasonable period
determined by the Company commencing not later than the date the
amendment is adopted and shall be in conformance with any applicable
regulation prescribed by the Secretary of Labor or the Secretary of
the Treasury. Notwithstanding the foregoing, no election need be
provided for any Participant whose vested percentage under the Plan,
as amended, cannot at any time be less than the vested percentage
determined without regard to such amendment.
SEC. 13.2 PERMANENT DISCONTINUANCE OF CONTRIBUTIONS. The Company, by
action of the Board, may completely discontinue contributions in support of the
Plan. In such event, notwithstanding any provisions of the Plan to the contrary,
(i) no employee shall become a Participant after such discontinuance, (ii) any
amount held in the Plan's Forfeiture Account shall be applied as provided in
Sec. 5.2(e) or to pay Plan expenses, and (iii) the Accounts of each Participant
which have not become a Forfeiture prior to the date of such discontinuance
shall be nonforfeitable. Subject to the foregoing, all of the provisions of the
Plan shall continue in effect, and upon entitlement thereto distributions shall
be made in accordance with the provisions of Article X.
SEC. 13.3 TERMINATION. The Company, by action of the Board, may
terminate the Plan. After such termination no employee shall become a
Participant, no further contributions shall be made, and any amount held in the
Plan's Forfeiture Account shall be applied as provided in Sec. 5.2(e) or to pay
Plan expenses. The Accounts of each Participant which have not become a
Forfeiture prior to the date of such termination shall be nonforfeitable,
distributions shall be made to Participants, Beneficiaries and alternate payees
promptly after the termination of the Plan, but not before the earliest date
permitted under the Code and applicable regulations, and the Plan and any
related trust agreement or group annuity contract shall continue in force for
the purpose of making such distributions.
SEC. 13.4 PARTIAL TERMINATION. If there is a partial termination of
the Plan, either by operation of law, by amendment of the Plan, or for any other
reason, which partial termination shall be
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confirmed by the Company, any then existing Account of a Participant who was in
the classification of employees with respect to which the partial termination
occurs which has not become a Forfeiture prior to the date of the partial
termination shall be nonforfeitable. Subject to the foregoing, all of the
provisions of the Plan shall continue in effect as to each such Participant, and
upon entitlement thereto distributions shall be made in accordance with the
provisions of Article X.
SEC. 13.5 MERGER, CONSOLIDATION, OR TRANSFER OF PLAN ASSETS. In the
case of any merger or consolidation of the Plan with any other plan, or in the
case of the transfer of assets or liabilities of the Plan to any other plan,
provision shall be made so that each Participant, Beneficiary and alternate
payee would (if such other plan 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). No such
merger, consolidation, or transfer shall be effected until such statements with
respect thereto, if any, required by ERISA to be filed in advance thereof have
been filed.
SEC. 13.6 DEFERRAL OF DISTRIBUTIONS. Notwithstanding any provisions of
the Plan to the contrary, in the case of a complete discontinuance of
contributions to the Plan or of a complete or partial termination of the Plan,
the Company or the Funding Agency may defer any distribution of benefit payments
to Participants and Beneficiaries with respect to which such discontinuance or
termination applies (except for distributions which are required to be made
under Sec. 10.1) until after the following have occurred:
(a) Receipt of a final determination from the Treasury Department or any
court of competent jurisdiction regarding the effect of such
discontinuance or termination on the qualified status of the Plan
under Code section 401(a).
(b) Appropriate adjustment of Accounts to reflect taxes, costs, and
expenses, if any, incident to such discontinuance or termination.
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ARTICLE XIV
TOP-HEAVY PLAN PROVISIONS
SEC. 14.1 KEY EMPLOYEE DEFINED. "Key Employee" means any employee or
former employee of the employer who at any time during the determination period
was an officer of the employer or is deemed to have had an ownership interest in
the employer and who is within the definition of key employee in Code section
416(i). "Non-Key Employee" means any employee who is not a Key Employee.
SEC. 14.2 DETERMINATION OF TOP-HEAVY STATUS. The top-heavy status of
the Plan shall be determined according to Code section 416 and the regulations
thereunder, using the following standards and definitions:
(a) The Plan is a Top-Heavy Plan for a Plan Year commencing after 1983 if
either of the following applies:
(1) If this Plan is not part of a required aggregation group and the
top-heavy ratio for this Plan exceeds 60 percent.
(2) If this Plan is part of a required aggregation group of plans and
the top-heavy ratio for the group of plans exceeds 60 percent.
Notwithstanding paragraphs (1) and (2) above, the Plan is not a
Top-Heavy Plan with respect to a Plan Year if it is part of a
permissive aggregation group of plans for which the top-heavy ratio
does not exceed 60 percent.
(b) The "top-heavy ratio" shall be determined as follows:
(1) If the employer maintains one or more defined contribution plans
(including any simplified employee pension plan) and has not
maintained any defined benefit plan which during the 5-year
period ending on the determination date has or has had accrued
benefits, the top-heavy ratio for this Plan 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 under the Plan or plans 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 the account balances
(including any part of any account balance distributed in the
five-year period ending on the determination date) of all
employees under the Plan or plans as of the determination date.
Both the numerator and denominator of the top-heavy ratio shall
be 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 and the regulations
thereunder.
(2) If the employer maintains one or more defined contribution plans
(including any simplified employee pension plan) and maintains or
has maintained one or more defined benefit plans which during the
5-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 the account balances of all Key
Employees under the aggregated
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defined contribution plan or plans, determined according to
paragraph (1) above, and the present value of accrued benefits of
all Key Employees under the defined benefit plan or plans as of
the determination date, and the denominator of which is the sum
of such account balances of all employees under the aggregated
defined contribution plan or plans and the present value of
accrued benefits of all employees under the defined benefit plan
or plans as of the determination date. The account balances and
accrued benefits in both the numerator and denominator of the
top-heavy ratio shall be adjusted to reflect any distributions
made in the five-year period ending on the determination date and
any contributions due but unpaid as of the determination date.
(3) For purposes of paragraphs (1) and (2), 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
the 12-month period ending on the determination date, except as
provided in Code section 416 and the regulations thereunder for
the first and second plan years of a defined benefit plan. The
account balances and accrued benefits of an employee (i) who is
not a Key Employee but who was a Key Employee in a prior year, or
(ii) who has not been credited with at least one hour of service
with any employer maintaining the Plan at any time during the
5-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 and
the regulations thereunder. 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.
(c) "Required aggregation group" means (i) each qualified plan of the
employer in which at least one Key Employee participates in the Plan
Year containing the determination date, or any of the four preceding
Plan Years, and (ii) any other qualified plan of the employer that
enables a plan described in (i) to meet the requirements of Code
sections 401(a)(4) and 410.
(d) "Permissive aggregation group" means the required aggregation group of
plans plus any other plan or plans of the employer which, when
consolidated as a group with the required aggregation group, would
continue to satisfy the requirements of Code sections 401(a)(4) and
410.
(e) "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 is the determination date.
(f) The "determination period" for a Plan Year is the Plan Year in which
the applicable determination date occurs and the four preceding Plan
Years.
(g) The "valuation date" is the last day of each Plan Year and is the date
as of which account balances or accrued benefits are valued for
purposes of calculating the top-heavy ratio.
(h) For purposes of establishing the "present value" of benefits under a
defined benefit plan to compute the top-heavy ratio, any benefit shall
be discounted only for mortality and interest based on the interest
rate and mortality table specified in the defined benefit plan for
this purpose.
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(i) If an individual has not performed services for the employer at any
time during the five-year period ending on the determination date with
respect to a Plan Year, any account balance or accrued benefit for
such individual shall not be taken into account for such Plan Year.
(j) For purposes of determining if a defined benefit plan included in a
required aggregation group of which this Plan is a part is a Top-Heavy
Plan, the accrued benefit to any employee (other than a Key Employee)
shall be determined as follows:
(1) Under the method which is used for accrual purposes under all
defined benefit plans maintained by the employer.
(2) If there is no method described in paragraph (1), as if such
benefit accrued not more rapidly than the lowest accrual rate
permitted under Code section 411(b)(1)(C).
SEC. 14.3 MINIMUM CONTRIBUTION REQUIREMENT. For any Plan Year with
respect to which the Plan is a Top-Heavy Plan, the employer contributions and
Forfeitures allocated to each Active Participant who is not a Key Employee and
whose Termination of Employment has not occurred prior to the end of such Plan
Year shall not be less than the minimum amount determined in accordance with the
following:
(a) The minimum amount shall be the amount equal to that percentage of the
Participant's Compensation for the Plan Year which is the smaller of:
(1) 3 percent.
(2) The percentage which is the largest percentage of Compensation
allocated to any Key Employee from employer contributions and
Forfeitures for such Plan Year.
For purposes of this section, "Compensation" means the amounts
specified in Sec. 6.1(f), subject to the limitation in Sec. 2.6(c).
(b) For purposes of this section, any employer contribution attributable
to a salary reduction or similar arrangement shall be taken into
account. Any employer contribution attributable to a salary reduction
or similar arrangement (including Salary Reduction Contributions and
Matching Contributions under this Plan) may not be used to satisfy the
minimum amount of employer contributions which must be allocated under
subsection (a).
(c) This section shall not apply to any Participant who is covered under
any other plan of the employer under which the minimum contribution or
minimum benefit requirement applicable to Top-Heavy Plans will be
satisfied.
SEC. 14.4 PARTICIPATION UNDER DEFINED BENEFIT PLAN AND DEFINED
CONTRIBUTION. If a Participant is also a participant in a defined benefit plan
maintained by the employer, with respect to any Plan Year for which the Plan is
a Top-Heavy Plan, Sec. 6.1(d) shall be applied:
(a) By substituting "1.0" for "1.25" in paragraphs (2)(B) and (3)(B) of
Code section 415(e).
(b) By substituting "$41,500" for "$51,875" in Code section
415(e)(6)(B)(i).
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The foregoing provisions of this section shall be suspended with respect to any
individual so long as there are no employer contributions, forfeitures, or
voluntary nondeductible contributions allocated to such individual, and no
defined benefit plan accruals for such individual, either under this Plan or
under any other plan that is in a required aggregation group of plans, within
the meaning of Code section 416(g)(2)(A)(i), that includes this Plan.
SEC. 14.5 DEFINITION OF EMPLOYER. For purposes of this Article XIV,
the term "employer" means the Company and any trade or business entity under
Common Control with the Company.
SEC. 14.6 EXCEPTION FOR COLLECTIVE BARGAINING UNIT. Sections 14.3, and
14.4 shall not apply with respect to any employee included in a unit of
employees covered by an agreement which the Secretary of Labor finds to be a
collective bargaining agreement between employee representatives and one or more
employers if there is evidence that retirement benefits were the subject of good
faith bargaining between such employee representative and such employer or
employers.
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ARTICLE XV
MISCELLANEOUS PROVISIONS
SEC. 15.1 INSURANCE COMPANY NOT RESPONSIBLE FOR VALIDITY OF PLAN. No
insurance company that issues a contract under the Plan shall have any
responsibility for the validity of the Plan. An insurance company to which an
application may be submitted hereunder may accept such application and shall
have no duty to make any investigation or inquiry regarding the authority of the
applicant to make such application or any amendment thereto or to inquire as to
whether a person on whose life any contract is to be issued is entitled to such
contract under the Plan.
SEC. 15.2 HEADINGS. Headings at the beginning of articles and sections
hereof are for convenience of reference, shall not be considered a part of the
text of the Plan, and shall not influence its construction.
SEC. 15.3 CAPITALIZED DEFINITIONS. Capitalized terms used in the Plan
shall have their meaning as defined in the Plan unless the context clearly
indicates to the contrary.
SEC. 15.4 GENDER. Any references to the masculine gender include the
feminine and vice versa.
SEC. 15.5 USE OF COMPOUNDS OF WORD "HERE". Use of the words "hereof",
"herein", "hereunder", or similar compounds of the word "here" shall mean and
refer to the entire Plan unless the context clearly indicates to the contrary.
SEC. 15.6 CONSTRUED AS A WHOLE. The provisions of the Plan shall be
construed as a whole in such manner as to carry out the provisions thereof and
shall not be construed separately without relation to the context.
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9-19-90
HUTCHINSON TECHNOLOGY INCORPORATED
401-K TRUST
(As Amended and Restated Effective October 1, 1990)
<PAGE> 63
HUTCHINSON TECHNOLOGY INCORPORATED
401-K TRUST
(As Amended and Restated Effective October 1, 1990)
PREAMBLE
<TABLE>
<S> <C>
ARTICLE I GENERAL
Sec. 1.1 Name of Trust.................................................................................4
Sec. 1.2 Acceptance of Trust...........................................................................4
Sec. 1.3 Part of Plan..................................................................................4
Sec. 1.4 Certification of Fiduciaries and Administrator................................................4
Sec. 1.5 Construction and Applicable Law...............................................................5
ARTICLE II TRUST FUND
Sec. 2.1 Composition...................................................................................5
Sec. 2.2 Contributions.................................................................................5
ARTICLE III TRUSTEE
Sec. 3.1 General Responsibility........................................................................5
Sec. 3.2 Powers of Trustee.............................................................................6
Sec. 3.3 Appointment of Ancillary Trustees.............................................................9
Sec. 3.4 Compensation and Expenses.....................................................................9
Sec. 3.5 Records and Accountings.......................................................................9
Sec. 3.6 Record Retention.............................................................................10
ARTICLE IV INVESTMENTS
Sec. 4.1 General......................................................................................10
Sec. 4.2 Appointment of Investment Adviser as Investment Manager......................................12
Sec. 4.3 Appointment of Insurance Company as Investment Manager.......................................14
Sec. 4.4 Directions of a Named Fiduciary..............................................................15
Sec. 4.5 Investment Funds.............................................................................16
Sec. 4.6 Loans to Participants........................................................................17
ARTICLE V CO-TRUSTEES
Sec. 5.1 Co-trustees..................................................................................17
Sec. 5.2 Title........................................................................................17
Sec. 5.3 Responsibility With Respect to Co-trustee....................................................17
Sec. 5.4 Exercise of Powers...........................................................................17
Sec. 5.5 Disability of Co-trustee.....................................................................18
Sec. 5.6 Bonding......................................................................................18
ARTICLE VI CHANGE IN TRUSTEE
Sec. 6.1 Resignation..................................................................................18
Sec. 6.2 Removal......................................................................................18
Sec. 6.3 Successor....................................................................................18
Sec. 6.4 Duties on Succession.........................................................................18
Sec. 6.5 Changes in Organization of Trustee...........................................................19
Sec. 6.6 Assignment of Agreement......................................................................19
ARTICLE VII MISCELLANEOUS
</TABLE>
<PAGE> 64
<TABLE>
<S> <C>
Sec. 7.1 Benefits May Not Be Assigned or Alienated....................................................19
Sec. 7.2 Incompetent Payee............................................................................19
Sec. 7.3 Evidence.....................................................................................19
Sec. 7.4 Dealings of Others With Trustee..............................................................19
Sec. 7.5 Insurance Company Not Party..................................................................20
Sec. 7.6 Audits.......................................................................................20
Sec. 7.7 Trustee Warranty Against Conviction..........................................................20
Sec. 7.8 Successors...................................................................................20
Sec. 7.9 Waiver of Notice.............................................................................20
Sec. 7.10 Headings.....................................................................................20
Sec. 7.11 Use of Compounds of Word "Here"..............................................................20
Sec. 7.12 Construed as a Whole.........................................................................20
Sec. 7.13 Counterparts.................................................................................20
ARTICLE VIII AMENDMENT AND TERMINATION
Sec. 8.1 No Diversion.................................................................................21
Sec. 8.2 Amendment....................................................................................21
Sec. 8.3 Termination of Plan..........................................................................21
Sec. 8.4 Transfer to Other Funding Agency.............................................................22
</TABLE>
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HUTCHINSON TECHNOLOGY INCORPORATED
401-K TRUST
This Trust Agreement, made and entered into as of the 1st day of
October, 1990, by and between HUTCHINSON TECHNOLOGY INCORPORATED, a Minnesota
corporation, hereinafter sometimes referred to as the "Company", and IDS TRUST
COMPANY, as trustee, hereinafter sometimes referred to as the "Trustee";
WITNESSETH:
WHEREAS the Company established a defined contribution plan effective
August 1, 1987 which is being restated effective October 1, 1990, and which is
now known as the "Hutchinson Technology Incorporated 401-K Plan" (hereinafter
referred to as the "Plan"); and
WHEREAS Norwest Bank Minnesota, National Association was originally
appointed as Trustee with respect to the Plan; and
WHEREAS the trust was originally incorporated in the Plan, but the
Company is now taking action to restate the trust in a separate document; and
WHEREAS the Company has appointed IDS Trust Company as successor
Trustee with respect to the Plan effective October 1, 1990;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties agree as follows:
ARTICLE I
GENERAL
Sec. 1.1 Name of Trust. This Trust Agreement and the Trust hereby
evidenced shall be known as the "Hutchinson Technology Incorporated 401-K Trust"
(herein sometimes referred to as the "Trust").
Sec. 1.2 Acceptance of Trust. The Trustee accepts its appointment as
such.
Sec. 1.3 Part of Plan. This Trust forms a part of the Plan, and is used
to fund benefits thereunder. The Company warrants that it has furnished the
Trustee with a true and correct copy of the Plan as currently in effect. The
Company agrees that promptly upon the adoption of any amendment to the Plan it
will furnish the Trustee with a copy of the amendment and with an appropriate
certificate evidencing its due adoption. The Company further agrees that no
amendment of the Plan shall have the effect of changing the rights, duties, and
liabilities of the Trustee without its written consent. The Trustee may rely on
the latest Plan documents furnished it as above provided without further inquiry
or verification.
Sec. 1.4 Certification of Fiduciaries and Administrator. The Company
will certify to the Trustee the name of the person or persons who have authority
on behalf of the Company to direct the Trustee as to disbursements from the
Trust Fund for purposes of the Plan and the name of the person or persons who
have authority on behalf of the Company to communicate with the Trustee with
respect to any other matter or matters relating to the Trust Fund. The Trustee
shall recognize the Company as the administrator of the Plan within the meaning
of the Employee Retirement Income Security Act unless and until receipt from the
Company of a certification evidencing the appointment of some other person or
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persons as said administrator. The Company shall provide the Trustee with a
specimen signature of each of the persons referred to above. Action by the
Company will be certified by the Secretary or an Assistant Secretary of the
Company. The Trustee may rely on the latest relevant certificate without further
inquiry or verification.
Sec. 1.5 Construction and Applicable Law. This Trust is intended to
constitute a qualified trust under section 401(a) of the Internal Revenue Code
and to be entitled to tax exemption under section 501(a) thereof. The Trustee
may assume, until advised to the contrary, that the Trust is so qualified and is
entitled to said tax exemption. It is also intended that this Trust be in full
compliance with applicable requirements of the Employee Retirement Income
Security Act. This Trust Agreement shall be construed and administered
consistent with said intent. It shall also be construed and administered
according to the laws of the State of Minnesota to the extent that such laws are
not preempted by the laws of the United States of America; and all
controversies, disputes, and claims arising hereunder shall be submitted to the
United States District Court for the District of Minnesota. All references
herein to the "Internal Revenue Code" or "Code" are to the Internal Revenue Code
of 1986 as from time to time amended. All references herein to the "Employee
Retirement Income Security Act" or "ERISA" are to the Employee Retirement Income
Security Act of 1974 as from time to time amended.
ARTICLE II
TRUST FUND
Sec. 2.1 Composition. All sums of money and all securities and other
property acceptable to the Trustee and received by it to be held in trust
hereunder, as evidenced by its receipts, from whatever source received, together
with all investments made therewith, the proceeds thereof, and all earnings and
accumulations thereon, and the part thereof from time to time remaining, shall
be held and administered by the Trustee, in trust, in a fund referred to herein
as the "Trust Fund", in accordance with the terms and provisions hereof. The
Trust Fund shall be held, administered, and disbursed by the Trustee without
distinction between principal and income.
Sec. 2.2 Contributions. The Trustee shall have no duty to require any
contributions to be made to it, to determine that the contributions received by
it comply with the provisions of the Plan or with any resolution of the board of
directors of the Company providing therefor, or to collect any contributions
payable to it pursuant to the Plan. The responsibility of the Trustee shall be
limited to the sums of money, securities, and other property actually received
by it.
ARTICLE III
TRUSTEE
Sec. 3.1 General Responsibility. The general responsibilities of the
Trustee shall be as follows:
(a) Except as expressly otherwise provided herein or in the Plan,
the Trustee shall have exclusive authority and discretion to
manage and control the assets of the Plan held in the Trust
Fund.
(b) The Trustee shall hold, administer, invest and reinvest, and
disburse the Trust Fund in accordance with the powers and
subject to the restrictions stated herein; provided, however,
nothing in this Agreement shall require the Trustee to
maintain custody of
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assets held through a broker held securities account or to
maintain custody of mutual fund shares.
(c) The Trustee shall disburse monies and other properties from
the Trust Fund on direction of the Company pursuant to the
provisions of the Plan at the time or times to the payee or
payees specified by the Company in directions to the Trustee
in such form as the Trustee may reasonably require. The
Trustee shall be under no liability for any distribution made
by it pursuant to such directions and shall be under no duty
to make inquiry as to whether any distribution made by it
pursuant to any such direction is made pursuant to the
provisions of the Plan. The receipt of the payee shall
constitute a full acquittance to the Trustee.
(d) The Trustee shall have the responsibilities, if any, expressly
allocated to it by the Plan. Except as responsibilities may be
expressly so allocated, the Trustee in its capacity as such
shall have no responsibility or authority with respect to the
operation and administration of the Plan, and the rights,
powers and duties of the Trustee shall be governed solely by
the terms of this Trust Agreement without reference to the
provisions of the Plan.
Sec. 3.2 Powers of Trustee. The Trustee shall have the right, power,
and authority to take any action and to enter into and carry out every agreement
with respect to the Trust Fund that may be necessary or advisable to discharge
its responsibilities hereunder, and without limiting the generality of the
foregoing and in addition to all other powers and authorities herein elsewhere
specifically granted to the Trustee, the Trustee shall have the following powers
and authorities to be exercised in its absolute discretion, except as otherwise
expressly provided herein:
(a) To hold securities and other properties in bearer form or in
the name of a nominee or nominees without disclosing any
fiduciary relationship; provided, however, that on the books
and records of the Trustee such securities and properties
shall constantly be shown to be a part of the Trust Fund, and
no such registration or holding by the Trustee shall relieve
it from liability for the safe custody and proper disposition
of such securities and properties in accordance with the terms
and provisions hereof.
(b) To sell, grant options to buy, transfer, assign, convey,
exchange, mortgage, pledge, lease or otherwise dispose of any
of the properties comprising the Trust Fund at such prices and
on such terms and in such manner as it may deem proper, and
for terms within or extending beyond the duration of the
Trust.
(c) To purchase, acquire, hold, manage, administer, operate, lease
for any number of years, regardless of any restrictions on
leases made by fiduciaries, develop, improve, repair, alter,
demolish, mortgage, pledge, grant options with respect to, or
otherwise deal with any real property or interest therein at
any time held by it; and to cause to be formed a corporation
or trust to hold title to any such real property with the
aforesaid powers, all upon such terms and conditions as may be
deemed advisable.
(d) To renew or extend or participate in the renewal or extension
of any note, bond or other evidence of indebtedness, or any
other contract or lease, or to exchange the same, or to agree
to a reduction in the rate of interest or rent thereon or to
any other modification or change in the terms thereof, or of
the security therefor, or any guaranty thereof, in any manner
and to any extent that it may deem advisable in its absolute
discretion; to waive
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any default, whether in the performance of any covenant or
condition of any such note, bond or other evidence of
indebtedness, or any other contract or lease, or of the
security therefor, and to carry the same past due or to
enforce any such default as it may in its absolute discretion
deem advisable; to exercise and enforce any and all rights to
foreclose, to bid in property on foreclosure; to exercise and
enforce in any action, suit, or proceeding at law or in equity
any rights or remedies in respect to any such note, bond or
other evidence of indebtedness, or any other contract or
lease, or the security therefor; to pay, compromise, and
discharge with the funds of the Trust Fund any and all liens,
charges, or encumbrances upon the same, in its absolute
discretion, and to make, execute, and deliver any and all
instruments, contracts, or agreements necessary or proper for
the accomplishment of any of the foregoing powers.
(e) To borrow such sums of money for the benefit of the Trust Fund
from any lender upon such terms, for such period of time, at
such rates of interest, and upon giving such collateral as it
may determine; to secure any loan so made by pledge or
mortgage of the trust property; and to renew existing loans.
(f) To use the assets of the Trust Fund, whether principal or
income, for the purpose of improving, maintaining, or
protecting property acquired by the Trust Fund, and to pay,
compromise, and discharge with the assets of the Trust Fund
any and all liens, charges, or encumbrances at any time upon
the same.
(g) To hold uninvested such cash funds as may appear reasonably
necessary to meet the anticipated cash requirements of the
Plan from time to time and to deposit the same or any part
thereof, either separately or together with other trust funds
under the control of the Trustee, in its own deposit
department or to deposit the same in its name as Trustee in
such other depositories as it may select.
(h) To receive, collect, and give receipts for every item of
income or principal of the Trust Fund.
(i) To institute, prosecute, maintain, or defend any proceeding at
law or in equity concerning the Trust Fund or the assets
thereof, at the sole cost and expense of the Trust Fund, and
to compromise, settle, and adjust any claims and liabilities
asserted against or in favor of the Trust Fund or of the
Trustee; but the Trustee shall be under no duty or obligation
to institute, maintain, or defend any action, suit, or other
legal proceeding unless it shall have been indemnified to its
satisfaction against any and all loss, cost, expense, and
liability it may sustain or anticipate by reason thereof.
(j) To vote all stocks and to exercise all rights incident to the
ownership of stocks, bonds, or other securities or properties
held in the Trust Fund and to issue proxies to vote such
stocks; to enter into voting trusts for such period and upon
such terms as it may determine; to give general or special
proxies or powers of attorney, with or without substitution;
to sell or exercise any and all subscription rights and
conversion privileges; to sell or retain any and all stock
dividends; to oppose, consent to, or join in any plan of
reorganization, readjustment, merger, or consolidation in
respect to any corporation whose stocks, bonds, or other
securities are a part of the Trust Fund, including becoming a
member of any stockholders' or bondholders' committee; to
accept and hold any new securities issued pursuant to any plan
of reorganization, readjustment, merger, consolidation, or
liquidation; to pay any assessments on stocks or securities or
to
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relinquish the same; and to otherwise exercise any and all
rights and powers to deal in and with the securities and
properties held in the Trust Fund in the same manner and to
the same extent as any individual owner and holder thereof
might do.
(k) To make application for any contract (including but not
limited to a group annuity contract) issued by an insurance
company to be purchased under the Plan, to accept and hold any
such contract, and to assign and deliver any such contract.
Any such contract may provide for the allocation of amounts
received by the insurance company thereunder to its general
account and/or to one or more of its separate accounts. Such
separate accounts may include separate accounts maintained for
the collective investment of assets of qualified retirement
plans and may be invested and reinvested, without distinction
between principal and income, in securities as defined in the
Employee Retirement Income Security Act and other property, or
part interest (including any partnership interest) in
property, real or personal, foreign or domestic, and any
rights, warrants and options to acquire any of the foregoing.
The Company may appoint the insurance company as investment
manager pursuant to Sec. 4.3. The insurance company shall have
exclusive responsibility for the investment and management of
any amounts held under such contract, subject to the right of
the Trustee or the Company to specify how amounts held under
the contract are to be allocated among the accounts provided
for in the contract. The insurance company shall have all of
the powers with respect to assets of the Plan held under a
contract as the Trustee has with respect to the assets of the
Trust Fund.
(1) To employ such agents, experts, counsel, and other persons
(any of whom may also be employed by or represent the Company)
deemed by the Trustee to be necessary or proper for the
administration of the Trust; to rely and act on information
and advice furnished by such agents, experts, counsel, and
other persons; and to pay their reasonable expenses and
compensation for services to the Trust from the Trust Fund.
(m) To pay out of the Trust Fund all real and personal property
taxes, income taxes, and other taxes of any and all kinds
levied or assessed under existing or future laws against the
Trust Fund, without any approval or direction of the Company.
(n) To pay any estate, inheritance, income, or other tax, charge,
or assessment attributable to any benefit which, in the
Trustee's opinion, it shall be or may be required to pay out
of such benefit; and to require, before making any payment,
such release or other document from any taxing authority and
such indemnity from the intended payee as the Trustee shall
deem necessary for its protection.
(o) To retain any funds or property subject to any dispute without
liability for the payment of interest, and to decline to make
payment or delivery thereof until final adjudication is made
by a court of competent jurisdiction.
(p) To provide ancillary services to the Trust for not more than
reasonable compensation.
(q) To serve not only as Trustee but also in any other fiduciary
capacity with respect to the Plan pursuant to such agreements
or practices as the Trustee considers necessary or appropriate
under the circumstances.
(r) To participate in and use the Federal Book-entry Account
System (a service provided by the Federal Reserve Bank for its
member banks for deposit of Treasury securities).
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(s) To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other
instruments that may be necessary or appropriate to carry out
the powers herein granted to the Trustee.
(t) To bring action before any court of competent jurisdiction for
instructions with respect to any matter pertaining to the
interpretation of this Trust Agreement or the administration
of the Trust Fund.
(u) To invest in time deposit open accounts, certificates of
deposit, or similar investments which are maintained by the
Trustee, an affiliate of the Trustee or another institution.
Sec. 3.3 Appointment of Ancillary Trustees. In the event that any
property which is or may become a part of the Trust Fund is situated in a state
or states in which any Trustee acting hereunder is prohibited from holding real
estate as Trustee, or in a foreign country, the Trustee is hereby empowered to
name an individual or corporate trustee qualified to act in any such state or
foreign country in connection with the property situated therein as ancillary
trustee of such property and require such security as may be designated by the
Trustee. Naming of such ancillary trustee shall be subject to formal appointment
thereof by the Company. Any ancillary trustee so appointed shall have such
rights, powers, discretions, responsibilities, and duties as are delegated to it
by the Trustee, but shall exercise and discharge the same subject to such
limitations or directions of the Trustee as shall be specified in the instrument
evidencing the appointment. Any such ancillary trustee shall be answerable to
the Trustee for all monies, assets, or other property entrusted to it or
received by it in connection with the administration of the Trust. The Trustee
may remove any such ancillary trustee and may appoint a successor at any time or
from time to time as to any or all of the assets, in each case subject to formal
appointment of the successor by the Company. Any instrument designating an
ancillary trustee may contain such provisions with respect to payment of income
and principal to the Trust, payment of expenses with respect to ancillary trust
property, termination of the ancillary trust, and administrative powers of the
ancillary trustee as the Trustee hereunder, in the exercise of its discretion,
may deem appropriate and consistent with the provisions of this Trust Agreement.
Sec. 3.4 Compensation and Expenses. The Trustee shall be entitled to
receive such reasonable compensation for its services as Trustee or in any other
capacity in connection with the Plan as may be agreed upon with the Company. The
Trustee shall be entitled to reimbursement for all reasonable and necessary
costs, expenses, and disbursements incurred by it in the performance of such
services. Such compensation and reimbursements shall be paid from the Trust Fund
if not paid directly by the Company, and shall constitute a lien upon the Trust
Fund until paid.
Sec. 3.5 Records and Accountings. The Trustee shall keep accurate and
detailed records and accounts of all investments, receipts, and disbursements,
and other transactions hereunder, and all records, books, and accounts relating
thereto shall be open to inspection by any person designated by the Company at
all reasonable times. As soon as reasonably practicable following the close of
each annual accounting period of the Trust, and as soon as reasonably
practicable after the resignation or removal of a Trustee has become effective,
the Trustee shall file with the Company and with the Plan administrator a
written account setting forth all investments, receipts, disbursements, and
other transactions effected by it during such year, or during the part of the
year to the date the resignation or removal is effective, as the case may be,
and containing a description of all securities purchased and sold, the cost or
net proceeds of sale, the securities and investments held at the end of such
period, and the cost of each item thereof as carried on the books of the
Trustee. The accounting shall also furnish the Company and the Plan
administrator such other information as the Trustee may possess and as may be
necessary for them to comply with the reporting requirements of the Employee
Retirement Income Security Act. If the fair
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market value of an asset in the Trust Fund is not available, when necessary for
accounting or reporting purposes the fair value of the asset shall be determined
in good faith by the Trustee, assuming an orderly liquidation at the time of
such determination. If there is a disagreement between the Trustee and anyone as
to any act or transaction reported in an accounting, the Trustee shall have the
right to have its account settled by a court of competent jurisdiction.
Sec. 3.6 Record Retention. The Trustee shall retain its records
relating to the Trust as long as necessary for the proper administration thereof
and at least for any period required by the Employee Retirement Income Security
Act or other applicable law.
ARTICLE IV
INVESTMENTS
Sec. 4.1 General. Except as otherwise expressly provided in the Plan
and in this Trust, the Trustee shall have exclusive authority and discretion to
invest and reinvest the principal and income of the Trust in real or personal
property of any kind and shall do so with the care, skill, prudence, and
diligence under the circumstances then prevailing that a prudent man acting in a
like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims. Except as limited by any
investment policy established pursuant to the Plan with respect to various
investments, the Trustee shall diversify the investments of the Trust so as to
minimize the risk of large losses, unless under the circumstances it is clearly
prudent not to do so. The Trustee shall not be limited by the laws of any state
proscribing or limiting the investment of trust funds by corporate or individual
trustees in or to certain kinds, types, or classes of investments or limiting
the value or proportion of the trust assets that may be invested in any one
property or kind, type, or class of investment. Investments and reinvestments
shall be subject to the above standard, and without limiting the generality of
the foregoing, shall also be subject to the following:
(a) Investments shall be as consistent as reasonably possible with
any funding policy communicated to the Trustee in writing by
the Company pursuant to the Plan. The Trustee may rely on the
latest such communication received by it without further
inquiry or verification.
(b) The Trustee may invest and reinvest principal and income of
the Trust in common, preferred, and other stocks of any
corporation; voting trust certificates; interests in
investment trusts, including, without limiting the generality
thereof, participations issued by an investment company as
defined in the Investment Company Act of 1940, as from time to
time amended; bonds, notes, and debentures, secured or
unsecured; mortgages on real or personal property; conditional
sales contracts; and real estate and leases.
(c) The Trustee may invest and reinvest all or a portion of the
principal and income of the Trust through any common or
collective trust fund or pooled investment fund maintained by
the Trustee for the collective investment of funds held by it
in a fiduciary capacity. The provisions of the document
governing any such common or collective trust fund as it may
be amended from time to time shall govern any investment
therein and are hereby made a part of this Trust Agreement.
(d) The Trustee may commingle for investment all or any part of
the Funds of the Trust with funds of other trusts entitled to
tax exemption under section 501(a) of the Internal Revenue
Code established by the Company or any company directly or
indirectly
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controlling, controlled by, or under common control with the
Company provided that records are at all times maintained of
the portion of the commingled funds properly allocable to each
trust.
(e) The Trustee may invest and reinvest the principal and income
of the Trust by investing in an annuity contract or contracts
(including any agreement or agreements supplemental thereto)
issued by an insurance company.
(f) The Trustee may engage in the writing, sale, and buying in, of
covered call option contracts; and may acquire and exercise
options to purchase or sell securities or other assets.
(g) The Trustee may invest and reinvest the principal and income
of the Trust in stock, securities, or real property of the
Company or any company directly or indirectly controlling,
controlled by, or under common control with the Company.
Notwithstanding the foregoing provisions of this section to
the contrary, if the Plan is an eligible individual account
plan within the meaning of the Employee Retirement Income
Security Act, the Trustee is authorized to invest all or any
part of the principal and income of the Trust in qualifying
employer securities or qualifying employer real property,
without regard to any lack of diversification effected
thereby.
(h) If qualifying employer securities or qualifying employer real
property are purchased or sold as an investment of the Trust
from or to a disqualified person or party in interest, as
those terms are used in the Employee Retirement Income
Security Act, and if there is no generally recognized market
for such securities or property, the purchase shall be for not
more than fair market value and the sale shall be for not less
than fair market value, as determined in good faith by the
Trustee.
(i) The Trustee may invest and reinvest principal and income of
the Trust in deposits (including savings accounts, savings
certificates, and similar interest-bearing instruments or
accounts) in itself or its affiliates, provided such deposits
bear a reasonable rate of interest.
(j) The Trustee may lend any securities or security from time to
time constituting a part of the Trust Fund in exchange for
such consideration and upon such terms and conditions as the
Trustee deems appropriate. In any such transaction the Trustee
may transfer legal title to the securities being loaned to the
obligor, and may permit the obligor to return to the Trust
securities that are identical (but not necessarily evidenced
by the same certificates) to those transferred to it by the
Trustee hereunder.
(k) The Trustee may purchase and sell financial futures contracts
in transactions executed through a generally recognized
commodities or securities exchange.
(1) The Trustee may invest and reinvest all or a portion of the
Trust Fund in mutual funds, annuities and insurance contracts
managed and distributed by IDS Financial Corporation and its
affiliated companies.
(m) The Declaration of Trust executed by IDS Trust Company in
1979, amended and restated on February 1, 1981, August 9,
1982, and April 25, 1989, creating the IDS Trust Company
Collective Investment Funds for Employee Benefit Trusts, is
hereby made a
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part of this Agreement. Notwithstanding any other provisions
of this Trust, the Trustee may cause all or any portion of the
funds of this Trust, without limitation to amount, to be
commingled with the funds of other trusts entitled to tax
exemption under Section 501(a) of the Internal Revenue Code by
causing such funds to be invested as a part of any one or more
of the Collective Funds created by said Declaration of Trust.
Funds of this Trust so added to any of the said Collective
Funds at any time shall be subject to all of the provisions of
said Declaration of Trust as it is amended from time to time.
Sec. 4.2 Appointment of Investment Adviser as Investment Manager. The
Company may appoint one or more parties that are registered as investment
advisers under the Investment Advisers Act of 1940 to serve as an investment
manager as defined in the Employee Retirement Income Security Act. The
appointment of any such investment manager and investment of the Trust Fund
pursuant to such appointment shall be subject to the following, notwithstanding
any provisions of this Trust Agreement to the contrary:
(a) Written notice of each such appointment shall be given to the
Trustee a reasonable time in advance of the effective date of
the appointment. Such notice shall state what portion of the
Trust Fund is to be invested by the investment manager and
shall direct the Trustee to segregate such portion of the
Trust Fund into a separate account for such investment
manager. Each such separate account is hereinafter in this
section referred to as an Investment Account.
(b) The Trustee shall not act on any direction or instruction of
the investment manager until the Trustee has been furnished
with an acknowledgement in writing by the investment manager
that it is a fiduciary with respect to the Plan.
(c) There shall be a written agreement between the Company and
each investment manager. The Trustee shall receive a copy of
each such agreement and all amendments thereto and shall give
written acknowledgement of receipt of same.
(d) Among other matters, each such agreement with an investment
manager shall provide that:
(1) all directions given by an investment manager to the
Trustee shall be in writing, signed by an officer or
partner of the investment manager or by such other
person as may be designated in writing by the
investment manager; provided that the Trustee shall
accept oral directions for the purchase or sale of
securities, which shall be confirmed by such
authorized personnel of the investment manager in
writing;
(2) all settlement of purchases and sales shall be in the
city where the Trustee is located, or such other
place as the Trustee may direct;
(3) in all events the Trustee is to retain physical
custody of or title to all assets included in an
Investment Account; and
(4) the Company, by written notice to the investment
manager and the Trustee, may modify or terminate the
authority of the investment manager.
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(e) Payment of the cost of the acquisition, sale, or exchange of
any security or other property for an Investment Account shall
be charged to that Investment Account unless the agreement
between the Company and investment manager provides otherwise.
(f) So long as the appointment of an investment manager is in
effect, the investment manager shall have full power and
authority to direct the Trustee as to, and full responsibility
for, investment of its Investment Account and for the
retention and disposition of any assets at any time included
in its Investment Account. Subject to any limitations in the
agreement between the Company and the investment manager, the
investment manager shall have the same investment discretion
as is accorded the Trustee under Sec. 4.1 hereof. The Trustee
shall invest any portion of an Investment Account that would
otherwise be held in cash.
(g) Unless the written agreement between the Company and
investment manager expressly provides to the contrary, the
Trustee shall have the voting power with respect to all stocks
and other securities in the Investment Account.
(h) The Trustee shall make available to an investment manager
copies of or extracts from such portions of its accounts,
books, or records relating to the Investment Account of such
investment manager as the Trustee may deem necessary or
appropriate in connection with the exercise of the investment
manager's function, or as the Company may direct.
(i) All charges (other than those covered in subsection (e)
hereof) against each Investment Account shall be made in such
proportions as the Company may direct from time to time.
(j) If the authority of an investment manager is terminated and a
successor investment manager is not appointed, the assets held
in its Investment Account may or may not continue to be
segregated, as the Trustee may determine. Until receipt of
written notice of the termination of the authority of an
investment manager, the Trustee shall be fully protected in
assuming the continuing authority of such investment manager.
(k) Any direction by an investment manager shall be complete as to
the terms with respect thereto, it being intended that the
Trustee shall have no obligation whatsoever to invest or
otherwise manage any asset of an Investment Account.
(1) An investment manager shall be entitled to receive such
reasonable compensation for its services as may be agreed upon
with the Company. Such compensation shall be paid from the
Trust Fund if not paid directly by the Company. The Trustee
shall not be responsible for determining the reasonableness of
any compensation to be paid to an investment manager.
(m) The Company agrees to indemnify the Trustee for and to hold it
harmless against any and all liabilities, losses, costs, or
expenses (including legal fees and expenses) of whatsoever
kind and nature which may be imposed on, incurred by, or
asserted against the Trustee at any time by reason of actions
taken in accordance with directions of an investment manager
or action omitted because no such directions are given.
However, no indemnification shall be required in any case in
which such liabilities, losses, costs, or expenses are
incurred by the Trustee because it participated knowingly in,
or knowingly
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undertook to conceal, an act or omission of an investment
manager, knowing such act or omission was a breach of
fiduciary duty by said investment manager.
Sec. 4.3 Appointment of Insurance Company as Investment Manager. The
Company may appoint one or more insurance companies that meet the requirements
of Section 3(38) of the Employee Retirement Income Security Act to serve as an
investment manager as defined in said Act. The appointment of any such
investment manager and investment of the Trust Fund pursuant to such appointment
shall be subject to the following, notwithstanding any provisions of this Trust
Agreement to the contrary:
(a) Written notice of each such appointment shall be given to the
Trustee a reasonable time in advance of the effective date of
the appointment.
(b) The Company shall determine the terms of each contract to be
entered into between such insurance company and the Trustee
(including any agreement or agreements supplemental thereto)
pursuant to which investment management services shall be
performed by the insurance company. On written direction of
the Company, the Trustee shall make application for each such
contract and shall hold the contract as an asset of the Trust
Fund.
(c) The Trustee shall pay such premiums to the insurance company
pursuant to such contract as may be directed in writing by the
Company; provided, however, that except in the case of a
"guaranteed benefit policy" as defined in Section 401(b)(2) of
the Employee Retirement Income Security Act, no such payment
shall be made until the Trustee has been furnished with an
acknowledgment in writing by the insurance company that it is
a fiduciary with respect to the Plan.
(d) Except as otherwise agreed in writing by the Trustee and the
Company, the Trustee shall take only such actions as
contractholder of such contract as may be directed in writing
by the Company.
(e) Any direction by the Company with respect to such contract
shall be complete as to the terms with respect thereto, it
being intended that the Trustee shall have no discretion
whatsoever with respect to the provisions of such contract or
actions taken pursuant thereto.
(f) The Company agrees to indemnify the Trustee for and to hold it
harmless against any and all liabilities, losses, costs, or
expenses (including legal fees and expenses) of whatsoever
kind and nature which may be imposed on, incurred by, or
asserted against the Trustee at any time by reason of actions
taken in connection with any such contract in accordance with
directions of the Company or action omitted because no such
directions are given. However, no such indemnification shall
be required in any case in which such liabilities, losses,
costs or expenses are incurred by the Trustee because it
participated knowingly in, or knowingly undertook to conceal,
an act or omission of an insurance company acting as
investment manager, knowing such act or omission was a breach
of fiduciary duty by said insurance company.
Sec. 4.4 Directions of a Named Fiduciary. The Company, with the
approval of the Trustee, may designate one or more Named Fiduciaries that shall
have authority to direct the Trustee as to the investment and reinvestment of
all or a part of the Trust Fund. The designation of any such Named
-14-
<PAGE> 76
Fiduciary and investment of the Trust Fund pursuant to such designation shall be
subject to the following, notwithstanding any provisions hereof to the contrary:
(a) Written notice of each such appointment shall be given to the
Trustee a reasonable time in advance of the effective date of
the appointment. Such notice shall state what portion of the
Trust Fund is to be invested by the Named Fiduciary and shall
direct the Trustee to segregate such portion of the Trust Fund
into a separate account for such Named Fiduciary. Each such
separate account is referred to in this section as a Named
Fiduciary Account.
(b) All directions given by a Named Fiduciary to the Trustee shall
be in writing, signed by the duly authorized person or persons
as evidenced by a certificate furnished pursuant to Section
1.4; provided that the Trustee shall accept oral directions
for the purchase or sale of securities which shall be
confirmed by such authorized personnel in writing.
(c) All settlement of purchases and sales are to be in the city
where the Trustee is located, or such other place as the
Trustee may direct.
(d) In all events the Trustee is to retain physical custody of or
title to all assets comprising a Named Fiduciary Account.
(e) The Company by written notice to the Named Fiduciary and the
Trustee may terminate the authority of the Named Fiduciary as
to investments.
(f) Payment of the cost of the acquisition, sales, or exchange of
any security for a Named Fiduciary Account shall be charged to
such Account.
(g) So long as the appointment is in effect of a Named Fiduciary
who has authority to direct the Trustee as to investment of a
Named Fiduciary Account, the Named Fiduciary shall have full
power and authority to direct the Trustee as to, and full
responsibility for, investment of its Named Fiduciary Account
and for the retention and disposition of any assets at any
time included in its Named Fiduciary Account. The Named
Fiduciary shall have the same investment discretion as is
accorded the Trustee under Sec. 4.1 hereof. The Trustee shall
invest any portion of a Named Fiduciary Account that would
otherwise be held in cash.
(h) The Trustee shall have the voting power with respect to all
stocks and other securities in a Named Fiduciary Account
except to the extent written directions by the Company to the
Trustee grant voting power to the Named Fiduciary.
(i) The Trustee shall make available to a Named Fiduciary copies
of or extracts from such portion of its accounts, books, or
records relating to the Named Fiduciary Account of such Named
Fiduciary as the Trustee may deem necessary or appropriate in
connection with the exercise of the Named Fiduciary's
function, or as the Company may direct.
(j) All charges (other than those covered in subsection M above)
against each Named Fiduciary Account shall be made in such
proportions as the Company may direct from time to time.
-15-
<PAGE> 77
(k) If the authority of a Named Fiduciary is terminated and a
successor Named Fiduciary is not appointed, the assets held in
its Named Fiduciary Account may or may not continue to be
segregated as the Trustee may determine. Until receipt of
written notice of the termination of the authority of a Named
Fiduciary, the Trustee shall be fully protected in assuming
the continuing authority of such Named Fiduciary.
(1) Any direction by a Named Fiduciary shall be complete as to its
terms, it being intended the Trustee shall have no obligation
whatsoever to invest or otherwise manage any assets of a Named
Fiduciary Account.
(m) The Trustee shall follow all proper directions of the Named
Fiduciary which are made in accordance with the terms hereof
and which are not contrary to Title I of Employee Retirement
Income Security Act.
(n) If the fair market value of an asset in a Named Fiduciary
Account is not available when necessary for accounting and
reporting purposes, the fair value of the asset shall be
determined in good faith by the Named Fiduciary, assuming an
orderly liquidation at the time of such determination.
(o) The Company agrees to indemnify the Trustee for and to hold it
harmless against any and all liabilities, losses, costs, or
expenses (including legal fees and expenses) of whatsoever
kind and nature which may be imposed on, incurred by, or
asserted against the Trustee at any time by reason of actions
taken in accordance with directions of a Named Fiduciary in
connection with a Named Fiduciary Account or action omitted
because no such directions are given. However, no such
indemnification shall be required in any case in which such
liabilities, losses, costs or expenses are incurred by the
Trustee because it participated knowingly in, or knowingly
undertook to conceal, an act or omission of a Named Fiduciary,
knowing such act or omission was a breach of fiduciary duty by
such Named Fiduciary.
Sec. 4.5 Investment Funds. The following provisions shall apply to
directions by Participants and Beneficiaries of the investment of their
Accounts.
(a) The Company may in its discretion authorize from time to time
the establishment of Investment Funds which are limited to a
particular class of investment within the investments
authorized under Sec. 4.1. The Company may also terminate
Investment Funds or merge an Investment Fund into another
Investment Fund.
(b) The Trustee may invest each Investment Fund in any property
authorized under Sec. 4.1 which is within the class of
investments authorized for the particular Investment Fund,
including but not limited to investments through common or
collective trust funds or pooled investment funds maintained
by the Trustee as described in Sec. 4.1.
(c) Income and proceeds on sales of investments of each Investment
Fund shall be reinvested in the same Fund. The Trustee may, in
its discretion, maintain in cash such part of the assets of
each Investment Fund as it shall consider necessary or
desirable for the proper administration of such fund, and may
deposit any uninvested funds with itself or its affiliates
pursuant to Sec. 4.1(i).
-16-
<PAGE> 78
(d) Any income, loss or expense with respect to the investments
held for each Account, and any contributions or distributions
with respect to such Account, shall be separately charged or
credited, as the case may be, to that Account. The Trustee
shall account separately for each Account.
Sec. 4.6 Loans to Participants. The Trustee shall make loans to
Participants on written direction of the Company. Each such direction shall be
complete with respect to the terms of the loan, it being intended that the
Trustee shall have no discretion with respect thereto.
ARTICLE V
CO-TRUSTEES
Sec. 5.1 Co-trustees. With the written consent of the Trustee
(including all persons, corporate or individual, then serving as Trustee if
there be more than one), an additional person or persons may be appointed by the
Company as co-trustee or co-trustees. Before the appointment of any such persons
shall be effective, the Trustee shall be furnished with written evidence
satisfactory to it of the appointment of such person as co-trustee and of such
person's acceptance of the trusteeship. Except as otherwise clearly indicated by
the context, the word "Trustee" when used in this Trust Agreement shall include
and refer to all co-trustees in office at the time.
Sec. 5.2 Title. Except as provided in Sec. 3.3 hereof or in an
agreement entered into pursuant to Sec. 5.3 hereof, if more than one person is
serving as Trustee of the Trust Fund, title to all assets of the Trust Fund
shall vest jointly in all of the co-trustees.
Sec. 5.3 Responsibility With Respect to Co-trustee. If the assets of
the Trust Fund are held by co-trustees, each shall use reasonable care to
prevent a co-trustee from committing a breach of fiduciary responsibility.
Except as otherwise expressly provided in this Trust Agreement co-trustees shall
jointly manage and control the assets of the Trust Fund; provided, however, that
by unanimous agreement the co-trustees may allocate specific responsibilities,
obligations, or duties among themselves. Such allocation may be made with
respect to responsibility for investing the assets of the Trust Fund,
responsibility with respect to custody of the assets of the Trust Fund,
responsibility with respect to disbursement of the Trust Fund, responsibility
with respect to the keeping of records, record maintenance and the preparation
of accountings, and responsibility with respect to the exercise of any of the
powers set forth in Sec. 3.2 hereof. The co-trustees shall give the Company
prompt written notification of any such allocation and of the revocation
thereof.
Sec. 5.4 Exercise of Powers. If co-trustees are acting hereunder, they
shall hold such meetings, upon such notice, at such places, and at such times as
they may determine. A majority of the co-trustees at any time acting shall
constitute a quorum. Except with respect to specific responsibilities,
obligations, or duties allocated pursuant to agreement under Sec. 5.3 hereof,
all actions of the co-trustees shall be taken or authorized at a meeting by vote
of a majority of the co-trustees, or by written authorization of a majority of
the co-trustees. Written minutes of meetings shall be kept. The co-trustees may
authorize any one or more of their number to execute or deliver any receipt or
other instrument on behalf of the Trustee or to perform any ministerial function
of the Trustee hereunder. No co-trustee who at the time is a participant or
beneficiary under the Plan shall vote or otherwise participate in the
consideration or determination of the Trustee with respect to any matters solely
concerning the rights or interests of such co-trustee as participant or
beneficiary.
-17-
<PAGE> 79
Sec. 5.5 Disability of Co-trustee. If any co-trustee acting hereunder
is, in the opinion of the other co-trustee or co-trustees then acting, mentally
or physically incapacitated from performing the duties of the trusteeship, such
other co-trustee or co-trustees shall have full power and authority to exercise
all powers, duties, authorities, and discretions granted the Trustee herein
while such incapacity continues.
Sec. 5.6 Bonding. Any individual appointed as Trustee hereunder shall
give such bond for the faithful performance of duty hereunder as the Company
shall require. The premium therefor shall be paid from the Trust Fund if not
paid directly by the Company, and shall constitute a lien upon the Trust Fund
until paid.
ARTICLE VI
CHANGE IN TRUSTEE
Sec. 6.1 Resignation. The Trustee (or any co-trustee) may resign at any
time by giving thirty days' advance written notice to the Company (and to the
other co-trustees then in office, if any), or such shorter period of time as may
be mutually agreed upon by the Company and the Trustee.
Sec. 6.2 Removal. The Company may remove any Trustee (or any
co-trustee) by giving thirty days' advance written notice to the person being
removed (and to the other co-trustees then in office, if any), or such shorter
period of time as may be mutually agreed upon by the Company and the Trustee.
Sec. 6.3 Successor. In the event of the resignation or removal of a
Trustee, the Company shall promptly appoint a successor; provided that if a
co-trustee is removed no successor need be appointed, and, if one is appointed,
such appointment shall be made pursuant to the provisions of Sec. 5.1 hereof. If
no appointment of a successor is made by the Company within a reasonable time
after resignation or removal of a sole Trustee, any court of competent
jurisdiction may appoint a successor, after such notice, if any, solely to the
Company and the retiring Trustee, as such court may deem proper and suitable.
The retiring sole Trustee shall be furnished with written notice from the
Company or the court, as the case may be, of the appointment of the successor,
and shall also be furnished with written evidence of the successor's acceptance
of the trusteeship. Only then shall the retiring sole Trustee cease to be
Trustee.
Sec. 6.4 Duties on Succession. Every successor Trustee accepting a
trusteeship under this Trust Agreement shall have all the right, title, powers,
duties, exemptions, and limitations of the predecessor Trustee hereunder. No
predecessor Trustee shall have any right, title, or interest in the Trust Fund
except as hereinafter provided in the case of the replacement of a sole Trustee.
If a Trustee being replaced is then the sole Trustee hereunder, such Trustee
shall, upon the appointment and acceptance of a successor Trustee, transfer and
deliver the assets of the Trust Fund to the successor, after reserving such
reasonable amount as it shall deem necessary to provide for its fees and
expenses and any sums chargeable against the Trust Fund for which it may be
liable. Any predecessor Trustee shall do all acts necessary to vest title of
record in the successor Trustee. If any assets in the Trust Fund have been
invested in a common or collective trust fund, the predecessor shall cause such
investment to be liquidated at the earliest practical time after notice has been
given or received by the predecessor of the resignation or removal. No person
becoming a Trustee hereunder shall be in any way liable or responsible for
anything done or omitted to be done by any Trustee prior to such person's
acceptance of the trusteeship, nor shall such person have any duty to examine
the administration of the Trust prior to such acceptance.
Sec. 6.5 Changes in Organization of Trustee. If any corporate trustee
acting hereunder is merged with another corporation or association, or is
succeeded by another corporation or association, through consolidation or
otherwise, the acquiring corporation or association shall thereupon become
Trustee
-18-
<PAGE> 80
hereunder. If any corporate trustee acting hereunder sells and transfers
substantially all of its assets and business to another corporation or
association, the acquiring corporation or association shall thereupon become
Trustee hereunder. When authorized by statute or court order any corporate
trustee acting hereunder may permit itself to be succeeded as such corporate
trustee by another corporation or association in which case the acquiring
corporation or association shall thereupon become Trustee hereunder. In each
case the acquiring corporation or association shall be Trustee of the Trust as
though specifically so named herein. Notwithstanding the foregoing provisions of
this section, an acquiring corporation or association shall become Trustee
hereunder only if it has trust powers and is formed under the laws of the United
States of America or any subdivision thereof.
Sec. 6.6 Assignment of Agreement. No assignment (as defined in the
Investment Advisors Act of 1940) of this Agreement shall be made by the Trustee
without the written consent of the Company; provided, however, that the Trustee
may assign this Agreement to another wholly-owned subsidiary of IDS Financial
Corporation which is organized and chartered as a trust company if the Trustee
first gives the Company forty-five days advance notice and the Company does not
object within the forty-five day period.
ARTICLE VII
MISCELLANEOUS
Sec. 7.1 Benefits May Not Be Assigned or Alienated. Except as otherwise
expressly permitted by the Plan or required by law, the interests of persons
entitled to benefits under the Plan or this Trust Agreement may not in any
manner whatsoever be assigned or alienated, whether voluntarily or
involuntarily, or directly or indirectly.
Sec. 7.2 Incompetent Payee. If in the opinion of the Company a person
to whom the Trustee is directed to make one or more payments is disabled from
caring for his or her affairs because of mental condition, physical condition,
or age, payment due such person may be made to such person's guardian,
conservator, or other legal personal representative upon furnishing the Trustee
with evidence satisfactory to the Trustee of such status. Prior to the
furnishing of such evidence, the Trustee may make payments due the person under
disability, for such person's use and benefit, to any person or institution then
in the opinion of the Trustee caring for or maintaining the person under
disability. The Trustee shall have no liability with respect to payments so
made. The Trustee shall have no duty to make inquiry as to the competence of any
person to whom it is directed to make payment.
Sec. 7.3 Evidence. Evidence required of anyone under this Trust
Agreement may be by certificate, affidavit, document, or other instrument which
the person acting in reliance thereon considers to be pertinent and reliable,
and to be signed, made, or presented by the proper party.
Sec. 7.4 Dealings of Others With Trustee. No person (corporate or
individual) dealing with the Trustee shall be required to see to the application
of any money paid or property delivered to the Trustee or to determine whether
the Trustee is acting pursuant to any authority granted to it under this Trust
Agreement.
Sec. 7.5 Insurance Company Not Party. No insurance company that issues
a contract held by the Trustee shall be construed to be a party to this Trust
Agreement, nor shall it have any responsibility for the validity of this Trust
Agreement. An insurance company to which an application may be submitted by the
Trustee may accept such application and shall have no duty to make any
investigation or inquiry
-19-
<PAGE> 81
regarding the authority of the Trustee to make such application or any amendment
thereto or to inquire as to whether a person on whose life any contract is to be
issued is entitled to such contract under the Plan.
Sec. 7.6 Audits. The Company shall have the right to cause the books,
records, and accounts of the Trustee that relate to the Plan to be examined and
audited by independent auditors designated by the Company at such times as the
Company may determine, and the Trustee shall make such books, records, and
accounts available for such purposes at all reasonable times.
Sec. 7.7 Trustee Warranty Against Conviction. A person accepting
trusteeship hereunder warrants that such person has not been convicted of or
imprisoned for a crime preventing such person under the provisions of the
Employee Retirement Income Security Act from serving as Trustee hereunder.
Sec. 7.8 Successors. The provisions of this Trust Agreement shall be
binding on the Company and its successors. If a successor to the Company or a
purchaser of all or substantially all of the Company's assets elects to continue
the Plan, such successor or purchaser shall be substituted for the Company under
this Trust Agreement.
Sec. 7.9 Waiver of Notice. Any notice required under this Trust
Agreement may be waived by the person entitled thereto.
Sec. 7.10 Headings. Headings at the beginning of articles and sections
are for convenience of reference, shall not be considered a part of this Trust
Agreement, and shall not influence its construction.
Sec. 7.11 Use of Compounds of Word "Here". Use of the words "hereof",
"herein", "hereunder", or similar compounds of the word "here" shall mean and
refer to the entire Trust Agreement unless the context clearly indicates
otherwise.
Sec. 7.12 Construed as a Whole. The provisions of this Trust Agreement
shall be construed as a whole in such manner as to carry out the provisions
thereof and shall not be construed separately without relation to the context.
Sec. 7.13 Counterparts. This Trust Agreement may be executed in any
number of counterparts, each of which shall be deemed an original. Such
counterparts shall constitute but one and the same instrument, which may be
sufficiently evidenced by any one counterpart.
ARTICLE VIII
AMENDMENT AND TERMINATION
Sec. 8.1 No Diversion. The Trust Fund shall be for the exclusive
purpose of providing benefits to participants under the Plan and their
beneficiaries and defraying reasonable expenses of administering the Plan. Such
expenses may include premiums for the bonding of Plan officials required by the
Employee Retirement Income Security Act. No part of the corpus or income of the
Trust Fund may be used for, or diverted to, purposes other than for the
exclusive benefit of employees of the Company or their beneficiaries.
Notwithstanding the foregoing:
(a) If any contribution or portion thereof is made by the Company
by a mistake of fact, the Trustee shall, upon written request
of the Company, return such contribution or portion thereof to
the Company within one year after the payment of the
contribution to the Trustee; however, earnings attributable
to such contribution or portion thereof shall not
-20-
<PAGE> 82
be returned to the Company but shall remain in the Trust Fund,
and the amount returned to the Company shall be reduced by any
losses attributable to such contribution or portion thereof.
(b) Contributions by the Company are conditioned upon initial
qualification of the Plan under Code section 401(a). If the
Plan receives an adverse determination letter from the
Internal Revenue Service with respect to such initial
qualification, the Trustee shall, upon written request of the
Company, return the amount of such contribution to the Company
within one year after the date of denial of qualification of
the Plan. For this purpose, the amount to be so returned shall
be the contributions actually made, adjusted for the
investment experience of, and any expenses chargeable against,
the portion of the Trust Fund attributable to the
contributions actually made.
(c) Contributions by the Company are conditioned upon the
deductibility of each contribution under Code section 404. To
the extent the deduction is disallowed, the Trustee shall
return such contribution to the Company within one year after
the disallowance of the deduction; however, earnings
attributable to such contribution (or disallowed portion
thereof) shall not be returned to the Company but shall remain
in the Trust Fund, and the amount returned to the Company
shall be reduced by any losses attributable to such
contribution (or disallowed portion thereof).
In the case of any such return of contributions, the Company shall cause such
adjustment to be made to the Accounts of Participants as it considers fair and
equitable under the circumstances.
Sec. 8.2 Amendment. Subject to the provisions of Sec. 8.1 hereof, this
Trust Agreement may be amended at any time or from time to time and in any
manner by written agreement of the Trustee and the Company, and the provisions
of any such amendment may be made applicable to the Trust Fund as constituted at
the time of the amendment as well as to the part of the Trust Fund subsequently
acquired.
Sec. 8.3 Termination of Plan. If the Plan is terminated, this Trust
shall nevertheless continue in effect until the Trust Fund has been distributed
in accordance with the provisions of the Plan pursuant to directions under Sec.
3.1(c) hereof.
Sec. 8.4 Transfer to Other Funding Agency. If pursuant to directions
under Sec. 3.1(c) hereof the entire Trust Fund is transferred to a funding
agency for the Plan that is not a Trustee, this Trust shall thereupon terminate.
-21-
<PAGE> 83
IN WITNESS WHEREOF, the Company and Trustee have caused this Trust
Agreement to be executed by their duly authorized officials as of the day and
year first above written.
HUTCHINSON TECHNOLOGY INCORPORATED
By /s/ Wayne M. Fortun
-------------------------------------------
Its President
-------------------------------------------
(Corporate Seal)
And /s/ Jeffrey Green
-------------------------------------------
Its CEO
-------------------------------------------
IDS TRUST COMPANY
By /s/ Felicia A. Palmer
-------------------------------------------
Its Vice President
-------------------------------------------
(Corporate Seal)
And /s/ Jackie Sinjem
-------------------------------------------
Its Benefits Officer
-------------------------------------------
-22-
<PAGE> 84
STATE OF MINNESOTA )
) ss.
COUNTY OF MCLEOD )
On this 4th day of October, 1990, before me personally appeared Jeffrey
Green and Wayne Fortun, to me personally known, who, being each by me duly
sworn, did say that they are respectively, the CEO and President of HUTCHINSON
TECHNOLOGY INCORPORATED, the Company names in the foregoing instrument, and that
said instrument was signed in behalf of said Company pursuant to authority duly
conferred on them by the Company, and they acknowledged said instrument to be
the free act and deed of said Company.
/s/ Arlette E. Anderson
-------------------------------------
(Notary Seal) Notary Public, Meeker County, Minn.
My commission expires Jan. 27, 1996
STATE OF MINNESOTA )
) ss.
COUNTY OF )
-------------------
On this ___ day of _______________, 1990, before me personally appeared
_______________________ and _____________________-, to me personally known, who,
being each by me duly sworn, did say that they are respectively, the
____________________ and ____________________________ of IDS TRUST COMPANY, the
Company names in the foregoing instrument, and that said instrument was signed
in behalf of said Company pursuant to authority duly conferred on them by the
Company, and they acknowledged said instrument to be the free act and deed of
said Company.
---------------------------------------
Notary Public, __________ County, Minn.
My commission expires _________, 19__
This document was drafted by:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
-23-
<PAGE> 1
EXHIBIT 11.1
HUTCHINSON TECHNOLOGY INCORPORATED
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
(In thousands, except per share data)
For the Fiscal Year Ended
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET INCOME (LOSS) $ 17,638 ($48,411) $ 41,909
Plus: interest expense on convertible
subordinated Notes -- -- --
Less: additional profit sharing expense and
tax benefit reduction -- -- --
-------- -------- --------
NET INCOME (LOSS) AVAILABLE
FOR COMMON SHAREHOLDERS $ 17,638 ($48,411) $ 41,909
======== ======== ========
Weighted average common
shares outstanding 22,958 19,709 18,272
-- -- --
Dilutive effect of convertible subordinated Notes
Dilutive effect of stock
options outstanding after
application of treasury
stock method 617 -- 706
-------- -------- --------
23,575 19,709 18,978
======== ======== ========
BASIS NET INCOME (LOSS) PER SHARE $ 0.77 ($ 2.46) $ 2.29
======== ======== ========
DILUTED
NET INCOME (LOSS) PER SHARE $ 0.75 ($ 2.46) $ 2.21
======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
NAME JURISDICTION
---- ------------
<S> <C>
HTI Export Ltd. Barbados
Hutchinson Technology Asia, Inc. Minnesota
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K into the Company's previously filed
Registration Statements, File Nos. 33-26145, 333-50143, 333-70275, 333-09872 and
333-88161.
Minneapolis, Minnesota,
December 20, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS OF
HUTCHINSON TECHNOLOGY INCORPORATED FOR THE FIFTY-TWO WEEKS ENDED SEPTEMBER 26,
1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-26-1999
<PERIOD-START> SEP-28-1998
<PERIOD-END> SEP-26-1999
<CASH> 98820000
<SECURITIES> 139402000
<RECEIVABLES> 72716000
<ALLOWANCES> 6395000
<INVENTORY> 40984000
<CURRENT-ASSETS> 378786000
<PP&E> 620385000
<DEPRECIATION> 267449000
<TOTAL-ASSETS> 751849000
<CURRENT-LIABILITIES> 69339000
<BONDS> 215562000
0
0
<COMMON> 247000
<OTHER-SE> 464712000
<TOTAL-LIABILITY-AND-EQUITY> 751849000
<SALES> 580270000
<TOTAL-REVENUES> 580270000
<CGS> 486604000
<TOTAL-COSTS> 486604000
<OTHER-EXPENSES> 23106000<F1>
<LOSS-PROVISION> 6623000
<INTEREST-EXPENSE> 11067000
<INCOME-PRETAX> 22318000
<INCOME-TAX> 4680000
<INCOME-CONTINUING> 17638000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17638000
<EPS-BASIC> 0.77
<EPS-DILUTED> 0.75
<FN>
<F1>OTHER EXPENSES REFLECT RESEARCH AND DEVELOPMENT EXPENSES.
</FN>
</TABLE>
